
India's first compliance-based carbon market set to take shape with draft notification
This market, structured under the Carbon Credit Trading Scheme (CCTS) of 2023, seeks to drive industrial adoption of low-carbon technologies and support the country's broader climate goals.
The draft notification outlines Greenhouse Gas Emission Intensity (GEI) Targets for 2025, applying to sectors such as aluminium, cement, chlor-alkali, and pulp and paper. These targets include specific reduction goals for the financial years 2025-26 and 2026-27, aimed at enabling year-wise sectoral decarbonisation.
The government had introduced the CCTS in June 2023 to establish a regulatory framework for carbon credit trading and to facilitate emission reductions in line with India's commitments under international climate agreements.
A total of over 290 entities operating in traditionally high-emission sectors are covered under the draft. A uniform formula has been proposed to calculate and verify emissions, alongside sectoral benchmarking applicable to both integrated operations and standalone units.
The aluminium sector includes companies such as Vedanta, Hindalco, and NALCO, covering sub-sectors like smelters and refineries. In the cement industry, the notification lists UltraTech, ACC, Ambuja, Dalmia, and JSW Cement, producing ordinary Portland and white cement. The pulp and paper industry has also been included, with emphasis on agro-based, integrated, and recycled fibre-based plants.
The chlor-alkali industry, which involves the electrolysis of saltwater to produce chlorine and sodium hydroxide for industrial uses, is also addressed under the draft.
Industry associations have lauded the move, calling it a long-awaited step toward a formal carbon market in the country.
'For the first time, India will have a domestic framework that quantifies emissions across sectors that matter,' said Manish Dabkara, President of the Carbon Markets Association of India and Chairman at EKI Energy Services. 'The notification not only allows for trading credits but also enables companies to reduce in-house emissions, creating space for strategic planning beyond mere compliance,' he added.
The MoEFCC has invited public comments on the draft over a two-month consultation period.
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


Indian Express
a day ago
- Indian Express
Hindustan Zinc pays out as dividend more than it earns, alleges US research firm Viceroy
US-based Viceroy Research has alleged that Hindustan Zinc Ltd (HZL), belonging to the Vedanta group led by Anil Agarwal, has paid out far more in dividends than it earned, purportedly borrowing to make up the shortfall. The research house has estimated a shortfall in free cash flow (FCF) of HZL — once a public sector firm — in the first quarter ended June 2025 to be around Rs 3,600 crore ($371m). 'HZL CFO Sandeep Modi's 'Rs 10,000 crore ($1.17b) free cash flow' claim collapses under scrutiny. Cash flows are subsidized by debt. If HZL's dividend remains the same as last year, we estimate HZL will incur an annual FCF shortfall of at least Rs 5,000 crore ($580m) and must be funded by more debt,' it said. When contacted, HZL spokesperson said. 'the Viceroy report is a combination of selective misinformation and baseless allegations. All resolutions are detailed and part of Board undertakings which are taken to them after rigorous due diligence. In the past 20 years the company's zinc production capacity has grown more than 4 times and silver by 20 times.' 'Hindustan Zinc is steered through a stringent governance framework wherein all matters are taken to the Board and this process is followed for all proposals,' HZL said. Viceroy alleged that HZL has not generated Rs 10,000 crore in FCF since 2023, at which point FCF has fallen sequentially. On an annualized run rate: we expect HZL FCF at Rs 7,000 crore. In FY 23, during a short commodities rally post covid, HZL generated Rs 12,000 crore FCF, and paid Rs 31,000 crore in dividends, accruing an enormous deficit. Leverage increased sharply vs Q1 2024, with the debt-equity ratio rising from 0.8x to 1.2x. FCF represents the amount of cash a business generates after accounting for capital expenditures needed to maintain or expand its asset base. In simpler terms, it's the cash left over after a company pays for its operating expenses and investments in equipment, property, or other assets. Vedanta acquired HZL from the government in 2002. Disclosures suggest HZL incurred Rs 2,000 crore ($232m) of new debt in the June quarter of FY26. HZL's auditor, SR Batliboi, failed to investigate material concerns, relying entirely on management assertions while the company's capital base deteriorated and governance collapsed, Viceroy alleged. HZL spokesperson said it has become the world's largest integrated zinc producer and is amongst the top 5 primary silver producers. 'It has created immense stakeholder value through increase in market cap by more than 500 times, in addition to dividends to shareholders and exchequer contribution. HZL contributes nearly 35 percent of the declared dividend to the government treasury, including dividend to government and tax deducted at source (TDS),' he said. According to HZL, this quarter amidst commodity headwinds the company delivered beyond market expectations and registered record high first quarter mined metal production and lowest cost of production. In FY25, the company clocked its second-best profit, up 33% YoY. Hindustan Zinc's bank facilities and debt programmes are Crisil AAA rated highlighting our efficient & integrated operations, and strong financial risk profile. And this consistent performance reflects the growing trust of our stakeholders, HZL said. The research firm also questioned the brand fees paid out by HZL. In the earnings call, HZL's CEO Arun Misra 'credited offshore brand fees (paid in advance) as justifiable by past 'risks' undertaken by Vedanta as a shareholder of HZL. This is preposterous,' the research firm said. 