Policy Update
Saachi Saxena
Background
Climate policy has entered a new phase globally. For nearly three decades, international negotiations primarily focused on setting emission reduction targets. Today, the challenge is no longer limited to defining ambitious goals but to designing credible domestic institutions capable of translating those goals into measurable outcomes. Carbon accounting, emissions reporting, verification mechanisms and market-based incentives are increasingly becoming integral to economic governance and India’s approach to climate policy reflects this evolution.
India’s climate policy challenge is shaped by both the scale of its emissions and its development needs. In 2024, India accounted for 8.2% of global greenhouse gas emissions, with total emissions of 4,371 million tonnes of CO₂ equivalent (PRS Legislative Research, 2026). Yet its per-capita Greenhouse Gas (GHG) emissions were only around 3 tonnes; significantly lower than some of the major economies. India’s share of historical cumulative emissions from 1850 to 2019 was less than 4% of global cumulative carbon dioxide emissions, despite accounting for more than 17% of the world’s population (Press Information Bureau, 2025).
This creates a distinctive policy dilemma: India must continue expanding energy access and industrial capacity while reducing the emissions intensity of that growth. The challenge is particularly acute because 95% of India’s energy supply in 2024–25 was sourced from fossil fuels, including coal, crude oil and natural gas (PRS Legislative Research, 2026).
Recognising this reality, the Government of India has progressively shifted from sector-specific energy efficiency programmes towards a comprehensive carbon market system. Domestically, India’s climate governance has evolved through successive policy innovations. The Perform, Achieve and Trade (PAT) 2012 Scheme, launched under National Mission for Enhanced Energy Efficiency and deriving its legal basis from the Energy Conservation Act, 2001, introduced a market-based mechanism for improving industrial energy efficiency.
While PAT focused on reducing specific energy consumption, it did not directly regulate greenhouse gas emissions. Recognising the need for a broader carbon management framework, Parliament enacted the Energy Conservation (Amendment) Act, 2022, empowering the Government to establish a national carbon market and issue Carbon Credit Certificates. This legislative amendment provided the statutory foundation for the Carbon Credit Trading Scheme (CCTS), 2023, which established both compliance and voluntary carbon market mechanisms.
Operationalising the compliance mechanism of the Carbon Credit Trading Scheme (CCTS), 2023, the rules establish legally enforceable greenhouse gas (GHG) emission intensity targets for carbon-intensive industries, linking industrial performance with India’s broader climate commitments.
Rather than imposing absolute emission caps that could constrain economic expansion, the rules focus on reducing emissions per unit of production. This approach recognises the developmental realities of an emerging economy while encouraging industries to improve efficiency, adopt cleaner technologies and participate in a structured carbon market.
Functioning
The Greenhouse Gases Emission Intensity Target Rules, 2025 provide the operational foundation for India’s compliance-based carbon market. Instead of requiring industries to adopt particular technologies or production methods, the rules follow a performance based approach. This gives obligated entities flexibility to choose the technologies, fuels and operational changes that best suit their circumstances while still meeting the required reductions in greenhouse gas emission intensity. The framework was subsequently expanded through the Greenhouse Gases Emission Intensity Target (Amendment) Rules, 2025, which extended emission-intensity targets to additional entities in petroleum refining, petrochemicals, textiles and secondary aluminium (Press Information Bureau, 2026).
At the centre of the framework is the concept of greenhouse gas emission intensity, measured as tonnes of carbon dioxide equivalent emitted per unit of equivalent product. Unlike an absolute emissions cap, this approach allows emissions to increase or decrease with changes in production while requiring industries to become less emissions intensive over time. The CCTS therefore follows an intensity based baseline and credit approach rather than a conventional cap and trade model. In practice, the amount of emissions an entity is permitted relative to its output is determined by its production level and its prescribed emission-intensity target (International Carbon Action Partnership, 2026).
Each obligated entity is assessed against a baseline based on its FY 2023–24 performance, with targets applying for FY 2025–26 and FY 2026–27. This phased approach gives industries a clearer pathway for improving their performance and allows them time to plan investments in cleaner technologies, improve production processes and make other operational changes needed to meet their targets (International Carbon Action Partnership, 2026).
