Written By: Shashank Pandey

The Ministry of Environment, Forest and Climate Change (MoEFCC) has issued two significant notifications under India’s Carbon Credit Trading Scheme (CCTS), marking a substantial expansion of the country’s market-based approach to emissions reduction. The October 2025 notification (G.S.R. 739(E)) established baseline targets for four sectors, while the January 2026 amendment (G.S.R. 25(E)) added four more sectors, creating a comprehensive framework that now covers eight major industrial sectors. This expansion represents a pivotal moment in India’s climate action strategy and warrants careful examination.

A critical analysis of the targets reveals varying levels of ambition across sectors. In the aluminium smelting sub-sector, baseline emission intensities range from 13.88 tCO₂e/tonne (Vedanta Limited, Jharsuguda) to 20.55 tCO₂e/tonne (Hindalco, Renukoot).

The Phased Rollout Strategy

The staggered implementation reveals a deliberate approach to building India’s carbon market infrastructure. The initial October notification covered aluminium, cement, chlor-alkali, and pulp & paper sectors, establishing greenhouse gas emission intensity targets for compliance years 2025-26 and 2026-27. Just three months later, the January amendment incorporated secondary aluminium, petroleum refineries, petrochemicals, and textiles into the scheme.

The petroleum refining sector alone includes 21 obligated entities, from major state-owned enterprises like Indian Oil Corporation and Bharat Petroleum to private players like Reliance Industries.

This phased approach demonstrates regulatory pragmatism. By starting with sectors that have relatively mature emissions monitoring systems and then expanding to more complex industries, the government has allowed time for learning and adjustment. The textile sector, for instance, with its diverse sub-sectors ranging from spinning to fiber production, presents unique measurement challenges that benefit from the operational experience gained from earlier sectors.

Sectoral Coverage and Economic Significance

The expanded scheme now covers industries that form the backbone of India’s industrial economy. The petroleum refining sector alone includes 21 obligated entities, ranging from major state-owned enterprises such as Indian Oil Corporation and Bharat Petroleum to private players such as Reliance Industries. The cement sector encompasses 186 facilities across various sub-categories, including Portland Pozzolana Cement, Ordinary Portland Cement, and grinding units.

Particularly noteworthy is the inclusion of the textile sector, which adds 173 obligated entities spanning spinning, processing, fiber production, and composite operations. This sector’s inclusion is strategically important given India’s position as a major textile exporter and the industry’s significant energy consumption patterns. The emission intensity targets vary dramatically across textile sub-sectors, from 0.1667 tCO₂e/tonne for basic spinning operations to over 13 tCO₂e/tonne for certain processing units, reflecting the heterogeneity of production processes.

Target Stringency and Ambition Levels

A critical analysis of the targets reveals varying levels of ambition across sectors. In the aluminium smelting sub-sector, baseline emission intensities range from 13.88 tCO₂e/tonne (Vedanta Limited, Jharsuguda) to 20.55 tCO₂e/tonne (Hindalco, Renukoot). The 2026-27 targets represent reductions of approximately 4-5% from baseline levels, which appears modest given the sector’s technological advancement potential.

The cement sector shows more aggressive targets in certain categories. For Portland Pozzolana Cement, facilities like JK Cement Muddapur must reduce emissions from 0.4455 to 0.4402 tCO₂e/tonne by 2026-27, while some Ordinary Portland Cement units face reduction requirements exceeding 8%. This disparity suggests that target-setting has been calibrated to account for technological maturity and abatement potential specific to each sub-sector.

The effectiveness of this mechanism will depend heavily on the liquidity and price discovery in India’s nascent carbon market.

Intriguingly, the petroleum refinery sector exhibits highly variable baseline emission intensities, from 4.46 tCO₂e/MBBLS/NRGF (Bharat Petroleum’s Mumbai Refinery) to 9.13 tCO₂e/MBBLS/NRGF (Indian Oil’s Mathura Refinery). These variations likely reflect differences in refinery configuration, crude oil quality, and product slate, highlighting the complexity of establishing equitable targets across diverse facilities.

The Compliance Architecture

The rules establish a robust compliance mechanism with several noteworthy features. Obligated entities must either achieve their emission intensity targets or surrender carbon credit certificates equivalent to the shortfall. This flexibility is crucial as it allows high-performing entities to generate and bank credits while providing a compliance pathway for facilities facing technical or economic constraints.

The environmental compensation provisions add teeth to the scheme. Non-compliant entities face penalties equal to twice the average carbon credit trading price during the compliance year. This creates a strong financial incentive for compliance while establishing a price floor for carbon credits. However, the effectiveness of this mechanism will depend heavily on the liquidity and price discovery in India’s nascent carbon market.

An important technical detail lies in Note 3 of the January notification, which clarifies that 2025-26 targets have been pro-rated for the remaining months (January to March 2026).

The rules explicitly prohibit the use of local Storage or session Storage in artifacts, mandating that obligated entities register on the Indian Carbon Market Framework portal and submit documentation as stipulated. This digital infrastructure requirement suggests that the government is building a transparent, technology-enabled compliance system from the outset.

Temporal Dynamics and the 2025-26 Adjustment

An important technical detail lies in Note 3 of the January notification, which clarifies that 2025-26 targets have been pro-rated for the remaining months (January to March 2026). This adjustment mechanism is significant for entities in the newly covered sectors, as it provides a grace period for establishing monitoring and reporting systems. The 2026-27 targets maintain the same reduction percentage as if entities had been notified for the full 2025-26 financial year, ensuring that late inclusion doesn’t permanently dilute ambition levels.

Data Quality and Baseline Integrity

The scheme’s credibility rests fundamentally on the accuracy of baseline emission intensities calculated for 2023-24. Given India’s historical challenges with industrial emissions data, the robustness of measurement, reporting, and verification (MRV) systems will be critical. The detailed procedure referenced in both notifications (developed by the Bureau of Energy Efficiency) will need rigorous implementation to ensure baseline integrity.

Some outliers in the data raise questions. For instance, in the chlor-alkali sector, baseline intensities range from 0.54 tCO₂e/tonne (Grasim Industries, Karwar) to 3.20 tCO₂e/tonne (Chemplast Sanmar, Veerakkalpudur). While process differences may explain some variation, such wide ranges warrant careful scrutiny to ensure that baselines haven’t been inflated to ease future compliance.

Missing Pieces and Future Expansion

Conspicuously absent from the current scheme are several major emitting sectors, including steel, fertilizers, and power generation. The inclusion of these sectors will be essential for the CCTS to drive meaningful economy-wide emissions reductions. The power sector, in particular, presents both challenges (coal dependency, grid integration of renewables) and opportunities (large-scale renewable energy deployment, battery storage) that would benefit from market-based incentives.

The expansion of India’s Carbon Credit Trading Scheme represents genuine progress in institutionalizing market-based climate policy. The granular, facility-level targets and the flexibility mechanisms create a framework that balances environmental ambition with economic realism. However, several critical factors will determine whether this scheme evolves into a transformative climate policy tool or becomes another compliance exercise.