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For the first time, an Indian cement or aluminium plant will soon be able to look up the price of a tonne of carbon dioxide the way it looks up the price of power or petcoke. That is the practical meaning of what is about to happen in India’s carbon market, and it is a big shift in industrial regulation.
It is also widely misunderstood.
Most reporting describes the scheme as India’s version of the European Union’s emissions trading system. It is not, and the difference matters enormously for what the market can and cannot deliver.
What is actually starting
The compliance mechanism of the Carbon Credit Trading Scheme, notified under the Energy Conservation (Amendment) Act, 2022, now covers 490 large plants. Targets were notified in two batches. The first, in October 2025, covered 282 units in aluminium, cement, chlor-alkali and pulp and paper. The second, issued on 13 January 2026, brought in 208 more across petroleum refineries, petrochemicals, textiles and secondary aluminium. Each covered plant has legally binding emission intensity targets for the compliance years 2025-26 and 2026-27, measured against a 2023-24 baseline.
Under the Bureau of Energy Efficiency’s compliance procedure, obligated entities submit third-party verified emissions data for each compliance year by the end of July that follows it, which made 31 July 2026 the first real deadline of the scheme. The trading rules are also in place: the Central Electricity Regulatory Commission notified regulations providing that certificates will be dealt with only through registered power exchanges, with the Grid Controller of India running the registry and the Bureau of Energy Efficiency acting as administrator.
The start date has moved more than once. The Power Minister said at the Prakriti conference in March 2026, where the Indian Carbon Market portal was launched, that trading would begin within four months. That has passed. The market regulator has since indicated a start by October 2026. We have to treat any specific date as provisional until certificates are actually issued.
Coverage is still expanding. Iron and steel, India’s largest industrial emitter, was left out of the January notification, and MoEFCC issued a revised draft on 26 June 2026 covering 255 units with combined baseline emissions of 358.6 million tonnes of carbon dioxide equivalent. That draft skips the 2025-26 compliance year entirely and starts obligations in 2026-27, with a 60-day objection window. Once iron and steel and fertiliser are finalised, the scheme is set to cover around 740 entities and more than 700 million tonnes of carbon dioxide equivalent, placing India among the world’s largest emissions trading systems by coverage.
The design choice: intensity, not a cap
Here is the part that goes missing in almost every account. The European system that Indian coverage is routinely compared with works by setting a hard ceiling on total emissions and shrinking it each year. India’s scheme does something different, and the difference was flagged from the start: unlike cap-and-trade systems such as the EU or Korean schemes, India’s market is intensity based, with targets set for individual facilities.
Each plant is assigned a greenhouse gas emission intensity target expressed as tonnes of carbon dioxide equivalent per unit of output. Beat your target and you earn tradable Carbon Credit Certificates. Fall short and you must buy certificates or pay environmental compensation set at twice the average certificate price, enforced by the pollution control boards.
Because every limit is tied to production, the total allowed emissions figure is not fixed. The International Carbon Action Partnership’s factsheet on the Indian scheme states this plainly: the overall emissions limit changes as a function of output, and the bottom-up limits assigned to individual plants do not represent an absolute cap.
In other words, there is no ceiling. There is a rule about efficiency.
What that looks like in numbers
Take a cement plant that emitted 0.72 tonnes of carbon dioxide equivalent per tonne of cement in the baseline year and is set a target of 0.70. Suppose it invests in waste heat recovery and alternative fuels and gets down to 0.69. It has beaten its target, it earns certificates, and it can sell them to a competitor that missed.
Now add the part that rarely appears alongside the compliance story. If that plant also expanded output from one million tonnes of cement a year to 1.15 million tonnes, its absolute emissions went from about 720,000 tonnes of carbon dioxide equivalent to about 793,500 tonnes. Emissions rose by roughly 10 percent. The plant is not only compliant, it is a net seller of carbon credits.
Production is built into the reward as well as the obligation. Under BEE’s procedure, the number of certificates issued is the gap between the target intensity and the achieved intensity, multiplied by the units produced in the compliance year. A larger plant earns more certificates than a smaller one for exactly the same efficiency improvement.
Scale that logic across cement, steel, refining and aluminium in an economy where all four are growing, and it is entirely possible for India’s covered industrial emissions to rise year after year while essentially every obligated entity meets its legal target. Nothing in that outcome would be a failure of the scheme. It is the scheme working as designed.
