India's carbon market now sets plant-level targets, and a shortfall left uncovered costs twice what a certificate trades for

From 8 October 2025, the Greenhouse Gases Emission Intensity Target Rules, 2025 have given 282 named plants in aluminium, cement, chlor-alkali and pulp and paper a binding emission intensity target for 2025-26 and 2026-27. An amendment in force from 13 January 2026 added 208 more in secondary aluminium, refining, petrochemicals and textiles. A plant that misses its target has to buy and surrender carbon credit certificates for the gap, and a shortfall left uncovered draws environmental compensation at twice the average traded price.

Where does the obligation come from?

Three layers sit on top of one another, and each comes from a different source of power.

The Energy Conservation (Amendment) Act, 2022 (No. 19 of 2022), which received assent on 19 December 2022, added two powers to the Energy Conservation Act, 2001. Clause (w) of section 14 lets the Central Government specify a carbon credit trading scheme. Section 14AA lets the government, or an agency it authorises, issue a carbon credit certificate to a registered entity that complies with the scheme, and entitles that entity to buy or sell it.

The Ministry of Power used the first power on 28 June 2023, when it notified the Carbon Credit Trading Scheme, 2023 as S.O. 2825(E). An amendment of 19 December 2023, S.O. 5369(E), added an offset mechanism under which entities outside the compliance set can register projects and earn certificates. The Bureau of Energy Efficiency administers the scheme and has published a detailed procedure for the compliance side.

The targets themselves come from the Ministry of Environment, Forest and Climate Change, under sections 3, 6 and 25 of the Environment (Protection) Act, 1986. That choice of parent Act matters. A missed target is treated as an environmental default, enforced by the Central Pollution Control Board, and not as an energy efficiency lapse under the 2001 Act. The basis is in the text: section 26 of the 2001 Act, as substituted in 2022, sets penalties for failures under several clauses of section 14, and clause (w) is not among them.

Which plants carry a target, and for which years?

The principal rules were notified as G.S.R. 739(E) on 8 October 2025, after a draft of 16 April 2025, and came into force on publication. Their Schedule lists each obligated entity by name, address and registration number in four tables: 13 in aluminium, 186 in cement, 30 in chlor-alkali and 53 in pulp and paper. That is 282 plants, counted from the serial numbers in the Schedule.

The amendment, G.S.R. 25(E) of 13 January 2026, renumbered that Schedule as the First Schedule and inserted a Second Schedule: 3 secondary aluminium plants, 21 petroleum refineries, 11 petrochemical units and 173 textile units, or 208 in all. Together the two schedules name 490 plants.

Each row gives four figures: baseline output for 2023-24, baseline emission intensity for 2023-24 in tonnes of carbon dioxide equivalent per tonne of equivalent product, a target for compliance year 2025-26 and a target for compliance year 2026-27. Refinery rows in the Second Schedule are built differently: they carry a fifth column headed NRGF, a factor the gazette does not define, and measure intensity in tonnes of carbon dioxide equivalent per thousand barrels of crude throughput on that factor. In the aluminium table, for example, the first smelter listed has a baseline of 13.8878, a 2025-26 target of 13.7232 and a 2026-27 target of 13.2965, a cut of a little over 4 per cent across the two years. About thirty rows in the First Schedule, and about thirty in the Second, carry no 2025-26 figure at all, and for those the first live year is 2026-27.

The first year is short by design. Note 2 to the First Schedule says the 2025-26 targets were worked out pro rata for September 2025 to March 2026. Note 3, added in January 2026, does the same for the Second Schedule over January to March 2026. The 2026-27 target in each case keeps the reduction percentage the plant would have faced had it been notified for the whole of 2025-26.

The Bureau's procedure frames the targets as annual figures inside a three-year trajectory, revised when the trajectory ends. For the period up to 2026-27, the procedure counts only emissions from fuel burnt in the plant and indirect emissions from electricity and heat brought in from outside. Process emissions, the ones produced by chemistry rather than combustion, come in later.

What exactly does a plant have to do?

Rule 4 lists five duties. The plant must achieve its target in each compliance year, meet it in the manner the scheme and procedure set out, surrender banked or purchased certificates equal to any shortfall, register on the Indian Carbon Market portal, and submit its documents in the prescribed manner.

The procedure attaches dates to those duties. A monitoring plan goes to the Bureau within three months of the start of a compliance cycle. A performance assessment in Form A, verified by an accredited carbon verification agency with its certificate in Form B, is due within three months of the end of the compliance cycle. A long-term action plan to reduce, remove or avoid emissions, with the planned activities for the current year, goes in within three months of the start of the first compliance cycle. The final status of compliance, after verification and trading, is due within nine months of the end of the cycle. For 2025-26, which ended on 31 March 2026, that outer date falls, on that count, on 31 December 2026.