'HZL CEO Arun Misra's defense of the controversial 3 per cent brand fee, a fee that results in hundreds of crores in annual payments to VRL (Vedanta Resources), was the centrepiece of his narrative during the Q1FY26 Earnings Call,' the US firm said. 'We reiterate our belief that this 'brand fee' is an uncommercial contract with VEDL (Vedanta Ltd), who does not appear to provide any brand, management, or other auxiliary services to HZL. There are no employees or substantial operations at VRL to justify brand fee payments,' Viceroy said. 'Vedanta's shares in HZL bear the same risk as every other equity holder, including the government of India. If anything, it is the non-promoter shareholders that have borne the outsized risk of HZL taking outsized loans to bail out promoters,' it alleged. HZL said 'Vedanta' is a prominent global brand in the natural resources sector and the brand is a registered intellectual property of Vedanta Resources. 'HZL and other group companies use the brand under a brand license/sub-license agreement and pay a Board-approved brand and strategic services fee for its usage. This structure reflects a standard intercompany licensing model used globally by diversified groups and is fully compliant with Indian accounting, tax and governance regulations, and follows internationally accepted practices,' HZL spokesperson said.


Mint
a day ago
- Mint
Businesses must adopt internal carbon pricing before they're forced to
Indian firms are approaching a crucial juncture in their climate journey. For far too long, the cost of carbon has remained an invisible ledger entry, an externality conveniently overlooked in balance sheets and investment decisions. This era of carbon apathy is drawing to a close, as staying in business could soon pivot on internal carbon pricing (ICP), or the practice of assigning a monetary value to greenhouse gas emissions within an organization. A handful of progressive firms, including industrial giants like Tata Steel and Mahindra, alongside IT major Infosys and the consumer products company ITC, have begun incorporating ICP to shape their strategic investments and risk assessments. Also read: India to set up a carbon trading, green bond regulator These prices range from ₹500 to ₹4,000 ($6–$48) per tonne of carbon, which is low compared to global standards, but still represents a forward-looking shift. This foresight is commendable, but for most of India Inc, carbon remains an unacknowledged liability. Globally, ICP is turning into a standard corporate practice. Tech behemoths like Microsoft impose a global carbon fee across their operations, while energy giants such as Shell use a robust price of $100 per tonne in their capital planning. These MNCs understand that the financial repercussions of carbon emissions are no longer hypothetical. They have become pressing risks. In India, the absence of a formal carbon market or mandatory pricing mechanisms has largely kept ICP on the periphery. This is about to change, driven by domestic policy shifts and rising international pressures. The proposed Carbon Credit Trading Scheme, if robustly implemented, will set out emission costs for specific industrial sectors. Through this framework, the government will prod a shift from merely striving for energy efficiency to explicitly valuing greenhouse gas equivalents, thus embedding carbon into the operational fabric of business costs. External forces have made ICP imperative too. The EU's carbon border adjustment mechanism (CBAM), set to be fully operational by January 2026, presents a formidable challenge to Indian exporters. Carbon-intensive sectors in India, particularly steel, aluminium and cement, which have significant trade with the EU, will be directly impacted. CBAM would require detailed reporting on both direct and indirect emissions, coupled with transparency on carbon pricing methodologies, posing substantial compliance hurdles, according to EY India. The financial implications are stark. An ICRA analysis suggests that CBAM could reduce profits from Indian steel exports to the EU by $65-160 per tonne between 2026 and 2036. For local companies, especially exporters, ICP is no longer a strategic choice but an essential tool to mitigate such trade barriers. The benefits of ICP extend beyond compliance. A carbon price, even if used as a shadow figure in financial modelling, serves as a powerful diagnostic tool. It compels firms to uncover systemic inefficiencies and drive innovation towards cleaner processes and resource optimization. Also read: A pragmatic approach to carbon pricing may help against climate barriers More importantly, it future-proofs investments by directing capital towards low-carbon technologies and sustainable infrastructure, reducing long-term exposure to climate-related risks and potential carbon levies. The adoption of ICP sends a clear signal to investors that a company is earnest about managing climate risk. As environmentally sensitive funding gains momentum globally and climate-aligned procurement becomes a standard expectation, Indian businesses that fail to adopt ICP risk being left behind. Only 42 out of 122 Indian companies that disclose emissions were using ICP, according to a 2022 report by the Carbon Disclosure Project; this number needs to rise significantly. The ICP imperative is not confined to large corporate entities. Small and