India’s First Legally Binding Emission Targets: A New Era of Industrial Accountability

In a historic move, the Government of India has unveiled its first legally binding emission intensity targets for major carbon-intensive industries. The new regulation, titled Greenhouse Gases Emission Intensity Target Rules, 2025, brings 282 industrial units under mandatory greenhouse gas reduction norms. This marks a decisive turn in India’s climate policy—transitioning from voluntary pledges and incentive-based mechanisms to enforceable legal commitments.

For decades, India’s industrial climate initiatives revolved around the Perform, Achieve, and Trade (PAT) scheme, which encouraged energy efficiency but stopped short of mandating direct carbon reductions. Now, under these new rules, the government is legally binding companies in sectors such as cement, aluminium, chlor-alkali, and pulp & paper to reduce the emissions they generate per unit of output, thereby embedding environmental responsibility into the very structure of industrial production.

India’s carbon credit trading framework is seen as critical to meeting its nationally determined contribution (NDC) targets under the Paris Agreement, including reducing the emission intensity of GDP by 45 per cent by 2030 from 2005 levels and achieving net zero by 2070. | Photo Credit: iStockphoto | The Hindu BusinessLine

How the New Emission Rules Work

The regulation introduces emission intensity as a key metric—measuring the amount of greenhouse gases emitted per unit of product, rather than total emissions alone. The base year for comparison is 2023–24, with compliance cycles set for 2025–26 and 2026–27. Each company’s target has been tailored based on its past performance and industry benchmarks.

If an industry unit exceeds its reduction target, it will earn carbon credits, which can be sold or traded in India’s emerging carbon market. On the other hand, companies that fail to meet their goals must either buy equivalent credits from others or pay financial penalties. These penalties, termed “environmental compensation,” are set at twice the average price of carbon credits during that compliance period. The Central Pollution Control Board (CPCB) will oversee enforcement, while industries have a 90-day window to settle any penalties.

This structure transforms emissions management into a measurable economic framework, encouraging efficiency, innovation, and accountability through both incentives and consequences.

The Sectors Under the Spotlight

The new rules primarily target four heavy-polluting industries: cement, aluminium, pulp & paper, and chlor-alkali. Together, these sectors represent a significant portion of India’s industrial greenhouse gas emissions. Companies such as Vedanta, Hindalco, UltraTech Cement, Dalmia Bharat, Shree Cement, and JK Cement are among those required to comply.

In the cement sector, for instance, the mandated reduction in emission intensity is approximately 3.4 % over two years. While modest, this serves as a testing ground for a larger and more comprehensive national framework. The aluminium and pulp & paper sectors face even steeper reduction obligations, reflecting their higher baseline emissions and greater potential for decarbonization.

By beginning with these sectors, the government aims to build institutional readiness and technological capacity before expanding to other high-emission areas like steel, petrochemicals, and fertilizers in the coming years.

From Energy Efficiency to Carbon Accountability

This regulatory shift represents a major philosophical change in India’s environmental governance. The earlier PAT scheme, while effective in promoting energy savings, did not directly address carbon dioxide emissions. The Greenhouse Gases Emission Intensity Target Rules, 2025 correct that limitation by establishing a direct legal link between industrial activity and carbon output.

Moreover, the regulation is designed to integrate seamlessly with India’s carbon market mechanism, launched under the Energy Conservation (Amendment) Act of 2022. By coupling emission targets with tradable carbon credits, the system allows businesses to internalize carbon costs and rewards innovation. It is a move from energy efficiency to comprehensive carbon accountability—turning sustainability from an aspiration into a compliance requirement.

Challenges on the Road to Implementation

Despite the policy’s ambitious design, several challenges remain. Many industrial units may lack immediate access to clean technologies or sufficient capital to invest in low-carbon infrastructure. Smaller facilities, in particular, could struggle with the cost of compliance or the volatility of carbon credit prices.

Another major hurdle lies in monitoring and verification. The success of the framework depends on the accuracy of emissions data, and both the CPCB and the Bureau of Energy Efficiency (BEE) will require significant capacity strengthening to ensure transparency and consistency.

There are also concerns of sectoral imbalance—certain industries, such as aluminium, are naturally more carbon-intensive than others. If targets are not calibrated carefully, some sectors could face disproportionate economic strain, potentially affecting competitiveness and production costs. Nonetheless, policymakers argue that this transitional discomfort is necessary to align with India’s long-term decarbonization commitments.

Aligning with Global Carbon Frameworks

India’s decision to legislate industrial emission limits also positions the country strategically on the global stage. With the European Union’s Carbon Border Adjustment Mechanism (CBAM) set to impose carbon tariffs on imports of carbon-intensive goods, Indian exporters—especially in steel, cement, and aluminium—face mounting pressure to decarbonize.

By adopting domestic emission rules, India is not only meeting its Paris Agreement commitments but also equipping its industries to compete internationally under emerging carbon trade regimes. This alignment will be crucial for sustaining export competitiveness in a world where carbon performance increasingly determines market access.

The move further reinforces India’s pledge to reduce the emission intensity of its GDP by 45 % by 2030 compared to 2005 levels, and to achieve net zero by 2070, as announced by Prime Minister Narendra Modi at COP26.

Looking Ahead

The introduction of legally binding emission targets marks the beginning of a transformative decade for India’s industrial sector. Future compliance cycles are expected to feature stricter targets, expanding to additional industries as data collection, market maturity, and technological adoption improve.

Over time, the policy could spur a surge in demand for clean technology, renewable power integration, carbon capture solutions, and process efficiency upgrades. This evolution from voluntary to compulsory emission reduction could redefine how Indian industries measure productivity—not just in tonnes of output, but in tonnes of carbon saved.

The MGMM Outlook

India’s decision to introduce legally binding emission intensity targets marks a defining moment in the nation’s climate and industrial history. Moving away from voluntary measures, the Greenhouse Gases Emission Intensity Target Rules, 2025, establish a system of accountability that turns sustainability into a legal and economic mandate. By focusing on emission intensity rather than just total output, India is embedding responsibility within its industrial framework, ensuring that growth no longer comes at the cost of environmental neglect. This is a significant evolution—from incentivized efficiency to enforceable carbon accountability—that reflects India’s commitment to harmonizing development with ecological duty.

Through this regulation, India signals a readiness to lead by example on the global stage. The policy not only aligns with international climate goals but also prepares Indian industries to adapt to emerging global carbon trade systems like the EU’s CBAM. While implementation challenges—ranging from technology access to data accuracy—will demand careful oversight, the broader vision is unmistakable. India is reshaping its growth model into one where progress is measured not only by production, but by preservation. This decisive step represents the spirit of seva toward the planet—action rooted in responsibility, foresight, and balance.

(Sources: Financial Times, The Hindu BusinessLine, The Indian Express)