A strong Measurement, Reporting and Verification (MRV) system is another important part of the framework. Industries are required to measure their greenhouse gas emissions using prescribed methodologies, maintain relevant records and submit their emissions information for verification through accredited carbon verification agencies. This helps ensure that the emissions data used for compliance are reliable and that reported reductions can be independently checked.
The framework also connects emissions performance with Carbon Credit Certificates (CCCs). Entities that perform better than their prescribed targets may receive CCCs, while those that fall short must purchase and surrender certificates corresponding to their shortfall. CCCs can also be banked for future compliance. By combining mandatory targets with the flexibility to trade certificates, the system gives industries an economic incentive to reduce emissions while allowing them to decide how best to achieve the required improvements.
Performance
The Greenhouse Gas Emission Intensity Target Rules, 2025 are in the early stages of implementation. Their immediate significance lies in the institutional architecture they establish. India has moved beyond a framework focused primarily on energy efficiency targets towards a system that measures and verifies greenhouse gas emissions and creates a market based compliance mechanism for energy intensive industries. Under the Carbon Credit Trading Scheme (CCTS), entities that perform better than their prescribed emission-intensity targets can become eligible for Carbon Credit Certificates (CCCs), while entities that fall short are required to purchase and surrender certificates corresponding to their shortfall (Bureau of Energy Efficiency, 2026).
One of the most notable developments has been the rapid expansion of sectoral coverage. The initial notification in October 2025 prescribed greenhouse gas emission intensity targets for 282 obligated entities across the aluminium, cement, chlor-alkali and pulp and paper sectors. In January 2026, the framework was extended to additional entities in petroleum refining, petrochemicals, textiles and secondary aluminium, bringing the total coverage to approximately 490 obligated entities across seven industrial sectors (Press Information Bureau, 2026). As of March 2026, the International Carbon Action Partnership (ICAP) reported that compliance obligations were in force for these seven sectors, while final targets for the remaining two sectors initially identified under the CCTS—iron and steel and fertiliser—were still pending (International Carbon Action Partnership, 2026). The inclusion of iron and steel in the evolving framework is particularly important because it would extend the compliance mechanism to another major energy intensive industrial sector.
Another important development has been the establishment of a Measurement, Reporting and Verification (MRV) framework. Carbon markets are fundamentally information markets. Their credibility depends not merely on ambitious targets but on accurate data regarding emissions, transparent accounting practices and independent verification. The rules require obligated entities to quantify emissions using prescribed methodologies, maintain records and submit verified reports through accredited carbon verification agencies.
The transition also reflects lessons learned from the Perform, Achieve and Trade (PAT) scheme. Introduced in 2012, PAT successfully demonstrated that market based mechanisms could improve industrial energy efficiency while allowing firms flexibility in compliance. However, PAT measured specific energy consumption rather than greenhouse gas emissions. The new model widens the scope of the policy objective because carbon intensity is seen to be the more important measure compared to the simple energy consumption measure in the evolving world economy.
International observers have also viewed the Rules as an important milestone. The International Carbon Action Partnership (ICAP) notes that India has formally entered the implementation phase of its compliance carbon market by notifying sector specific emission intensity targets under the Carbon Credit Trading Scheme.
The emission-intensity targets are back-loaded, with around 40% of the total required reduction from the FY 2023–24 baseline to the final FY 2026–27 target required to be achieved in FY 2025–26, and the remaining 60% in FY 2026–27 (ICAP, 2026). This gives companies some time to adjust their technology and operations to stay on the right track towards improvement.
The framework has also begun developing the digital infrastructure required for a functioning carbon market. On 21 March 2026, the Indian Carbon Market Portal was launched as a central digital platform supporting processes ranging from entity registration to validation, verification and issuance of CCCs. It is also designed to facilitate interaction with international carbon markets under Article 6 of the Paris Agreement.
Impact
The long term importance of the Greenhouse Gas Emission Intensity Target Rules goes beyond environmental regulation. At their core, the rules are about changing the incentives that shape industrial investment, technological innovation and competitiveness.
