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 India’s newly operational Carbon Credit Trading Scheme is likely to drive emission reductions, with aluminium producers better placed than cement peers for sustained efficiency gains, a report said on Wednesday. 

The report from ICRA ESG Ratings said the scheme will differentiate companies by emission-intensity trajectories rather than scale.

Emission intensity targets for the aluminium sector range from 13.72–20.27 tonnes of carbon dioxide equivalent (tCOze) for FY26 and 13.30–19.55 tonnes for FY27, and normally, cumulative emission deficits could rise from about 0.5 million tCOze in FY26 to around 1.4 million tCOze in FY27.

Meanwhile, an average emission-intensity reduction CAGR of roughly 1.2 per cent indicates early progress on the decarbonisation pathway.

On average, emission deficits for cement are estimated at roughly 0.5 million tonnes of carbon dioxide equivalent in FY26, widening to roughly 1.3 million tonnes in FY27.

At an assumed carbon price of $10 per tonnes of carbon dioxide equivalent, the financial impact of those deficits is estimated to increase from about Rs 171–174 crore in FY26 to Rs 472–483 crore in FY27, the report said.

The profitability impact for certain aluminium companies could reach up to 3 per cent by FY2027 if emission gaps widen.

The report indicated that an emission intensity reduction of about 1.6 per cent in FY2026 and 5.2 per cent in FY2027 over the FY2024 baseline would enable aluminium producers to meet cumulative targets and limit reliance on carbon credit purchases.

The analysis, covering four primary aluminium companies and ten cement firms, assessed sector-specific emission intensity targets for this fiscal and next against the FY2024 baseline.

The report also highlighted divergence among companies, with larger producers likely to face higher absolute deficits under growth scenarios, while players with improving emission intensity trends are better placed to contain compliance risks or generate surplus credits.

“The scheme is already sending a strong economic signal-companies that accelerate emission-intensity reductions will be better positioned to contain risks and potentially unlock value as the carbon market matures," said Sheetal Sharad, CRO, ICRA ESG.

Moderate but timely emission-intensity improvements can significantly reduce exposure, whereas delayed action risks compounding costs as targets tighten, Sharad added.

The ratings agency noted that aluminium producers will need to focus on renewable energy integration, process optimisation and energy efficiency improvements to sustain emission reductions, given the sector’s high dependence on power.