India is set to implement stringent measures to reduce greenhouse gas (GHG) emissions from its most carbon-intensive industries. The environment ministry has drafted new rules mandating specific emission reduction targets for sectors like aluminum, cement, and pulp & paper, with penalties for non-compliance, marking a significant step towards achieving its climate goals.
These new regulations, outlined in a draft notification under the Carbon Credit Trading Scheme 2023, will affect 282 industrial units across the country. Beginning in 2025-26, these entities must meet the specified Greenhouse gas emission intensity (GEI) reduction targets or face financial penalties. The draft notification sets two primary objectives: to help India achieve its climate targets by reducing or removing greenhouse gases, and to encourage the adoption of sustainable technologies in high-emission industries.
The sectors covered include 13 aluminum plants, such as those operated by Vedanta, Hindalco, and Nalco; 186 cement plants from companies like JK Cement, Dalmia Cement, and Shree Cement; 53 pulp & paper plants; and 30 plants utilizing the Chlor-Alkali process. The cement sector, responsible for 5.8% of India's carbon emissions, has the highest number of industries with targets. The government plans to include the fertilizer, iron, steel, petrochemicals, and petroleum refinery sectors in the future.
If companies fail to meet their GEI targets, they will be required to purchase carbon credit certificates from the Indian carbon market to offset their excess emissions. Failure to comply with the GEI targets or submit the required carbon credit certificates will result in penalties imposed by the Central Pollution Control Board (CPCB). The penalty will be twice the average trading price of carbon credit certificates during that compliance year, with the Bureau of Energy Efficiency (BEE) determining the average price and setting GEI targets. Environmental compensation must be paid within 90 days of imposition.
These targets align with India's commitment to achieving net-zero emissions by 2070 and meeting its Nationally Determined Contributions (NDCs) by reducing GEI. The move is also expected to prepare these industries for the European Union's Carbon Border Adjustment Mechanism (CBAM), which will impose a border tax on carbon-intensive goods.
The draft notification has established baseline emissions for each industrial unit, with targets set for two compliance years: 2025-2026 and 2026-2027. The BEE has defined the baseline to include emissions from energy use, processes, and indirect emissions, identifying all possible GHG emission sources within the obligated entities. Companies that reduce emissions beyond their targets can earn credits and sell them in the carbon market, while those struggling to meet targets can purchase these credits.
While these new regulations mark a significant step forward, the power sector, responsible for 39.2% of carbon emissions, is excluded from the list of obligated industries. The Bureau of Energy Efficiency is also managing a national voluntary carbon market and has approved eight different methods for carbon offsetting.
