India’s new carbon market will ask very little of the industries it covers. Proposed plant-level emissions intensity targets under the Carbon Credit Trading Scheme (CCTS) require leading steel and cement producers to cut intensity by only 2% to 5% by FY 2026-27, a level achievable through incremental efficiency gains rather than real technological change, according to a report by Bengaluru-based think tank Climate Risk Horizons. With an expected initial carbon price of around $10 per tonne of CO2, buying credits to cover shortfalls would cost large emitters between 0.6% and 7% of annual profit, cheap enough that “paying to pollute could become a preferred business strategy,” the report’s author Anirudh TR warns.
For buyers, project developers, and investors watching the world’s most populous country build a compliance carbon market, the finding sets the terms of the debate: the CCTS as currently designed may generate trading activity without generating much abatement.
What the CCTS Covers, and What It Asks
The CCTS establishes the framework for India’s carbon market, with plant-level emissions intensity targets proposed for nine energy-intensive industries: cement, aluminium, iron and steel, paper and pulp, chlor-alkali, petroleum refining, petrochemicals, fertilisers, and textiles. On June 26, the Ministry of Environment, Forest and Climate Change reissued draft amendments to the Greenhouse Gas Emissions Intensity (GEI) Target Rules, 2025, introducing intensity targets for the iron and steel sector.
Climate Risk Horizons evaluated the latest targets for iron and steel, cement, and aluminium. These are not marginal sectors. India’s iron and steel industry is the second-largest in the world, its cement industry is second only to China and contributes about 10% of global output, and while 35% of aluminium output comes from recycling, primary production remains highly carbon intensive.
The report’s conclusion is that the proposed targets are readily achievable through incremental efficiency improvements, which reduces the incentive for companies to invest in low-carbon technologies. Its recommendation is blunt: targets need to be ratcheted up, in a transparent manner, to push investment toward deeper decarbonization.
A Price Too Low to Bite
The demand side of the market compounds the problem. Compliance filings under the CCTS came due in July 2026 for nearly 490 heavy manufacturing entities, and as regulators finalize exchange rules, corporate India is racing to source domestic offsets. The primary target so far is soil organic carbon, which has spawned a booming network of agtech aggregators enlisting smallholder farmers to build carbon inventory.
That offset rush is happening precisely because compliance is cheap. At an expected initial carbon price of $10 per tonne of CO2, the financial impact of buying credits to offset shortfalls sits between 0.6% and 7% of annual profit for large companies in the aluminium, cement, and steel sectors, according to the report. For many high-margin polluters, purchasing credits beats retrofitting a plant.
Critics cited by Carbon Pulse warn the scheme in its current form is unlikely to deliver major emissions cuts and risks repeating the experience of PAT, the Perform, Achieve and Trade scheme that preceded it as India’s flagship market-based efficiency mechanism. Bloomberg’s reporting reaches a similar conclusion: a weak carbon market may encourage Indian firms to keep polluting.
The Power Sector Hole
The largest gap in the scheme is structural. The power sector, India’s single largest emissions source at about 55% of total greenhouse gas emissions, is omitted from mandatory targets. It sits instead in the voluntary compliance mechanism alongside agriculture, waste handling and disposal, forestry, and transport.
Excluding the sector that accounts for more than half of national emissions caps what the market can deliver regardless of how targets for industry are calibrated. The report recommends that the next iteration of the scheme bring power into the mandatory framework.
Governance Questions Behind the Targets
Beyond stringency, the report flags governance problems that will shape market credibility. Parallel and overlapping initiatives, such as the Renewable Consumption Obligation, need to be harmonized with the CCTS. The government is also both regulator and operator across many of the sectors being regulated, which undermines competitive neutrality.
Climate Risk Horizons recommends an independent regulatory framework and points to international best practice features that India’s framework currently lacks: reserve price floors and stability reserves. Those mechanisms are what prevent the combination of loose targets and cheap credits from collapsing into a nominal market. Ashish Fernandes, director of the think tank, called the GEI target rules “a long overdue start towards a market-based carbon trading system in India,” but stressed that subsequent iterations need increasingly ambitious targets under an independent governance structure.
What It Means for Market Participants
For covered companies, the near-term signal is that compliance will be cheap, but planning should assume targets tighten in later cycles. Firms that treat the first compliance period as a template for the decade risk being caught out by the ratchet the report itself recommends.
For project developers, the immediate opportunity is in domestic offsets, where demand from the roughly 490 obligated entities is already pulling supply toward soil carbon. That carries its own risks: the smallholder aggregation model now expanding raises questions about long-term contracts and benefit sharing that buyers with integrity screens will need to interrogate.
For investors and international buyers, the watch items are the final GEI Target Rules for steel and the remaining sectors, any move to include power in the mandatory scheme, and whether India adopts price floors or stability reserves. Until those design questions are answered, the CCTS looks less like a constraint on Indian emissions and more like a rehearsal for one.