Industries have so far focused on lowering labour costs, improving energy efficiency and making better use of capital to stay competitive. Carbon emissions are increasingly becoming an economic variable for Indian industry: under the CCTS, firms that exceed their prescribed emission-intensity targets must acquire CCCs to cover their shortfall, while failure to surrender the required certificates can attract environmental compensation. Firms that can produce the same amount of output with fewer emissions may benefit from lower compliance costs, carbon credit revenues and better access to international markets.
From a macroeconomic perspective, the rules reinforce India’s broader objective of green growth. It views the framework to align environmental objectives with industrial modernisation. If carbon pricing develops through transparent and competitive markets, firms will have greater incentives to find the most cost effective ways to reduce emissions.
This approach is particularly important because the cost of reducing emissions varies across industries. Cutting one tonne of emissions may be relatively inexpensive in one sector but much more costly in another, depending on available technologies, fuel use and production processes. The baseline and credit approach allows firms with relatively low cost opportunities to reduce emissions further, while firms facing higher costs can purchase CCCs. ICAP notes that India’s sectoral emissions intensity trajectories take into account sector specific marginal abatement cost curves, along with factors such as improvements in energy efficiency and fuel switching.
As carbon becomes something that can be measured and traded, firms are also likely to take carbon exposure more seriously when making investment decisions. It could increasingly become part of corporate governance and risk management, while financial institutions may consider carbon performance when assessing lending, sustainability linked finance and ESG performance. Over time, a credible domestic carbon market could also help India attract more green finance and climate related investment.
The rules are also closely linked to India’s international climate commitments. India’s updated Nationally Determined Contributions place significant emphasis on reducing emissions intensity while expanding the share of non fossil fuel energy.
There is also an important trade dimension. As carbon related requirements become more common in international markets, Indian exporters will need reliable ways to demonstrate the carbon performance of their products. Strong domestic systems for monitoring, reporting and verification (MRV) can therefore serve a purpose beyond regulatory compliance. They can help Indian firms participate more effectively in global supply chains that are becoming increasingly conscious of their carbon footprint.
Ultimately, the significance of the rules lies in bringing environmental performance into the same economic decisions that have traditionally been driven by cost, productivity and competitiveness. They recognise that environmental sustainability and industrial competitiveness do not have to be opposing goals. With the right incentives, reducing emissions can become part of how Indian industry grows, innovates and competes.
Emerging Issues
However, the success of the framework will depend on how effectively some practical challenges are addressed.
The first challenge is data quality and measurement. A carbon market can only work well when emissions are measured accurately and consistently. This requires reliable monitoring systems, standardised methods of calculation and capable verification agencies. Differences in reporting practices or the use of inconsistent emission factors could weaken confidence in the market.
Another concern is the cost of compliance. Large industrial firms are generally better placed to invest in cleaner technologies and sophisticated monitoring systems. Smaller firms, on the other hand, may struggle with these costs, especially in the early stages of implementation. Without adequate support, the transition could place a heavier burden on smaller businesses.
Market liquidity and price discovery are also important. For the carbon market to influence business decisions, there needs to be enough buying and selling activity and a carbon price that provides a meaningful signal to firms. If trading remains limited, the price may not be strong enough to encourage long-term investment in cleaner technologies. At the same time, if carbon prices rise too quickly and firms have limited affordable options for reducing emissions, compliance costs could become a significant burden.
Institutional coordination will be equally important. The framework involves multiple stakeholders, and its success will depend on them working together effectively. Delays in approvals, unclear responsibilities or gaps in coordination could slow down implementation and create uncertainty for businesses.
Finally, India’s carbon market will need to keep pace with international standards. As global carbon markets and climate related trade requirements evolve, India’s systems for measuring, reporting and verifying emissions will need to become increasingly compatible with internationally accepted practices. This will be particularly important for Indian exporters, who may need to demonstrate the credibility of their emissions reductions to international buyers and regulators. The Indian Carbon Market Portal’s provision for interaction with international carbon markets under Article 6 is a positive step in this direction.
Way Forward
The Greenhouse Gas Emission Intensity Target Rules provide a strong institutional foundation, but their long-term success will depend on continuous policy refinement and implementation capacity.
First, the Government should continue to strengthen the Measurement, Reporting and Verification (MRV) system. Greater use of digital tools, standardised reporting formats and regular training for industries and verification agencies can make emissions data more reliable and consistent.