Why India built it this way
The design is deliberate, and there is a real case for it. India’s own climate pledge is framed the same way: the country has committed to cutting the emissions intensity of its GDP rather than its absolute emissions, targeting a 45 percent reduction by 2030 against 2005 levels, and the Union Cabinet approved an updated pledge in March 2026 that raises this to 47 percent by 2035. An intensity-based market is the industrial expression of an intensity-based national target.
The scheme also inherits the architecture of the Perform, Achieve and Trade programme, which regulated the same plants on energy efficiency for over a decade using output-based benchmarks. And for a country whose per-capita emissions remain far below the global average and whose cement and steel demand is still climbing, an absolute cap would function as a cap on industrial growth, which no Indian government has been willing to accept.
There is also a genuine efficiency case. Indian steel emitted an average of 2.54 tonnes of carbon dioxide per tonne of crude steel in 2023-24 against a global average of about 1.9, according to an analysis of the draft targets. Closing that gap matters, and a benchmark system is a reasonable way to pursue it.
The honest way to describe the result is that India has built an efficiency market and called it a carbon market. It will reward the cleaner producer within each sector. It will not, by itself, bend the emissions curve down.
Four claims to read carefully
“India has capped industrial emissions.” It has not. The scheme sets intensity benchmarks, and the aggregate limit floats with production.
“The market covers 700 million tonnes.” That is a coverage figure describing emissions inside the system’s boundary, not a ceiling on them.
“Company X met its carbon target, so its emissions fell.” Not necessarily, and not verifiably from the target alone. Meeting an intensity target says the firm got cleaner per tonne of product. Absolute emissions depend on how much it produced.
“We bought Indian carbon credits to offset our emissions.” The scheme has two separate pillars. Certificates generated by the voluntary offset mechanism cannot currently be used to meet compliance obligations, and conflating the two is the most common error in Indian corporate sustainability communication.
What to watch after trading opens
Three things will tell you whether this market has teeth. The first is ambition. The Council on Energy, Environment and Water found that delays in notifying final targets led to a pro-rata recalibration that left them less stringent than the drafts, cutting the emissions reduction potential by about 2.8 million tonnes of carbon dioxide equivalent by 2027, and that most of the abatement needed for compliance in cement, aluminium and steel is available at low or even negative cost. In other words, firms can largely comply through measures that save them money anyway. Analysts have similarly noted that leading steel and cement companies need reductions of only about 2 to 5 percent by 2026-27. Soft targets across a whole sector produce a glut of certificates, and a glut produces a price too low to change any investment decision.
The second is scope. Coal-fired power generation, India’s single largest source of emissions, is not in the first phase. The government has signalled it may be added later. Until it is, the market leaves the biggest lever untouched.
The third is whether the trajectory tightens. Targets are meant to ratchet through 2030. An intensity system with steeply falling benchmarks and expanding coverage can eventually deliver absolute reductions. One with gentle benchmarks simply makes growth marginally cleaner than it would otherwise have been.
The bottom line
India is about to run one of the largest carbon markets in the world by coverage, and it will almost certainly be reported as the moment India put a price on carbon. That is true. What will be left out is that the price attaches to a target for efficiency, not to a limit on emissions. Both facts need to travel together, because a country can hit every target in this scheme and still emit more each year than the last.
References
Bureau of Energy Efficiency, “Carbon Market”
International Carbon Action Partnership, “Indian Carbon Credit Trading Scheme” (ETS factsheet)
Mercom India, “CERC issues rules to operationalize carbon credit trading on power exchanges”
Carbon Pulse, “India to begin trading compliance carbon credits by Oct. 2026”
Down To Earth, “India sets first-ever GHG emission intensity targets under CCTS”
Business Today, “Why India’s carbon market targets for iron and steel industry fall short of action”
Grantham Research Institute, LSE, “What does the CCTS mean for the Indian steel sector?” (PDF)
Banner Image: Photo by sheikh sohel on Unsplash
Sections of this article may have been developed with the assistance of artificial intelligence tools to support research, drafting, and language refinement. All information has been reviewed, edited, and verified by the author/editor to ensure accuracy, context, and editorial integrity. The responsibility for the final content, interpretations, and conclusions rests solely with the publisher.
