India’s Emission Rules: What It Means For Companies
India’s new emission rules mandate 280 firms to cut emissions or buy carbon credits, boosting net-zero goals but posing cost challenges.
The Gist
India's New Emission Regulations
Starting in October, over 280 companies in India must comply with new emission targets or purchase carbon credits to offset their shortfalls.
- The rules apply to sectors like aluminium, cement, and pulp and paper, with potential expansion to others.
- Industry leaders express concerns over compliance costs and uneven playing fields for companies based on their emission levels.
- The initiative aims to bolster India's carbon credit market and support its net-zero goals by 2070.
Starting in October, over 280 companies in India will be required to cut emissions as mandated by the Indian Government, or purchase carbon credits to cover any shortfall. India’s first-ever penalty-linked emission targets are viewed as a positive step by environmentalists, though business leaders anticipate eventual challenges for all.
Presently, the mandate applies to four sectors, with expectations to expand to an additional four or five business segments. On the upside, regulators expect these measures to set India on its net-zero path and stimulate a domestic carbon credit market. The downside is a challenging starting point for greener companies, initial hoarding of credits, and an increasingly difficult and costly process.
What Is the Notification?
Implemented in October, the Greenhouse Gases Emission Intensity Target Rules, 2025, sets individual emission targets for over 280 companies, to be achieved by 2025-26 and 2026-27. It currently covers companies in aluminium, cement, chlor-alkali, pulp and paper, including major conglomerates such as Reliance Industries, Adani Group’s Ambuja Cement, Aditya Birla Group’s UltraTech Cement and Grasim Industries, and Vedanta Group. These targets may soon extend to sectors like fertilisers, iron and steel, petrochemicals, refineries, and textiles. Industry sources expect announcements shortly, with current indications that MSMEs will be excluded.
India’s Net-Zero Ambition
India has committed to reducing the greenhouse gas (GHG) emission intensity of its economy by 33-35% from 2005 levels by 2030, revised in August 2022 to 45%. The country has also pledged to achieve net-zero by 2070. A 2024 United Nations report listed India as one of the six largest emitters of GHG, with a 3.6% increase during the year. While India’s historical emissions are low, its population size and economic growth have accelerated its emissions each year. These new GHG targets aim to set India more firmly on the net-zero path and develop its carbon credit market.
Business Impact
Industry executives highlight concerns over the initial uneven playing field created by the rules. Uniform targets are set based on each company’s 2023-24 baseline emissions. “In the early phase of implementation, companies with higher emission intensity may find compliance easier, as they can reduce emissions by targeting low hanging opportunities that require relatively lower investment. In contrast, companies already operating at lower emission levels having made substantial prior investments in efficiency and abatement will find further reductions increasingly difficult and capital intensive,” notes Arvind Bodhankar, a corporate sustainability veteran and expert. He, however, adds, “Eventually, it will evolve into a level playing field for all.” For many industries – to scale up emission reduction turns into an uphill task, once easier methods – such as use of renewable energy is exhausted to full potential.
Companies notified under the targets must surrender either banked carbon credit certificates or those purchased in the compliance year equivalent to any shortfall. Costs will rise for upgrades or to purchase carbon credits. While executives avoid precise investment totals, reduction costs average $150 per tonne. Another industry executive commented that costs are expected to increase, though it is too early to quantify, and noted that policy shifts around elections could impact outcomes.
Saurabh Trivedi, South Asia Sustainable Finance Specialist at IEEFA, notes that early targets often allow industries to adapt and develop monitoring and trading systems. He anticipates limited initial carbon credit demand, reflecting the accommodating nature of phase one targets.
India’s Carbon Credit Market
The GHG Target Rules, which require credit purchases to compensate for shortfalls, are intended to strengthen India’s carbon credit market. However, industry sources and analysts point to several challenges. Sustainability experts like Bodhankar predict a liquidity crunch in the early years, as companies may bank surplus credits instead of trading them. To support liquidity and facilitate price discovery, the Government may need to introduce additional credits into the market.
IEEFA’s Trivedi draws parallels to previous energy efficiency programs, noting that surplus certificates often resulted from achievable targets. Energy-intensive sectors, including certain cement and aluminium facilities, may still need to acquire credits, while others will bank surpluses. According to S&P Global, India issued 278 million credits in the voluntary carbon market between 2010 and 2022—17% of global supply.
Some executives in the cement sector are optimistic. Ambuja Cements, for example, welcomes the Carbon Credit Trading System, noting new, efficient capacities could generate positive carbon credits and incremental income—potentially ₹200-225 crore as the system matures.
Optimism persists among those advocating for a developed domestic carbon market. Manish Dabkara, CMD of EKI Energy Services and Carbon Market Association of India president, expects robust credit demand as compliance markets expand. Dabkara cautions that aligning baseline and target-setting methodologies is crucial to prevent distortions in market signals and price integrity. Because targets are entity-specific, two facilities in the same sector may have different benchmarks due to technology, efficiency, and fuel mix.
What Lies Ahead
If implemented successfully, the new rules could yield a collective 7-8% emissions reduction among affected companies by 2030. IEEFA’s Subham Shrivastava notes the Government must introduce market stability mechanisms to prevent price crashes or oversupply.
For businesses, future requirements will encourage adoption of advanced emission reduction solutions—such as carbon capture technology, green hydrogen, and cleaner fuels. While the start is promising, significant challenges remain. As Trivedi notes, “Think of it like driving out of a garage: you first need room to maneuver before turning toward your destination.”
