Ministry of Environment, Forest and Climate Change (MoEFCC) issues draft notification to establish India’s first compliance-based domestic carbon market

Posted On - 15 May, 2025 • By - King Stubb & Kasiva

Introduction

The Ministry of Environment, Forest and Climate Change (MoEFCC) has taken a landmark step toward advancing India’s climate commitments by issuing a draft notification to establish the country’s first compliance-based domestic carbon market.[1] Published in the Gazette of India on April 17, 2025, this endeavour conforms with the Carbon Credit Trading Scheme, 2023, informed under the Energy Conservation Act, 2001, and the Environment (Protection) Act, 1986. Under the Paris Agreement, the framework seeks to institutionalize a market-driven mechanism to lower greenhouse gas (GHG) emissions intensity across sectors, so promoting sustainable development and supporting India’s Nationally Determined Contributions (NDCs).

Explanation (Key Points)

1. Regulatory Framework and Objectives

  • The draft notification leverages the Energy Conservation Act, 2001, and the Environment (Protection) Act, 1986 to mandate GHG emission intensity (GEI) targets for industries.
  • Primary Goals: Reduce India’s GHG emissions through measurable GEI targets.
    Promote adoption of low-carbon technologies in high-emission sectors like aluminum, cement, and chemicals.
    Align industrial growth with climate resilience.

2. Greenhouse Gas Emission Intensity (GEI) Targets

  • GEI is defined as emissions per unit of output (tCO₂e/equivalent product). Sector-specific targets are set for compliance years 2025–26 and 2026–27, with trajectories based on 2023–24 baseline data.
  • Example: The aluminum sector’s GEI targets range from 12.8 tCO₂e/tonne (Vedanta Limited) to 19.3 tCO₂e/tonne (Hindalco Industries). Cement plants must reduce GEI to as low as 0.3 tCO₂e/tonne (Ultratech’s Rawan unit).

3. Compliance Mechanism for Industries

  • Obligated entities (industries) must: Achieve GEI targets through operational efficiency or technological upgrades.
    Purchase carbon credits from the Indian Carbon Market (ICM) if targets are missed.
    Submit compliance documents via the ICM Portal within stipulated timelines.
  • Banking of Credits: Surplus carbon credits can be banked for future use or traded.

4. Carbon Credit Issuance and Trading

  • The Bureau of Energy Efficiency (BEE) issues carbon credits based on the formula:
  • (GEI Target – GEI Achieved) × Production Output.
  • Entities failing to meet targets must buy credits equivalent to their shortfall.

5. Environmental Penalties

  • Non-compliance triggers environmental compensation equal to twice the average trading price of carbon credits during the compliance cycle.
  • Penalties must be paid within 90 days and are channelled into a dedicated fund for climate initiatives.

6. Sectoral Coverage

  • Detailed targets are specified for aluminum smelters, cement plants, chlor-alkali units, and others. For instance:

Cement: Over 120 plants, including Ultratech, ACC, and Dalmia Cement, must reduce GEI by 3–10% by 2026–27.
Aluminum: Vedanta’s Jharsuguda unit must cut GEI from 13.49 to 12.83 tCO₂e/tonne.

Conclusion

From voluntary actions to a legally binding carbon market, the draft notification represents a radical change in India’s climate policy. Instituting emissions trading helps the system to guarantee responsibility and encourage businesses to innovate. This project not only helps India’s standing in world climate diplomacy but also strikes a compromise between environmental sustainability and economic development. Stakeholders have 60 days to provide comments, so stressing the government’s cooperative approach. If carried out successfully, this carbon market could be a model for developing nations, hastening the worldwide change to net-zero emissions.
 

[1] https://moef.gov.in/storage/tender/1745395105.pdf