On 8 October 2025 India's Ministry of Environment, Forest and Climate Change notified the Greenhouse Gases Emission Intensity Target Rules, 2025. The rules set the country's first legally binding emission reduction targets for industry. They apply to 282 units in four sectors: 186 cement plants, 13 aluminium smelters, 30 chlor-alkali plants and 53 pulp and paper mills. Each unit must reduce its greenhouse gas emissions per tonne of product from a 2023-24 baseline over a compliance period covering 2025-26 and 2026-27. Units that beat their targets earn tradable carbon credit certificates. Those that miss must buy certificates or pay an environmental compensation of twice the average trading price.
This is the operational start of India's Carbon Credit Trading Scheme, enabled by the Energy Conservation (Amendment) Act of 2022. It builds on the Perform, Achieve and Trade scheme, which set energy efficiency targets for industry but not carbon limits. Our view is that the design is sensible for India's circumstances, that the initial targets are modest, and that the scheme's most important near-term function is to give Indian exporters a domestic carbon price they can point to as the European Union's Carbon Border Adjustment Mechanism moves into its definitive phase.
What the rules require
The targets are expressed in tonnes of CO2 equivalent per tonne of product, plant by plant. The Hindu, reporting the notification, gives sector-wide reductions over the two years of roughly 3.4 per cent for cement, 5.8 per cent for aluminium, 7.5 per cent for chlor-alkali and 7.1 per cent for pulp and paper. Plants named in the first compliance cycle include smelters run by Vedanta, Hindalco, Nalco and Balco, and cement plants owned by UltraTech, Dalmia, JK Cement, Shree Cement and ACC.
The Bureau of Energy Efficiency will determine the average trading price. The Central Pollution Control Board will impose and recover penalties, payable within 90 days. The draft rules were published on 16 April and finalised after public comment.
Why intensity and not a cap
An intensity target allows absolute emissions to rise if output rises, provided emissions per tonne fall. For a country whose cement and aluminium demand will grow for decades as infrastructure and housing expand, an absolute cap would either be set so loosely as to be meaningless or so tightly as to constrain growth. India's international commitments are also framed in intensity terms: its updated nationally determined contribution pledges a 45 per cent reduction in the emissions intensity of GDP by 2030 from 2005 levels, alongside net zero by 2070.
Intensity targets have weaknesses. They reward efficiency rather than absolute cuts, and they can be gamed through product definitions and baselines. But they are well suited to a fast-growing economy beginning carbon pricing, and they are the same basic logic China has used in its own national market. The test is whether targets tighten over successive compliance periods.
How demanding are the targets
A 3.4 per cent intensity reduction over two years in cement is modest. Leading Indian cement producers have been lowering intensity through blended cements, waste heat recovery and alternative fuels for years. Many will meet the target with measures already planned. Aluminium, at 5.8 per cent, is harder, because Indian smelters rely heavily on captive coal power and the main route to large intensity reductions is switching electricity supply to renewables. Chlor-alkali and pulp and paper face targets above 7 per cent, which are meaningful but achievable through energy efficiency and fuel switching.
The likely outcome in the first cycle is a market with more supply of certificates than demand from the efficient leaders, and a relatively low clearing price. That is not necessarily a failure. First compliance periods in most carbon markets have been about building monitoring, reporting and verification systems and getting firms used to trading. Price discovery comes later.
The CBAM connection
The Hindu notes that the rules prepare Indian exporters for mechanisms such as the European Union's Carbon Border Adjustment Mechanism, which applies to carbon-intensive imports including cement, steel and aluminium. Under CBAM, importers into the EU must buy certificates reflecting embedded emissions, but can deduct carbon prices effectively paid in the country of origin.
India's aluminium exporters are directly exposed. A domestic carbon price, even a low one, creates a basis for claiming deductions, and plant-level monitoring under the Indian scheme provides verified emissions data that EU importers will need. Over time, Indian authorities will want the domestic price to rise towards levels that keep carbon revenue at home rather than in Brussels. The scheme's design, with plant-level targets and a central registry, makes that possible.
Notably, steel is absent from the first set of targets. It is India's largest industrial emitter and highly exposed to CBAM. Its inclusion in a later notification is the most important next step for the scheme.
Governance risks
Three risks deserve attention. First, the quality of monitoring and verification. Intensity targets depend on accurate measurement of both emissions and output, and the credibility of certificates depends on it. Second, the penalty. Environmental compensation at twice the average trading price links the penalty to the market. If the market price is very low, so is the penalty, and the incentive weakens. A price floor would address that. Third, the interaction with India's offset mechanism, which allows credits from non-obligated entities. If offsets are plentiful and cheap, they can flood the market and depress prices further.
Our position
India's first binding emission intensity targets are a real step. They create a compliance carbon market with plant-level obligations, a registry and penalties, in four heavy industries. The targets are modest, and the first compliance period is likely to produce a surplus of certificates and a low price.
That is acceptable if the scheme is treated as a platform to be tightened rather than a finished instrument. The priorities for the next notification are to add steel, set a price floor or a penalty independent of the market price, and publish a schedule of tightening targets so that firms can plan investment. Done well, the scheme can reduce emissions and keep carbon revenue in India as border carbon taxes spread. Done timidly, it will be a reporting exercise with a price too low to change decisions.