THE CONTEXT: The Ministry of Environment, Forest and Climate Change (MoEFCC) notified the Draft Greenhouse Gases Emissions Intensity (GEI) Target Rules, 2025, introducing sector-specific emissions reduction targets for 282 industrial units across aluminium, cement, pulp & paper, and chlor-alkali sectors. This move operationalizes India’s Carbon Credit Trading Scheme, 2023, aligning with its Paris Agreement commitment to cut emissions intensity of GDP by 45% by 2030 (compared to 2005 levels).
EVOLUTION OF MARKET INSTRUMENTS IN INDIA
-
- PAT Scheme (2012-25): 1,196 Designated Consumers across 13 sectors; >24 MTOE energy saved and ≈105 Mt CO₂ avoided in first five cycles, but plagued by ESCert oversupply and weak penalties.
- Renewable Energy Certificates (REC, 2010) and Green Credit Programme (2023) familiarised stakeholders with tradable environmental assets.
- Carbon Credit Trading Scheme (CCTS, 2023) built a unified umbrella covering an eventual ETS plus voluntary offsets.
THEORETICAL FRAMEWORK:
| GEI (tCO₂e/unit output) | Proxy for carbon productivity—lower GEI means higher eco-efficiency. |
| Cap-and-trade / ETS | Market allocates abatement to the cheapest marginal cost actor; internalises negative externality. |
| MRV | Measurement-Reporting-Verification backbone that converts data into tradeable compliance assets. |
| Article 6.2 PA | Allows bilateral transfer of ITMOs; robust domestic MRV is pre-requisite. |
| Just Transition | Ensures decarbonisation does not aggravate regional or employment inequities. |
UNDERSTANDING GREENHOUSE GASES EMISSIONS INTENSITY (GEI)
-
- Definition: GEI refers to the amount of GHGs emitted per unit of product output, measured in tonnes of carbon dioxide equivalent (tCO₂e) per unit of product.
- Significance: Focusing on GEI allows for sector-specific emission reduction strategies, enabling industries to benchmark and improve their carbon efficiency.
KEY PROVISIONS OF THE DRAFT GEI TARGET RULES, 2025
-
- Baseline Establishment: The year 2023-24 is set as the baseline for emissions intensity.
- Reduction Targets: Gradual GEI reduction targets are defined for 2025-26 and 2026-27, applicable to energy-intensive sectors.
- Obligated Entities: A total of 282 industrial units across aluminium, cement, pulp and paper, and chlor-alkali sectors are identified, including major corporations like Vedanta, Hindalco, and Ultratech.
- Compliance Mechanism: Industries meeting or exceeding targets earn carbon credits; those failing to comply must purchase credits or face penalties.
INTEGRATION WITH THE CARBON CREDIT TRADING SCHEME (CCTS), 2023
-
- Operationalization: The GEI targets provide a quantifiable basis for the generation and trading of carbon credits within the Indian Carbon Market.
- Incentivization: Industries are financially motivated to adopt cleaner technologies and processes to earn tradable carbon credits.
- Regulatory Oversight: The Bureau of Energy Efficiency (BEE) oversees the implementation, while the Central Pollution Control Board (CPCB) enforces compliance and penalties.
DRAFT GEI TARGET RULES 2025 — SALIENT PROVISIONS:
| Parameter | Provision | Significance |
|---|---|---|
| Baseline year | FY 2023-24 GEI for each plant | Evidence-based policy |
| Sectoral coverage (Phase-I) | 282 units: 186 cement, 53 pulp & paper, 30 chlor-alkali, 13 aluminium | Principle of common but differentiated responsibilities within economy |
| Reduction trajectory | Plant-specific % cuts for FY 2025-26 & FY 2026-27; progressive tightening thereafter | Predictability catalyses green-tech investment |
| Compliance pathway | 1 t CO₂e intensity cut ⇒ 1 Carbon Credit Certificate (CCC); shortfall payable via CCC purchase or monetary penalty by CPCB | Polluter-Pays Principle |
| MRV architecture | Third-party verifiers + digital registry under Bureau of Energy Efficiency (BEE) | Cooperative federalism (centre-state SPCBs) |
| Penalty | ₹1,000/t CO₂e of unmet obligation (indexed) | Enforces environmental rule of law |
THE CHALLENGES:
-
- Measurement, Reporting & Verification (MRV) Gaps: India lacks a unified, transparent, and auditable system for MRV of emissions at the plant level, especially across sectors with varied emission profiles.
- Credit Glut Risk — Lessons from PAT Scheme: The Perform, Achieve, Trade (PAT) scheme, India’s earlier market mechanism, witnessed overallocation of Energy Saving Certificates (ESCerts), leading to a supply glut and price crashes. A study by Prayas (Energy Group) found that in PAT Cycle I, over 50% of issued ESCerts remained unsold, undermining price discovery and industrial motivation.
- Exclusion of MSMEs — Risk of Carbon Leakage: The current GEI Rules apply only to large entities, excluding Micro, Small & Medium Enterprises (MSMEs), which contribute to over 30% of India’s industrial energy use. Emissions-intensive activities may shift (“leak”) to unregulated MSME clusters, especially in sectors like brick kilns, dyeing units, and foundries — a phenomenon termed “regulatory arbitrage.”
