Indian carbon markets: India is taking a decisive step toward industrial decarbonisation with the introduction of a compliance mechanism aimed at curbing greenhouse gas emissions across four of its most energy-intensive sectors. For the first time, the ministry of environment, forest and climate change has proposed binding emission targets for the aluminium, cement, chlor-alkali, and pulp & paper industries under the draft greenhouse gas emission target rules, 2025, framed as part of the carbon credit trading scheme, 2023.
If adopted, the new rules could significantly lower emissions from over 130 industrial units, including major players such as Vedanta, Hindalco, Ambuja Cements, Dalmia Bharat, Nalco, UltraTech, and JSW Cement. The compliance window spans FY26 to FY27, using FY24 as the baseline.
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This proposal marks a pivotal moment in India’s climate policy. It directly aligns with the country’s pledge under the Paris Agreement to reduce the emission intensity of its GDP by 45% from 2005 levels by 2030. The focus on high-emission sectors is central to India’s commitment to its nationally determined contributions and reflects the broader goal of aligning industrial policy with Article 6 of the UN Framework Convention on Climate Change, which promotes market-based approaches to emissions reduction.
What the draft rules propose
The greenhouse gas emission target rules look to reduce industrial emissions through a dual mechanism: mandatory emission intensity targets for companies and the option of offsetting shortfalls through a regulated carbon credit market. These targets will be established by the Bureau of Energy Efficiency and calibrated to each facility’s baseline performance.
For instance, Vedanta’s Smelter-II in Odisha will be required to cut its emission intensity from 13.49 tonnes of CO₂ equivalent (tCO₂e) per tonne of production in FY24 to 12.83 tCO₂e by FY27. Similarly, Nalco’s smelter in Angul must reduce emissions from 17.35 to 16.25 tCO₂e over the same period. Other companies facing compliance mandates include JK Cement in Karnataka, Dalmia Cement in Andhra Pradesh, and DCM Shriram’s chlor-alkali unit in Rajasthan.
Entities that fail to meet their targets must either purchase carbon credit certificates or pay an environmental compensation—set at twice the average carbon credit price for the relevant year—within 90 days to the Central Pollution Control Board.
India’s carbon markets
The 2023 launch of the carbon credit trading scheme laid the groundwork for a national carbon market. The GEI rules take this a step further by making participation mandatory for selected sectors. They also complement the existing perform, achieve and trade (PAT) scheme, which promotes energy efficiency through tradable energy-saving certificates.
By embedding market principles within regulatory compliance, the policy seeks to encourage innovation in clean technologies while building accountability across industries. Experts have welcomed the move, saying it will also enhance India’s credibility in global trade by pushing industrial players toward sustainability benchmarks demanded by international buyers.
The implementation challenge
No policy can succeed without robust implementation. The MoEFCC’s proposal will require stringent monitoring, reporting, and verification systems to ensure transparency and credibility. Enforcement will fall on the Central Pollution Control Board, while the National Steering Committee for the Indian Carbon Market must develop a framework for utilising collected environmental compensation funds effectively.
A 60-day public consultation period has been initiated, allowing stakeholders to provide feedback on the draft rules. The final version will aim to strike a balance between environmental imperatives and industrial feasibility.
Risks and rewards
The success of the GEI rules will depend on the government’s ability to set targets that are ambitious yet achievable. Overly aggressive mandates could backfire, encouraging non-compliance or evasive practices among companies. Equally important is the need to foster a stable, transparent carbon market with reliable pricing signals to drive genuine behavioural change.
Still, the opportunities are substantial. The new rules are expected to stimulate investment in low-emission technologies, positioning India as a leader in climate innovation. Industrial hubs in Odisha and Andhra Pradesh, where many of the targeted facilities are located, could emerge as green technology centres, spurring regional development.
As the global economy accelerates its shift toward sustainable production, India must match ambition with execution. By embedding environmental responsibility into industrial policy, the GEI Target Rules represent a forward-looking move—both for the climate and for India’s economic competitiveness on the world stage.