India Expands Carbon Market, Adds Four More Sectors Under Emission Compliance

The Government of India has expanded the scope of the Indian Carbon Market (ICM) by notifying Greenhouse Gas Emission Intensity (GEI) reduction targets for four additional carbon-intensive sectors Petroleum Refineries, Petrochemicals, Textiles and Secondary Aluminium under the Carbon Credit Trading Scheme (CCTS) .

The notification, issued on January 13, 2026 , brings 208 obligated entities from these sectors under the compliance mechanism. With this expansion, the total number of industries covered under the carbon market has increased to 490 obligated entities .

Earlier, in October 2025 , the government had notified GEI targets for the Aluminium, Cement, Chlor-Alkali and Pulp & Paper sectors, covering 282 entities. Together, these industries represent the bulk of India’s industrial greenhouse gas emissions.

The CCTS, notified in 2023 , provides the overall framework for the functioning of the Indian Carbon Market. The scheme aims to reduce or avoid greenhouse gas emissions by assigning a price to carbon through a market-based carbon credit certificate trading mechanism .

The scheme operates through two mechanisms the Compliance Mechanism and the Offset Mechanism . Under the compliance framework, emission-intensive industries designated as Obligated Entities must meet assigned GEI reduction targets. Entities that outperform their targets are eligible to receive Carbon Credit Certificates , which can be traded with industries unable to meet their obligations.

The newly covered sectors are among India’s major industrial emitters. Petroleum refineries are energy-intensive due to large-scale fuel processing operations, while petrochemicals generate emissions from both energy consumption and chemical conversion processes. The textiles sector, one of the country’s largest employers, consumes significant power across spinning, weaving and dyeing operations. Secondary aluminium production, though less carbon-intensive than primary smelting, still relies heavily on electricity and offers scope for efficiency improvements.

Officials said the latest expansion reflects years of technical assessment, industry consultations and institutional coordination . As sectoral coverage widens and the compliance mechanism matures, the ICM is expected to play a central role in aligning industrial growth with India’s long-term climate commitments and net-zero pathway .

India is adopting a phased approach to carbon market expansion, prioritising sectors where emissions measurement systems and reduction pathways are well established. While the country remains behind Europe in terms of coverage, policymakers note that this reflects valid economic and structural considerations , including lower per-capita emissions and the need to avoid cost shocks.

The European Union Emissions Trading System already covers power generation, iron and steel, fertilisers, chemicals, refineries, aviation and maritime transport, accounting for nearly half of the bloc’s emissions. India’s carbon market currently covers an estimated 15–18 per cent of national emissions .

Officials indicated that iron and steel, fertilisers, mineral processing and additional chemical segments are likely to be considered in future phases.

However, thermal power generation remains the most sensitive sector for inclusion. Coal-based plants account for the largest share of India’s emissions, but carbon pricing could directly impact electricity tariffs, inflation and grid stability. As a result, power generation is expected to be included only after the market deepens and appropriate safeguards are in place.