India taps aluminum, cement, chlor-alkali, pulp and paper sectors for first carbon emission cuts

Selected Indian aluminum, cement, chlor-alkali, and pulp and paper facilities must cut their emissions by an average 2%-3% from 2026, as part of India's Carbon Credit Trading Scheme, the government said April 21 in announcing the preliminary reductions.

The Bureau of Energy Efficiency said the four Indian sectors will be the first to help the country meet its goal of net-zero emissions by 2070. The announcement comes almost two years since June 2023, when the CCTS was formulated under India's Energy Conservation Act of 2001 as the country's first-ever domestic carbon market.

"This milestone reflects an intensive, data-driven, and consultative process involving over 15 stakeholder consultations, multiple technical reviews, and several rounds of committee deliberations to ensure the targets are both scientifically robust and practically implementable," BEE Director General Saurabh Diddi said on social media shortly after announcing the targets.

Unlike most cap-and-trade mechanisms in advanced carbon markets such as the EU Emissions Trading System or the Korea ETS, the Indian compliance carbon market is set to be an intensity-based approach, with targets set for individual facilities.

Under this system if facilities fail to meet their designated targets, they will have to buy carbon credit certificates issued by the government to account for shortfall, while those who remain below their baselines can earn the same credits.

Carbon offset market

Other sectors like iron and steel, fertilizers and oil refineries, previously announced as covered under the emissions scheme, will likely be notified in subsequent rollouts, as the BEE had earlier said.

The BEE's also said April 21 that when facilities fail to meet their emissions-cutting obligations or offset their emissions through buying carbon credits, the Central Pollution Control Board shall impose environmental compensation equivalent to twice the average trading price of India's carbon credit certificates during the trading cycle of that compliance unit. The average price will be determined by the BEE.

Along with the compliance carbon market, India also plans to kick off a domestic offset market for carbon credits for which the final list of eight final methodologies was announced in March.

The offset mechanism is the voluntary-based system in the CCTS, which pertains to non-obligated entities in the country and their efforts to lower greenhouse gas emissions.

India is one of the largest suppliers of carbon credits in the existing international voluntary carbon markets, with several project developers in the renewable energy and cookstove segments.

Platts assessed April 21 renewable energy credits at $1/mtCO2e, while those for household devices were assessed at $3.5/mtCO2e. Platts is part of S&P Global Commodity Insights.

The current domestic market scheme, however, will be independent from the global voluntary carbon market, with the government responsible for a separate standard, for verifiers and for methodology authorization.