A critical evaluation of emissions reduction targets set under the country’s carbon market framework has deemed the targets “modest and unambitious” – unlikely to drive changes in operations that would reduce emissions substantially.
Between October 2025 and January 2026 India notified greenhouse gas reduction targets for nine industries. Under the framework, industries can earn carbon credits if they surpass these reduction targets, with each credit signifying an additional tonne of carbon dioxide equivalent reduced per unit of production (emissions intensity). The industries covered include cement, aluminium, iron and steel, paper and pulp, chlor-alkali, petroleum refinery, petrochemical units, fertilisers and textiles.
The evaluation of the targets by Climate Risk Horizons (CRH), a research organisation, finds that in addition to the targets being “readily achievable” over the two-year compliance period, the cost of non-compliance is too low to incentivise the kind of systematic operational changes needed to drastically reduce greenhouse gas emissions.
India is the world’s third largest greenhouse gas emitter, with emissions from industrial processes and product use accounting for approximately 8% of greenhouse gas emissions. In August 2022, the Indian government pledged to reduce its greenhouse gas emissions intensity by 45% by 2030, compared to 2005 levels. It also pledged to reach net-zero emissions by 2070.
According to the CRH analysis, the cost of purchasing credits for major companies in the steel, aluminium and cement sectors is between 0.6% and 7% of profits, assuming credit prices are $10 per tonne of carbon dioxide equivalent, as indicated by S&P Global, which tracks global energy and commodities markets. “For many high-margin polluters, “paying to pollute” could become a preferred business strategy,” said Anirudh T.R., an author of the report, in a statement.
Targets unlikely to drive technological shifts
The analysis covers targets for three industries with global significance: iron and steel, cement and aluminium. India’s iron and steel sector is the world’s second largest, growing at 6.8% annually. Crude steel capacity reached 200 million tonnes in 2024-25, and is targeted to reach 300 million tonnes by 2030.
According to the Climate Risk Horizons analysis, the 255 steel and iron companies obligated to meet targets are required to reduce their emissions intensity by 6% by 2026-2027, achievable through “incremental improvements in process efficiency.”
For the cement sector, the average required reduction in emissions intensity is 1.89% by 2025-26, increasing to 3.22% by 2026-27. Some cement companies were not covered by the targets at all. The aluminium sector, on the other hand, is obligated to make the maximum cuts, with average mandated reductions of 2.3% in 2025-26 and 5.8% in 2026-27.
“The initial targets, especially for steel, cement and aluminium are likely to remain limited to driving improvements through energy efficiency and other relatively low-cost operational measures,” explained Parth Kumar, Programme Manager at the Centre for Science and Environment, who was not involved in the CRH analysis.
The main sources of emissions come from carbon intensive manufacturing processes, like the use of coal-fired blast furnaces in steel making, clinker production in cement making, and electrolysis in aluminium production. Switching to renewable based fuel sources and storage options can eliminate a bulk of carbon emissions from these sources, but requires high investments and technological innovation.
“The upcoming targets need to put out a strong signalling which could shift the decision making in boardrooms regarding the choice of technologies and investment companies make on upcoming capacity, which otherwise will risk locking in years of carbon emissions into the future,” Kumar added.
According to CRH, failing to make these investments and generating credits through low-cost compliance measures risks distorting the carbon market and creating an oversupply of credits. There’s also a risk of duplication as companies are already obligated to meet minimum renewable consumption obligations (RCO), which specify a minimum share of consumption of non-fossil sources.
In the absence of any clarification about how the two systems will interact, emissions reductions achieved through RCO certifications may not be additional, violating a key requirement of the carbon market, the report says.
As a punitive measure, the framework requires non-compliant companies to pay environmental compensation twice the cost of credits owed, but “a downward trend in carbon credit prices may make this compensation minimal,” making it a weak deterrent, the analysis says.
“We recommend forming an independent regulatory framework and referring to international best practice that calls for reserve price floors and stability reserves, which are currently not adequately featured in India’s framework,” Anirudh said, adding, “Big emitters such as the power sector must be included and financial incentives to adopt low-carbon industrial processes must be strengthened for the policy to be truly effective.”
Compared to India, countries like China, Switzerland, New Zealand, and the EU impose a flat penalty per tonne of CO2 equivalent.
Gaps in governance
Apart from pricing, easy compliance and the risk of supplying credits, the CRH analysis also calls for an independent regulatory framework that would remove potential conflicts of interest.
The government must set targets for and regulate its own entities, which could introduce bias in the governance of the carbon trading scheme, according to CRH.
The Steel Authority of India Limited (SAIL) Bokaro plant, for example, is a government owned entity which operates at an emissions intensity of 3.21 tonnes of carbon dioxide equivalent. It is obligated to reduce its emissions intensity to 3.01 tonnes by 2026-27.
“This is still much higher than the baseline emissions intensity of several large privately operated plants. For instance, Tata Steel’s Kalinganagar steel plant, which produces almost the same quantity of crude steel as SAIL’s Bokaro plant, operates at a baseline intensity 2.49 tCO2/tep. This plant needs to achieve a target of 2.37 tCO2/tep by 2026-27,” says the analysis.
“The GHG emission intensity target rules under the scheme make a long overdue start towards a market-based carbon trading system in India. However, to encourage clean technology deployment, subsequent iterations of the scheme need to set increasingly ambitious targets, in a transparent manner, under an independent governance structure,” said Ashish Fernandes, Director of Climate Risk Horizons.
This story was first published in Mongabay India.
Tl;dr: A summary for the busy, the curious, and the done-for-today
India’s greenhouse gas reduction targets under its carbon market are too modest to drive major industrial decarbonisation, allowing companies to meet targets through incremental efficiency gains, says a new analysis.
The report warns that low carbon credit prices and weak penalties could make it cheaper for companies to buy credits than invest in cleaner technologies, risking an oversupply of credits and undermining the market’s effectiveness.
Researchers recommend more ambitious targets in future, stronger carbon pricing safeguards, inclusion of major emitters like the power sector, and an independent regulator to ensure transparent governance and accelerate investment in low-carbon technologies.