- Weak Institutional Capacity at the State Level: State Pollution Control Boards (SPCBs), the frontline regulatory arms, often lack the technical know-how and digital infrastructure for lifecycle carbon accounting. As the CPCB delegates monitoring functions to SPCBs under the GEI Rules, uneven capacities across states could lead to patchy enforcement and regulatory fatigue.
- Uncertain International Linkages under Article 6.2 of Paris Agreement: India’s carbon market is yet to align with global carbon pricing systems due to lack of clarity on currency convertibility, double counting rules, and bilateral offset protocols under Article 6.2. Without international linkage, Indian carbon credits may fetch lower prices or remain confined to domestic compliance, limiting foreign capital inflows into decarbonisation projects.
- Technological & Financial Readiness Divide: Industrial decarbonisation technologies (e.g., carbon capture, green hydrogen, low-emission kilns) are capital-intensive, and many obligated entities — especially Tier II firms — lack readiness. A 2023 NITI Aayog–CEEW report found that only 28% of cement plants surveyed had active decarbonisation roadmaps aligned with Science-Based Targets Initiative (SBTi).
- Market Infrastructure & Trust Deficit: Transparent carbon pricing, third-party verification, and credible registries are still evolving in India. Market players lack confidence in credit integrity and enforcement. India’s first PM emissions trading market in Surat (launched in 2019) highlighted that regulatory predictability, automated monitoring, and fair price signals are essential for building market trust.
THE WAY FORWARD:
-
- Dynamic Cap-Tightening Mechanism: Introduce a rule-based trajectory for annual GEI reductions at 4–5% until 2030, aligned with India’s Enhanced NDCs. This should be complemented by a Market Stabilisation Reserve (MSR) to absorb surplus carbon credits—mirroring the EU ETS model—to prevent credit oversupply and market volatility. Such a calibrated approach ensures progressive decarbonisation without disrupting industrial productivity.
- Digital MRV Stack for Verifiability and Efficiency: Establish a blockchain-enabled, IoT-integrated Digital Measurement, Reporting, and Verification (MRV) system, leveraging the principles of the India Stack (Aadhaar + UPI + DigiLocker). This will reduce verification costs by over 30% (CEEW estimate), improve auditability, and enhance the environmental integrity of carbon credits—resolving one of the core credibility gaps observed in PAT Cycle-I and II. Integration with Bharat IoT deployments will ensure plant-level data granularity.
- Widening the Sectoral Ambit – Phase-II Expansion: Expand coverage to include high-emitting sectors such as steel, petroleum refining, and DISCOMs under GEI Targets Phase-II, harmonising with PAT-VII’s sectoral footprint. These sectors cumulatively account for over 30% of India’s industrial emissions (MoEFCC, 2023). Early inclusion ensures preparatory transition time before India’s compliance carbon market fully links with Article 6.2 bilateral mechanisms post-2027.
- Green Finance Convergence with Retail Capital Mobilisation: Permit Carbon Credit Certificates (CCCs) as eligible assets under the Reserve Bank of India’s Framework for Green Deposits (2023). This would allow banks and NBFCs to channel climate-tagged retail savings into verified mitigation projects, deepening India’s green bond market and supporting RBI’s goal of embedding climate risk into financial regulation (as per the Sustainable Finance Roadmap, 2022). This also aligns with India’s G20 push for blended finance models.
- International Linkage Roadmap – Article 6.2 Bilateral Pilots: Pilot Article 6.2 bilateral credit transfers with countries like the UAE or Singapore, focusing on hard-to-abate sectors like aviation and maritime. These countries offer logistical hubs where clean aviation fuel or offset-backed cargo can be trialled under robust MRV. Further, to insulate domestic market players from exchange rate volatility, explore INR-settled carbon futures contracts, drawing from India International Bullion Exchange (IIBX) experience.
- Just Transition Fund – Equity-Centric Decarbonisation: Mandate that a minimum of 20% of GEI non-compliance penalties be channelled into a Just Transition Fund focused on skilling and reskilling workers in vulnerable coal-belt states like Jharkhand, Odisha, and Chhattisgarh. Modeled on South Africa’s JET-IP and guided by India’s draft National Just Transition Policy (MoLE, 2023), this ensures social cohesion and political acceptability of India’s decarbonisation trajectory.
- Demand-Side Nudges – Institutional Green Procurement Mandates: Incentivise low-carbon industrial production by mandating green public procurement quotas—10% by 2027—for CPWD, NHAI, Indian Railways, and other infrastructure-heavy PSUs. This demand-side pull, supported by a forthcoming green steel mandate, will provide price floors for cleaner products and anchor market demand—essential for scale-up of nascent green technologies like low-carbon cement or recycled steel.
THE CONCLUSION:
Draft GEI Targets operationalise India’s move from intensity rhetoric to compliance reality, converting “tonnes of CO₂” into a financial metric that rewards innovation. By embedding transparent MRV and aligning with global carbon price trends, the Rules can future-proof Indian industry while steering the economy toward the net-zero horizon.
UPSC PAST YEAR QUESTION:
Q. Industrial pollution of river water is a significant environmental issue in India. Discuss the various mitigation measures to deal with this problem and also the government’s initiatives in this regard. 2024
MAINS PRACTICE QUESTION:
Q. Discuss how India’s carbon market can mitigate trade risks emanating from the EU-CBAM while ensuring a just transition for domestic industries.
SOURCE:
Spread the Word