As COP 30 reiterates the imperatives of deepening climate action with thrusts on market modalities such as carbon markets, India’s strategic move in this direction has attracted global attention. The planned launch of the Indian Carbon Market (ICM) marks one of the most transformative climate action steps in the country. With the declaration of the Greenhouse Gas Emission Intensity (GEI) targets, industries are poised to experience a new era of measurability, accountability, and opportunity, which could redefine India’s industrial competitiveness in a carbon-constrained world.
The GEI targets, forming the backbone of the ICM design element, aim at realising India’s Nationally Determined Contribution (NDC) commitment, a 45 per cent reduction in the emission intensity of GDP by 2030 from 2005 levels. Each participating sector and enterprise has received a specific GEI benchmark, creating an obligation to reduce carbon intensity over time. Surplus reductions can be traded as carbon credits, while shortfalls can be met through market purchases or, where necessary, settled through the prescribed buy-out prices, failing which the entities may face penalties, thereby internalising the cost of carbon inefficiency.
The GEI targets under the ICM officially cover four sectors in its initial phase, encompassing 282 obligated entities across India. These cover aluminium (13) sites, cement (186) sites, chlor-alkali (30) sites, and pulp and paper (53) sites. This first phase reflects the government’s calibrated approach, starting with sectors that already have experience under India’s PAT (perform, achieve, and trade) scheme and possess measurable emission baselines. The baseline year has been set as FY 2023-24, with the compliance period covering FY 2025-26 and FY 2026-27. For FY 2025-26, the targets are pro-rata from September 2025 to March 2026, followed by a full-year reduction trajectory in FY 2026-27.
The Bureau of Energy Efficiency (BEE) has defined consistent reduction paths across these years to ensure progressive decarbonisation within each sector. This sectoral selection is not arbitrary; it reflects a deliberate strategic choice to anchor the industries with high emission intensity, strong data availability, and proven readiness. By prioritising cement and aluminium, which together account for a major share of industrial emissions and face rising pressure from global competition, and balancing them with mature sectors like paper and chlor-alkali, the government ensures that the market launches with both credibility and liquidity. This mix allows India to test the mechanism in controlled yet impactful sectors, setting the foundation for expanding the carbon credit trading scheme (CCTS) coverage to hard-to-abate industries in subsequent phases.
While the cement sector, covering 186 obligated units, represents the largest share of entities under the first compliance cycle, the emphasis is on the industry’s high process emissions from clinkerisation, aiming at reducing clinker-to-cement ratios, adopting blended cements, increasing the use of alternative fuels, and integrating carbon capture and utilisation (CCU). Aluminium (smelters and refineries), comprising 13 obligated sites, is required to increase renewable power sourcing, reduce specific electricity consumption, and improve process efficiencies.
The focus on chlor-alkali with a coverage of 30 facilities is aimed at transitioning away from mercury- and diaphragm-based processes to membrane technologies, adopting waste heat recovery, and improving electrolytic cell efficiency. Bringing 53 units in the pulp and paper industry under the GEI targets signals intent to broaden carbon accountability to medium-sized industries. It emphasises energy-efficient boilers, biomass fuel substitution, pulp yield optimisation, and wastewater energy recovery systems.
Together, these four sectors account for a significant portion of India’s industrial energy use and emissions intensity. The coverage signals a move towards border carbon adjustment (BCA) readiness, with standardised measurement, reporting, and verification (MRV) systems, sectoral emission baselines, and verified data.
A trade imperative
The ICM will have a critical role to play in BCA preparedness. The European Union’s Carbon Border Adjustment Mechanism (EU-CBAM), which is now entering its transitional reporting phase, requires importers of cement, electricity, fertilisers, iron and steel, aluminium, and hydrogen to declare embedded emissions and, from 2026, pay a carbon price in line with the EU Emissions Trading System (ETS). Without a domestic carbon pricing mechanism, Indian exporters risk paying this levy abroad, effectively outsourcing their decarbonisation costs. A robust ICM, supported by credible MRV systems and GEI targets, enables India to demonstrate equivalent domestic carbon pricing, strengthening the case for CBAM exemptions and mutual recognition in the future. Moreover, data generated through the ICM will help industries build emission transparency, develop product-level carbon footprints, and establish a verification infrastructure that aligns with EU and international standards. This institutional readiness can turn potential trade disadvantages into strategic advantages.
The vision of an integrated carbon market will face hurdles – from data and MRV capacity to inter-agency coordination and fair-price discovery. Ensuring equitable participation of MSMEs and maintaining environmental integrity will be critical. However, if implemented with transparency and digital innovation, the ICM can become a benchmark for developing economies, demonstrating how technology, market instruments, and policy alignment can drive climate action at scale. With blockchain ensuring integrity, GEI targets guiding industry performance, and CBAM shaping export competitiveness, India stands at the cusp of a low-carbon industrial revolution. The challenge now lies in translating policy into practice and in doing so, defining the global narrative of credible, equitable, and technology-driven decarbonisation.
(Shubhi is the founder of Parijata Earth Foundation and a sustainability expert; Gopal is an associate professor and Head, Department of Policy and Management Studies, TERI School of Advanced Studies)
(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)