India’s Carbon Credit Trading Scheme (CCTS) is expected to become much stricter by FY2027, increasing compliance costs — especially for cement and aluminium companies — according to an ICRA ESG analysis.

The study looked at 14 major companies (10 cement and 4 aluminium) and found that while FY2026 will be a relatively manageable transition year, FY2027 will bring tighter rules and higher financial risks if companies do not reduce emissions fast enough.

In FY2026, cement companies can mostly meet targets if they reduce emission intensity by about 1.5 per cent. But if emissions stay the same or increase, companies could face shortfalls, forcing them to buy carbon credits. Some firms may still benefit by cutting emissions early and selling surplus credits.

By FY2027, the situation becomes tougher. Around 30 per cent of cement companies could face deficits even under favourable conditions. In worse scenarios, the financial impact could reach up to ₹700 crore, and carbon costs could cut profits by as much as 19 per cent for some firms. To stay on track, companies need to reduce emission intensity by roughly 0.7 per cent in FY2026 and 2.7 per cent in FY2027 compared to FY2024 levels.

Aluminium companies start with better efficiency, but rising production will increase pressure. In FY2026, larger firms may already need carbon credits, while smaller firms benefit from efficiency improvements. By FY2027, stricter targets could widen the gap further, with carbon costs reaching up to 3 per cent of profits for some players. To meet targets, aluminium firms may need to cut emission intensity by 1.6 per cent in FY2026 and 5.2 per cent in FY2027.

If companies continue at current emission levels while production grows, none are likely to meet targets. The report highlights that steady emission reductions of 1-3 per cent for cement and 2-5 per cent for aluminium will be essential to control costs and stay competitive.

In short, FY2026 offers a transition period with manageable costs, but FY2027 will significantly increase pressure. Large companies may see profits hit by carbon costs, while smaller, more efficient players could gain an advantage by cutting emissions faster.

Published on April 23, 2026