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India's Carbon Trading Scheme Favors Aluminium Over Cement in Emission Cuts

India's operational Carbon Credit Trading Scheme is set to drive emission reductions, with a new ICRA report indicating aluminium producers are better positioned than cement companies. The analysis projects emission deficits for both sectors, with aluminium facing targets of 13.30-19.55 tCO₂e by FY27. The financial impact of compliance could reach Rs 472-483 crore by FY27 at an assumed carbon price. The scheme incentivizes early action, as companies accelerating emission-intensity cuts will better contain risks and unlock value.

Key Points: India's Carbon Credit Scheme Impact: Aluminium vs Cement

  • Aluminium sector has lower emission intensity targets
  • Cement faces wider deficits by FY27
  • Financial impact could hit 3% of aluminium profits
  • Scheme rewards early decarbonization action
2 min read

India's carbon trading scheme to drive emission cuts, aluminium players better placed

ICRA report analyzes India's carbon trading scheme, finding aluminium producers better placed than cement firms to meet emission targets and reduce financial risks.

"The scheme is already sending a strong economic signal... - Sheetal Sharad, ICRA ESG"

New Delhi, April 22

India's newly operational Carbon Credit Trading Scheme is likely to drive emission reductions, with aluminium producers better placed than cement peers for sustained efficiency gains, a report said on Wednesday.

The report from ICRA ESG Ratings said the scheme will differentiate companies by emission‑intensity trajectories rather than scale.

Emission intensity targets for the aluminium sector range from 13.72-20.27 tonnes of carbon dioxide equivalent (tCO₂e) for FY26 and 13.30-19.55 tonnes for FY27, and normally, cumulative emission deficits could rise from about 0.5 million tCO₂e in FY26 to around 1.4 million tCO₂e in FY27.

Meanwhile, an average emission-intensity reduction CAGR of roughly 1.2 per cent indicates early progress on the decarbonisation pathway.

On average, emission deficits for cement are estimated at roughly 0.5 million tonnes of carbon dioxide equivalent in FY26, widening to roughly 1.3 million tonnes in FY27.

At an assumed carbon price of $10 per tonnes of carbon dioxide equivalent, the financial impact of those deficits is estimated to increase from about Rs 171-174 crore in FY26 to Rs 472-483 crore in FY27, the report said.

The profitability impact for certain aluminium companies could reach up to 3 per cent by FY2027 if emission gaps widen.

The report indicated that an emission intensity reduction of about 1.6 per cent in FY2026 and 5.2 per cent in FY2027 over the FY2024 baseline would enable aluminium producers to meet cumulative targets and limit reliance on carbon credit purchases.

The analysis, covering four primary aluminium companies and ten cement firms, assessed sector-specific emission intensity targets for this fiscal and next against the FY2024 baseline.

The report also highlighted divergence among companies, with larger producers likely to face higher absolute deficits under growth scenarios, while players with improving emission intensity trends are better placed to contain compliance risks or generate surplus credits.

"The scheme is already sending a strong economic signal-companies that accelerate emission‑intensity reductions will be better positioned to contain risks and potentially unlock value as the carbon market matures," said Sheetal Sharad, CRO, ICRA ESG.

Moderate but timely emission‑intensity improvements can significantly reduce exposure, whereas delayed action risks compounding costs as targets tighten, Sharad added.

The ratings agency noted that aluminium producers will need to focus on renewable energy integration, process optimisation and energy efficiency improvements to sustain emission reductions, given the sector's high dependence on power.

- IANS

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Reader Comments

S
Sarah B
Interesting analysis. The financial impact numbers are eye-opening - Rs 472-483 crore potential cost for cement by FY27. This will definitely push companies to invest in cleaner tech. Hope the carbon price assumption of $10 holds.
P
Priya S
As someone from Odisha where many aluminium plants are, this is crucial. The focus on renewable energy integration mentioned in the report is key. These plants are major employers; they need to adapt without hurting jobs. A balanced approach is needed.
R
Rohit P
Good move, but implementation is everything. We have a history of great policies on paper that fail on the ground. The report says it will differentiate by emission-intensity, not scale. I hope this protects smaller players and doesn't just benefit the big corporates.
K
Karthik V
The 1.2% CAGR reduction seems modest, but it's a start. The real test will be sustaining it. As Sharad from ICRA said, delayed action will compound costs. Companies should act now, not wait for the last minute. Timely investment in efficiency will pay off.
M
Michael C
While the intent is good, I'm concerned about the potential for "greenwashing." How will the emission reductions be verified independently? There must be strong, transparent monitoring. Otherwise, it's just another scheme that looks good in reports.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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