medium enterprises also stand to gain. Simplified forms of ICP, facilitated by pooled accounting tools, digital platforms and guidance from larger companies they deal with, can aid ICP adoption. This transition will take collective effort. The government, financial institutions and industry bodies must champion ICP adoption through clear disclosure norms, targeted fiscal incentives and technical support. Just as the GST became near-universal through digital enablement and compliance incentives, ICP adoption can follow a similar trajectory if we get it right. The financial sector is already taking steps. Over 4,000 MNCs and investors support carbon pricing as part of climate risk management, according to the Task Force on Climate-related Financial Disclosures. Financial institutions such as HDFC Bank and State Bank of India have begun incorporating climate factors into loan assessments, but much more needs to be done to integrate ICP with corporate creditworthiness. Indian firms should not wait for regulation. In a future defined by carbon constraints, pricing emissions internally is not a regulatory burden but a source of competitive advantage. Markets, investors and global buyers are increasingly expecting— and even demanding—this level of environmental accountability. Also read: Why climate policies have been unable to reduce the world's carbon emissions Now that climate risk is fast translating into financial risk, Indian firms cannot afford to be reactive. ICP may seem like a voluntary exercise today, but it will not stay that way for long. The carbon cost of doing business will come to bite, whether through regulation, trade policy or investor demand. The question is whether Indian companies will wait for the bill or start pricing it in today. The author is an independent expert based in New Delhi, Kolkata and Odisha. X: @scurve Instagram: @


Indian Express
2 days ago
- Indian Express
The reform India's power sector needed
In 2015, the Union Ministry of Environment, Forest and Climate Change notified SO2 norms for coal-based thermal power plants. The establishment of flue gas desulphurisation (FGD system) for all 600-odd power plants in the country was made compulsory. The schedule for the implementation of this system was challenging. Most professionals associated with the power sector, technical experts, researchers and policymakers raised valid concerns. Since Indian coal has a low sulphur content, these experts argued that an FGD system was not necessary for most of these plants. The implementation of the system was, however, initiated in several plants. It was estimated that the capital expenditure on FGD in the old and the new plants would tax finance resources and lead to a tariff burden in the order of Rs 0.25 – 0.30 per KWhr. Power generators were worried, but more concerned were the distribution companies and consumers of power, who would have to finally bear the burden of the additional tariff. Apart from the commercial implication in terms of heavy capital expenditure and the financial burden on consumers, the issue in question was also about the technical necessity of the system in view of the very low sulphur content of Indian coal. This needed more research. A study initiated by the Ministry of Power and carried out by IIT Delhi concluded that there was a need for more comprehensive analysis of SO2 emissions and whether FGDs are necessary for all thermal power plants in the country. Niti Aayog initiated a comprehensive study, carried out by NEERI. The researchers studied all aspects of Indian coal and the extent of SO2 emissions vis-à-vis the norm. They prepared a comprehensive report and made recommendations. Their analysis suggests that 'ambient SO2 concentration in all the monitoring stations is well below the prescribed Norms of 80 micrograms per cubic meter. This is even though most of the thermal power plants have not installed FGDs'. They also recommended that, 'there is a need to revisit the stack emission norms for SO2… with the consideration of India's latitudinal position, (being) close to the equator compared to European countries, the US… who have given guidelines for SO2 emission control. India has higher and stronger solar insolation leading to high ground level heating, vertical convection, high mixing height, high ventilation.' The FGD system utilises limestone and water as its main input materials. The mining and transport of limestone to power plants leave a large carbon footprint. The atmospheric lifetime of CO2 is significantly longer than that of SO2. The revised notification does not mandate a complete withdrawal of FGD. It is now based on sound scientific studies and analysis, which have enabled 600-odd power plants of the country to be classified into three categories — those which are close to very large cities, the ones in heavily polluted areas, and others. An analysis of data collected reveals that about 78 per cent of the power plants do not require an FGD system. This means a saving of large capital expenditure, which can now be deployed for creating more power-generation capacities, primarily through the renewable route. The notification has also allayed fears of tariff burden on power consumers. In India's long-term energy transition plan, renewables will play a big role. However, the transition will need to respect energy security considerations. Domestic coal will, therefore, continue to play a meaningful role in the coming few decades. The notification not only provides relief for consumers at large, but also provides clarity on how to plan for domestic coal-based power. The writer is former power secretary, Government of India and president, India Energy Forum