India's Stricter Carbon Credit Regime Looms for Cement and Aluminum Sectors by 2027

According to a recent ICRA ESG analysis, India's Carbon Credit Trading Scheme (CCTS) is anticipated to become more stringent by the fiscal year 2027, escalating compliance costs, particularly for the cement and aluminum industries. The analysis examined 14 major companies, including 10 from the cement and 4 from the aluminum sectors, noting that while FY2026 represents a relatively bearable transition year, FY2027 will usher in tighter regulations and increased financial risks unless companies significantly curtail emissions.

During FY2026, cement firms can largely achieve their targets by reducing emission intensity by approximately 1.5%. However, failure to decrease or an increase in emissions will likely lead to deficits, compelling firms to purchase carbon credits. Opportunities exist for organizations that cut emissions early, allowing them to sell surplus credits. By FY2027, the landscape becomes more challenging, with around 30% of cement companies poised to face deficits even under optimal conditions. More adverse scenarios could result in financial impacts of up to Rs 700 crore, with carbon costs potentially slashing profits by 19% for some firms. To align with requirements, cement companies need to cut emission intensity by about 0.7% in FY2026 and 2.7% in FY2027, compared to FY2024 levels.

Aluminum companies, starting with greater efficiency, will face growing pressure as production rises. In FY2026, larger firms might already require carbon credits, while smaller companies benefit from enhancements in efficiency. By FY2027, the stricter targets could widen this gap, with carbon costs potentially consuming up to 3% of profits for some players. Aluminum firms may have to cut emission intensity by 1.6% in FY2026 and 5.2% in FY2027 to meet targets. Continued current emission levels amid production growth could prevent any company from meeting these targets. The report stresses that consistent emission reductions ranging from 1-3% for cement and 2-5% for aluminum will be crucial to manage costs and maintain competitiveness.