Why India's carbon-market targets for iron and steel industry fall short of action

The carbon emission intensity reductions targets for iron and steel industry launched recently lack ambition and make it easy for emitters to “pay to pollute” instead of driving transformational change, says a Bengaluru-based think tank, Climate Risk Horizons.

The report evaluates the latest targets for the iron and steel, cement, and aluminium sectors. It finds that the required emission intensity reductions under the scheme are so low as to be readily achievable, making it easy for businesses to comply through incremental improvements without driving major technology shifts.

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For instance, top steel and cement companies need to achieve only 2–5% reductions by 2026–27, creating little pressure for real change. India’s iron and steel industry is the world’s second-largest; the cement sector is also second only to China and contributes about 10% of global output. While India's aluminium sector derives 35% of output from recycling, here too primary production remains highly carbon-intensive.

The Centre re-issued a draft notification last month to amend the Greenhouse Gas Emissions Intensity (GEI) Target Rules, 2025. The amendment sets targets for the iron and steel sector to align them under India’s Carbon Credit Trading Scheme (CCTS).

The CCTS creates an overarching framework for the Indian carbon market. Under this, the government has released draft target rules to establish plant-level emission intensity targets for nine major industries.

“The financial impact of buying carbon credits to offset shortfalls is currently small, between 0.6% and 7% of the annual profit for large companies across the aluminium, cement and steel sectors, based on the expected initial carbon price being USD 10/ tonne of CO2. For many high-margin polluters, “paying to pollute” could become a preferred business strategy,” explains Anirudh TR, author of the report.

The power sector, which is India’s single largest emissions source and responsible for about 55% of the total GHG emissions, has been omitted from mandatory targets in the current scheme.

Instead, the sector is part of the voluntary compliance mechanism along with other sectors such as agriculture, waste handling and disposal, forestry and transport. For the scheme to be meaningful, the report recommends that the next iteration include the power sector.

The report also reveals problems with governance that need to be addressed for the scheme to be effective. For example, there are other parallel and overlapping initiatives such as the Renewable Consumption Obligation (RCO that need to be harmonised with the CCTS.)

Additionally, the government is both regulator and operator across many of the sectors being regulated, undermining competitive neutrality.