A plant that files nothing does not escape the count. The Explanation to rule 4 says that where documents are not submitted, the shortfall is worked out with the achieved intensity taken as the baseline intensity. In plain terms, a silent plant is treated as having made no improvement at all.

How is a shortfall counted, and what does it cost?

Rule 5 gives two mirror formulas. A plant that beats its target receives certificates equal to the target intensity minus the achieved intensity, multiplied by the units of equivalent product made in that year. A plant that misses its target must buy certificates equal to the achieved intensity minus the target intensity, multiplied by the same output. One certificate is one tonne of carbon dioxide equivalent, as regulation 11(1) of the Central Electricity Regulatory Commission's regulations of 27 February 2026 confirms by reference to the scheme.

If the plant does not comply with rule 4, rule 6(1) has the Board impose environmental compensation for the shortfall equal to "twice of the average price" (rule 6(1)) at which certificates traded in the trading cycle for that year. The Bureau fixes that average price. The plant must be heard before the order. The compensation is payable within 90 days of the order, and a plant that does not pay is exposed to penalty under the Environment (Protection) Act, 1986. The money goes into a separate account used for the scheme.

Illustration only. The plant and every figure below are assumed.
No market price is stated as a fact.

Cement plant, compliance year 2026-27
Baseline intensity, 2023-24                0.6000 tCO2e per tonne
Target intensity, 2025-26                  0.5950 tCO2e per tonne
Target intensity, 2026-27                  0.5850 tCO2e per tonne
Achieved intensity, 2026-27                0.5950 tCO2e per tonne
Equivalent product, 2026-27                1,500,000 tonnes

Shortfall: (0.5950 - 0.5850) x 1,500,000   15,000 certificates
Assumed average traded price               INR 1,000 a certificate
Cost of buying and surrendering            INR 1.5 crore
Compensation if left uncovered             2 x 1,000 x 15,000
                                           = INR 3 crore

Same plant, no documents filed
Achieved intensity taken as baseline       0.6000 tCO2e per tonne
Shortfall: (0.6000 - 0.5850) x 1,500,000   22,500 certificates

Same plant, achieved 0.5750
Certificates issued: (0.5850 - 0.5750)
  x 1,500,000                              15,000 certificates

The arithmetic shows the design. The compensation is not a fine set by discretion. It is a multiple of the market, so it rises and falls with the price of the thing the plant failed to buy, and the record a plant does not file is priced as well.

Where are certificates bought, and does renewable power count?

The Commission's regulations of 27 February 2026 confine dealing in certificates to a power exchange, unless the Commission permits another mode by order. There are two segments: a compliance market for obligated entities and an offset market for everyone else. Trading is monthly unless the Commission approves another periodicity. Grid Controller of India acts as the registry. Prices under the compliance mechanism move between a floor and a forbearance price, both approved by the Commission on a proposal from the Bureau. An entity with more than three cases of over-selling in a quarter is barred from dealing for six months.

Banking follows the procedure. Certificates a plant was issued may be carried forward and either sold or used for later compliance. Certificates a plant bought may be carried forward only for compliance, not resold.

Renewable power is where the scheme meets project contracts. Under the procedure, renewable electricity generated on site, bought through open access, taken under a dedicated power purchase agreement, or bought on a green tariff, counts as an input with zero emissions. Grid power counts at the latest average grid emission factor published by the Central Electricity Authority. Renewable Energy Certificates do not count. The plant has to show, through its contracts, that the power was renewable and that the reduction is not claimed twice by the plant and the generator. For a plant whose indirect emissions are a large share of its intensity, the drafting of the supply contract therefore has a direct effect on the number reported in Form A.

What remains unsettled?

Four things.

The scale of the compensation depends on a price that has to be discovered first. Rule 6 ties it to the average traded price in the trading cycle for the year, determined by the Bureau. Neither the rules nor the Commission's regulations state what happens if a year's cycle produces thin trading or no trades at all, and the regulations leave the floor and forbearance prices to a later approval by the Commission that none of the sources above contains.

Rule 6(1) speaks of compensation for the shortfall at twice the average price. Read with rule 5(3), the natural reading is twice the price for each certificate of shortfall, as in the illustration. The rule does not say so in terms.

The first compliance year began before the rules did. The 2025-26 targets in the First Schedule are pro rata from September 2025, while the rules came into force on 8 October 2025. The rules do not say how output and intensity for the weeks before commencement are to be treated, and that is left to verification under the procedure.

Coverage is still growing. Neither schedule, as amended on 13 January 2026, sets targets for iron and steel or fertiliser. Reports in June 2026 described a draft Third Schedule for iron and steel published for objections; we have not seen its gazette text, and nothing in force covers those plants. Any later schedule will need to be read on its own date and its own pro rata note.