- The Indian government has drafted mandatory emissions intensity targets for high-emitting industries to meet, failing which a fine will be levied by the Central Pollution Control Board.
- However, the power sector responsible for 39.2% of carbon emissions, is excluded from the list of obligated industries.
- Meanwhile, the Bureau of Energy Efficiency is also administering a national voluntary carbon market, and has approved eight different methods to offset carbon for use.
The Ministry of Environment, Forests and Climate Change (MoEFCC) has released a draft notification setting emissions intensity targets for high-emitters, a step towards finalising the country’s first compliance-based carbon market, expected to launch in 2026.
The emissions intensity targets are part of a cap-and-trade system that aims to drive down greenhouse gas emissions by limiting the total emissions entering the atmosphere. The notification makes it mandatory for industrial units listed to meet reduced emissions targets. Units that reduce emissions beyond the given target can generate credits and sell them in the carbon market. Units that struggle to meet their targets can purchase these credits to meet their goals.
If industries fail to meet their targets, however, a fine in the form of environmental compensation will be levied by the Central Pollution Control Board (CPCB), the draft notification states. As it stands, 282 industrial units are obligated to meet these new targets, spanning the aluminium, cement, chlor-alkali, and pulp and paper sectors. The cement sector – which accounts for 5.8% of India’s carbon emissions – has the most industries with targets (186).
The government also plans on including the fertiliser, iron, steel, petrochemicals and petroleum refinery sectors at a later stage. Conspicuously missing from the list of obligated industries is the power sector, India’s biggest emitter, responsible for 39.2% of carbon emissions.
“There is a feeling that the power sector should be excluded because it’s a complex sector that is heavily regulated, and imposing targets on it could escalate costs for distributors and even consumers,” said Vaibhav Chaturvedi, Senior Fellow at the Council on Energy, Environment and Water (CEEW). “But this logic doesn’t hold because the power sector is already following other compliances, like obligatorily purchasing renewable energy, without such drastic impacts. Power sector inclusion should come sooner rather than later.”
The draft notification is open to public comments and suggestions till June 15.
Calculating baseline emissions for industries
The draft notification, published on April 16, states two objectives: To help attain India’s climate targets (Nationally Determined Contributions) by removal, reduction, or avoidance of greenhouse gases; and to promote the adoption of sustainable, “cutting-edge” technologies across traditionally high-emission industries. It covers two greenhouse gases: carbon dioxide and perfluorocarbons or PFCs (used in industrial processes like producing semiconductors).
In August 2022, the Indian government pledged to reduce its greenhouse gas emissions intensity by 45% by 2030, compared to 2005 levels. Emissions intensity refers to carbon dioxide emitted per unit of economic output or activity. India has also pledged to reach net-zero emissions by 2070 and is rapidly scaling up renewable sources.
“An intensity-based baseline-and-credit system is particularly suited to economies like India, which are still growing and where absolute emissions may continue to rise in the short term. This system rewards improvements in efficiency rather than penalising growth, making it more equitable for developing countries,” explained Hisham Mundol, India’s chief advisor to the Environmental Defense Fund.
The draft notification has created, for the first time, baseline emissions for each industrial unit covered, with targets set over two compliance years (2025-2026 and 2026-2027). The Bureau of Energy Efficiency (BEE), the body administering the upcoming market, said the baseline covers emissions from energy use as well as emissions from processes and indirect emissions. The baseline was calculated by identifying “all possible GHG emission sources and source streams resulting in emissions within the boundary of obligated entities.”
The two-year compliance period is a very short window for investors to make decisions, said Chaturvedi. “Investors need stability when making decisions, and a longer-term compliance period will allow for more stability and time. Seeking approvals and clearances for new processes is always time consuming,” said Chaturvedi.
In keeping the power sector out, gains from the carbon market could be diminished, a report by the Centre for Science and Environment says. “The Indian carbon market, even if it covers all the industries in the country by 2030, will be covering only 20 to 22 percent of the country’s emissions,” the report says, adding, “Currently, only a few sectors are being considered in the initial cycles, which would cover close to 10 per cent of national GHG emissions. Excluding the power sector, significantly reduces the covered emissions and the possible reductions from them would be marginal.”
Read more: What are carbon markets? [Explainer]
Progress on the voluntary market
Apart from the compliance market, which makes it obligatory for industrial units to meet targets, the BEE is also administering a national voluntary market, in which entities can freely participate by buying and selling carbon credits. As part of this, the BEE has approved eight offset mechanisms, including afforestation projects, green hydrogen production, improving energy efficiency, as well as more technically complex procedures like extracting methane from landfills, livestock, and households.
“Additionality is non-negotiable. A credit must reflect a genuine reduction in emissions that wouldn’t have occurred in a business-as-usual scenario,” said Manish Dabkara, Chairman and Managing Director, EKI Energy Services and President of the Carbon Markets Association of India. “The value of a credit hinges on how accurately the baseline or the “what would have happened otherwise” scenario is established. This involves rigorous methodology, often using standardised tools and conservative assumptions to avoid overestimation. The more robust and transparent this process, the more confidence buyers can have in the credit’s environmental impact,” he said.
Several of these offset mechanisms have been borrowed from the erstwhile Clean Development Mechanism – a global carbon market set up under the Kyoto Protocol, which was phased out in 2024. India was among the world’s largest suppliers of credits under the CDR. However, some projects under it were found to be inflating their true credit value.
“Unlike earlier models, the current offset mechanism places a far greater emphasis on environmental integrity, robust governance, and alignment with national climate goals. The project approval and credit issuance process is far more stringent. The mechanism mandates validation and verification by accredited third-party agencies (such as Academy of Certified Valuators and Analysts or ACVAs) and includes multiple layers of review from subject matter experts to a dedicated Technical Committee, and finally the NSCICM (National Steering Committee for Indian Carbon Market). This structured and transparent process helps prevent the kind of arbitrary or unchecked credit issuance seen in the past,” said Dabkara.
Read more: Transforming Assam’s brick industry from red to green
Banner image: Electricity being generated at Jhajjar power station in Haryana. The power sector is India’s biggest emitter, being responsible for 39.2% of carbon emissions. Image by Vikramdeep Sidhu via Wikimedia Commons (CC BY 2.0).
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