Introduction
India has significantly tightened its climate policy framework by transitioning its domestic carbon market from a voluntary efficiency regime to a mandatory compliance-linked system. As of early 2026, the Ministry of Environment, Forest and Climate Change has expanded the Carbon Credit Trading Scheme (CCTS) to include four additional high-emitting sectors: secondary aluminium, petroleum refineries, petrochemicals, and textiles.
This expansion brings the total number of industries under the CCTS to eight, covering 208 industrial units subject to legally binding emission intensity targets for the 2025-26 and 2026-27 compliance years. While the move strengthens India's legal architecture for climate action, technical experts express concern regarding the stringency of the targets. Current analysis suggests that "readily achievable" targets may lead to an oversupply of carbon credits, potentially dampening price signals and reducing the overall volume of CO2 mitigation.
Expansion of the Carbon Credit Trading Scheme (CCTS)
The Indian government has formally amended the Greenhouse Gases Emission Intensity Target Rules to broaden the scope of the compliance carbon market. This shift represents a decisive move toward aligning industrial productivity with national climate commitments.
Sectoral Coverage
The CCTS now encompasses eight major industrial sectors. The four newly added sectors join four industries that were integrated into the framework earlier in the year:
Newly Added Sectors (Jan 2026/Oct 2025) | Previously Integrated Sectors |
Secondary Aluminium (recycled scrap) | Primary Aluminium |
Petroleum Refineries | Cement |
Petrochemicals | Chlor-alkali |
Textiles | Paper and Pulp |
Legal and Regulatory Framework
Notification: The amendments, dated January 16, were officially published in the gazette in October 2025.
Mandatory Compliance: A total of 208 industrial units are now legally required to meet specific emission reduction targets.
Future Scope: The government has signaled the eventual inclusion of the iron and fertiliser sectors, though specific intensity targets for these industries have not yet been finalized.
Operational Mechanism: Baseline-and-Credit System
The CCTS operates through an intensity-based 'baseline-and-credit' mechanism designed to reward efficiency while penalizing excess emissions.
Baseline Establishment: Each facility is assigned a baseline greenhouse gas (GHG) emission intensity based on its performance during the 2023-24 fiscal year.
Measurement Units: Performance is measured in tonnes of carbon dioxide equivalent (CO2e) per unit of output.
Target Setting: Lower intensity targets are prescribed for each subsequent compliance year, forcing facilities to reduce the amount of CO2 emitted per unit produced.
Credit Trading:
Incentives: Industrial units that outperform (emit less than) their prescribed targets earn carbon credits.
Marketplace: These credits can be traded on the domestic compliance market.
Non-compliance Penalties: Facilities that fail to meet their obligations must either purchase credits from the market or pay a financial penalty. The penalty is set at twice the average carbon credit price prevailing in that compliance year.
Critical Analysis and Industry Concerns
While the expansion of the CCTS is a landmark step in India’s climate policy, the current framework faces scrutiny regarding its level of ambition and its potential impact on carbon pricing.
The "Ambition Gap"
A report by the Council on Energy, Environment and Water (CEEW) suggests that the delay in finalizing these targets has resulted in a missed opportunity for climate gains. Key findings include:
Lost Mitigation: A more stringent framework could have achieved an additional 2.8 metric tonnes of CO2 reduction by 2027.
Achievability Concerns: Experts argue that targets for many industries, including aluminium, iron, steel, and cement—which account for 70% of covered emissions—appear too easy to reach.
Market Risks
The primary concern among climate policy experts is the risk of a "flooded" market. If targets are set too low:
An oversupply of carbon credits may be generated as most units easily meet their goals.
This oversupply would likely crash the price of credits.
Low prices diminish the financial incentive for industries to invest in deep decarbonization technologies, potentially leading to "compliance on paper" rather than real-world emission reductions.
Conclusion
The expansion of the compliance carbon market marks a critical evolution in India's industrial policy. By imposing legally enforceable limits and linking non-compliance to substantial financial penalties, the government has created a foundational structure for domestic decarbonization. However, the long-term effectiveness of the CCTS remains contingent upon the government's ability to calibrate future targets with greater stringency and ensure that carbon prices remain robust enough to drive genuine technological change.