Second, emission targets need to be predictable and sufficiently long-term. Decarbonising industries often involve large investments that take years to deliver results. Businesses are more likely to invest in cleaner technologies when they have a clear idea of what will be expected from them in the future. ICAP notes that India’s sectoral emissions intensity trajectories extend towards 2030, which provides an important starting point for longer term planning.
The Government should also place greater emphasis on making cleaner technologies easier to adopt. Fiscal incentives, concessional finance, research support and public-private partnerships can help firms invest in low carbon technologies, particularly in sectors where affordable alternatives are still limited.
At the same time, smaller enterprises will need additional support. They may not have the financial or technical capacity of larger firms to manage new reporting and compliance requirements. Simple accounting tools, technical assistance and capacity-building programmes could help reduce these barriers and allow smaller firms to participate more effectively in the carbon market.
Finally, India’s climate policy should be increasingly connected with its broader industrial policy. Improving carbon efficiency should not be seen only as an environmental responsibility. It can also encourage innovation, improve productivity and strengthen India’s position in global markets. Linking the carbon market with initiatives such as the National Green Hydrogen Mission, Production Linked Incentive (PLI) schemes and renewable energy expansion can create stronger incentives for industries to invest in cleaner technologies.
Conclusion
The Greenhouse Gas Emission Intensity Target Rules, 2025 represent an important milestone in the evolution of India’s climate governance. More than a regulatory intervention, they establish the institutional architecture through which carbon becomes a measurable and economically significant variable in industrial decision making.
The rules also reflect a wider shift in how India is approaching the relationship between economic growth and climate action. Rather than viewing climate policy as something that could slow development, the framework focuses on making growth more efficient and less carbon intensive. By connecting emissions reduction with market incentives, technological innovation and industrial competitiveness, it moves away from relying only on direct regulation and towards a system that gives firms greater flexibility in deciding how to reduce emissions.
India’s earlier policy reforms also show that lasting institutional change rarely happens overnight. It usually develops through gradual implementation, learning and adjustment. The phased rollout of the Carbon Credit Trading Scheme reflects this approach. If backed by reliable monitoring, transparent carbon markets and consistent policymaking, the Greenhouse Gas Emission Intensity Target Rules could become an important part of India’s transition towards a lower-carbon, more innovative and globally competitive economy.
References
Bureau of Energy Efficiency. Carbon Credit Trading Scheme (CCTS). https://www.beeindia.gov.in/show_content.php?lang=1&level=1&lid=294&ls_id=189
International Carbon Action Partnership (ICAP). (2026). Compliance obligations under India’s Carbon Credit Trading Scheme enter into force for seven sectors. 30 March 2026.
KPMG India (2026). GHG Emission Targets: Navigating a New Phase of Emission Accounting. https://assets.kpmg.com/content/dam/kpmgsites/in/pdf/2026/01/chapter-1-ghg-emission-targets-navigating-a-new-phase-of-emission-accounting.pdf.coredownload.pdf
Press Information Bureau. (2025)
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2157525&lang=2®=48
Press Information Bureau (2026). Government notifies GHG emission intensity targets for additional sectors under Carbon Credit Trading Scheme. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2217239&lang=1®=3
PRS Legislative Research (2026). Demand for Grants 2026–27: Environment, Forests and Climate Change. https://prsindia.org/budgets/parliament/demand-for-grants-2026-27-analysis-environment-forests-and-climate-change
About the Contributor
Saachi Saxena is an undergraduate student pursuing B.A. (Hons.) Economics at Gargi College, University of Delhi. Her research interests include climate economics, public policy, sustainable development, healthcare economics, and development policy. She has actively contributed to policy research and social impact initiatives and is passionate about evidence-based policymaking for inclusive and resilient development.
Acknowledgements
The author is grateful to IMPRI – Impact and Policy Research Institute for providing the opportunity to prepare this policy update. The author sincerely acknowledges the guidance, valuable feedback, and constructive suggestions received by Sneha Kohli and Ameya Satam during the review process, which significantly strengthened the quality and analytical depth of this article.
Published by – Prisha Sachdeva
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