India's ambitious Carbon Credit Trading Scheme (CCTS) aims to curb emissions across major industries, but newly released targets for the nation's second-largest iron and steel sector are facing criticism. A Bengaluru-based think tank, Climate Risk Horizons, argues that these targets are too lenient, making it easy for polluters to avoid significant transformational change.
Weak Targets for Major Polluters
The report, which also evaluates targets for the cement and aluminium sectors, highlights that the required emission intensity reductions are minimal. For instance, top steel and cement companies need to achieve only 2–5% reductions by 2026–27. This modest requirement creates little pressure for substantial technological upgrades or shifts towards greener practices.
Anirudh TR, the report's author, explains that the financial impact of purchasing carbon credits to offset shortfalls is currently small, ranging from 0.6% to 7% of annual profit for large companies. This calculation is based on an initial carbon price of USD 10 per tonne of CO2. For many high-margin polluters, this low cost could make "paying to pollute" a more attractive business strategy than investing in costly emission reduction technologies.
Power Sector Omission and Governance Concerns
A significant omission from the mandatory targets in the current scheme is the power sector, which accounts for approximately 55% of India's total greenhouse gas emissions. While the power sector is included in a voluntary compliance mechanism alongside agriculture, waste handling, forestry, and transport, the report recommends its inclusion in mandatory targets for the scheme to be truly effective.
Beyond the target levels, the report also raises concerns about governance. It points to the existence of parallel and overlapping initiatives, such as the Renewable Consumption Obligation (RCO), which need to be harmonised with the CCTS for clarity and effectiveness. Additionally, the government's dual role as both regulator and operator in many regulated sectors could undermine competitive neutrality within the market.
India's iron and steel industry is the world's second-largest, and its cement sector is also second only to China, contributing about 10% of global output. While India's aluminium sector benefits from 35% output from recycling, primary production remains highly carbon-intensive. For the CCTS to drive meaningful change, the report suggests a re-evaluation of target ambition and a streamlining of its governance framework.