India Issues First Legally Binding Emission Targets for Heavy Industries
The Indian government has notified its first legally binding greenhouse gas emission reduction targets for 282 industrial units in carbon-intensive sectors like aluminium, cement, and paper. Under the new rules, these facilities must lower their emission intensity from a 2023-24 baseline over a compliance period starting in 2025-26. The move operationalizes a domestic carbon market where compliant companies can earn tradable credits, while non-compliant ones face penalties, aligning India with its Paris Agreement goals.
Unpacked:
India’s carbon market faces several hurdles, including fragmented registries, volatile credit prices, low domestic demand, and integrity issues like double counting and lack of transparency. Inadequate infrastructure, limited technical expertise, and weak regulatory oversight further complicate implementation. Past experiences with similar schemes (RECs, ESCerts) show risks of price collapse and oversupply, undermining market confidence and effectiveness.
India’s carbon market is starting with a focus on heavy industries, similar to China’s initial phase targeting the power sector. Unlike the EU’s broader, more mature market, India’s scheme is newer and faces challenges with demand and price stability. Both China and India are exploring linkage with international markets under Article 6 of the Paris Agreement, but India’s regulatory and technical capacity is still developing compared to the EU’s established systems.
India has designated the Bureau of Energy Efficiency as the primary regulator, with a National Steering Committee for strategic oversight. The Central Electricity Regulatory Commission monitors transactions to ensure transparency and prevent manipulation. State Designated Agencies handle monitoring and verification. Penalties for non-compliance are set at twice the average carbon credit price, and trading occurs on established platforms like the Indian Energy Exchange, which already manage similar environmental certificate markets.
This policy operationalizes a key market-based tool to help India meet its Paris Agreement targets by reducing industrial emissions. If effectively implemented, it could accelerate the transition to low-carbon industries and enhance India’s credibility in global climate negotiations. However, success depends on overcoming domestic challenges, expanding sectoral coverage, and ensuring alignment with international standards for measurement, reporting, and verification (MRV) to avoid issues like double counting.