Stricter carbon credit norms to raise costs for cement, aluminium firms by FY27: ICRA

India’s push towards a structured carbon market is entering a critical phase, with the Carbon Credit Trading Scheme (CCTS) expected to become significantly stricter by FY2027. According to a recent ICRA ESG analysis, this shift is likely to increase compliance costs, particularly for emission-intensive sectors such as cement and aluminium.

The study, which assessed 14 major companies across both sectors, indicates that FY2026 will serve as a transition period. During this phase, most cement companies can meet emission targets with relatively modest reductions. However, the scenario changes sharply in FY2027, when tighter norms could expose companies to higher financial risks if emission intensity is not reduced in time.

For the cement sector, the pressure is particularly evident. While a reduction of around 1.5 per cent in emission intensity may be sufficient in FY2026, companies that fail to act early may be forced to purchase carbon credits. By FY2027, nearly 30 per cent of firms could face deficits even under favourable conditions, with potential financial exposure reaching up to ₹700 crore. In extreme cases, carbon costs could erode profits by as much as 19 per cent.

The aluminium sector, although relatively efficient at present, is not immune. Rising production levels are expected to increase overall emissions, making compliance more challenging. Larger players may need to rely on carbon credits as early as FY2026, while stricter FY2027 targets could push carbon-related costs to around 3 per cent of profits for some companies.

A key takeaway from the report is the growing importance of proactive emission management. Companies that invest in efficiency improvements and reduce emissions steadily will be better positioned to manage costs and even benefit from surplus carbon credits. On the other hand, firms that delay action risk higher expenses and reduced competitiveness.

Overall, FY2026 offers a window for preparation, but FY2027 will mark a decisive shift, making carbon strategy a core business priority for India’s industrial sectors.