With the notification of the Greenhouse Gas Emission Intensity (GEI) Target Rules, 2025, India has taken a visible step toward integrating carbon performance into industrial regulation. For the first time, plant-level greenhouse gas intensity targets have been made legally binding for four of the country’s high-emitting sectors. 

It is an important evolution in India’s climate governance architecture. Yet in substance, the new framework remains more incremental than transformative.

Modest targets

The GEI Rules assign plant-level emission intensity reduction targets for four major sectors: cement, aluminium, paper and pulp, and chlor-alkali. The targets for the first compliance cycle (FY 2025-26 to FY 2026-27) are modest, and will only result in 2-7% reductions in emission intensities, as per analysis by Climate Risk Horizons (CRH). 

Such reductions can easily be achieved through incremental process improvements, rather than through the technological transitions that will ultimately be required for net-zero alignment. In other words, India’s biggest emitters are being asked to fine-tune, not transform.

Soft penalties

Financial deterrence remains a weak link. CRH’s finds that for companies unable to meet their emission intensity targets, the cost of purchasing carbon credits would amount to barely around 1% to 2% of their annual profits, a negligible burden for most large emitters. The penalty for non-compliance, set at twice the average market price of carbon credits under the Carbon Credit Trading Scheme (CCTS), may look stringent on paper but is unlikely to bite in practice. 

Since credit prices are expected to start low in India’s nascent carbon market, penalties linked to these prices will also remain small.

Without a minimum price floor or a stability reserve to cushion against price crashes, the deterrent value of the scheme could quickly erode. For major polluters, it will be cheaper to pay for credits, or even absorb the penalty, than to invest in new low-carbon technologies. In effect, the cost to pollute will remain cheap, and as long as this is the case, a market mechanism will not incentivise cleaner production.

Complicated compliance landscape

There is no publicly available rationale for how 282 industrial units were assigned particular target levels, nor whether criteria such as baseline emissions, production scale, or efficiency ranking were considered. Moreover, a few entities have not been prescribed targets for the first compliance year under the GEI Rules because these entities have existing targets to fulfil under the Bureau of Energy Efficiency's PAT scheme. 

The GEI Rules have been envisioned to build upon the legacy of the Perform, Achieve and Trade (PAT) scheme, launched in 2012. It is unclear as to why some entities are still being made to comply with PAT targets. The PAT scheme focuses on judicious energy consumption, incentivising entities to improve energy efficiency.

This may not necessarily be a proxy for emissions reductions, though improved energy efficiency may also lead to lower emissions.  Therefore, this may create a scenario where entities may have different compliance requirements within the same year. This raises questions regarding fairness in governance.

Among all of these, perhaps the most significant omission is the power sector, which accounts for roughly three-quarters of India’s total greenhouse gas emissions. Despite being the country’s largest emitter, it is excluded from the first phase of GEI targets. This exclusion sharply limits the overall impact of the scheme. 

The GEI Target Rules represent a necessary step in the evolution of India’s industrial climate policy: from energy efficiency to carbon accountability. But while the direction is right, the ambition is restrained. Modest targets, soft penalties and selective coverage risk producing incremental gains rather than driving the transformational shifts India needs to meet its net-zero ambitions. 

It is essential for India’s GEI Targets to establish a carbon price floor or market stability reserves, as done in Canada or Korea. This will prevent price collapses and ensure sustained incentives for decarbonisation. The International Monetary Fund and Organisation for Economic Co-operation and Development (OECD) have both advocated such floor mechanisms to safeguard carbon markets from volatility and to maintain investor confidence in low-carbon projects. 

Equally important is the inclusion of the power sector, which remains the single largest source of national emissions. Finally, setting more ambitious medium-term emission-intensity targets, anchored to India’s 2030 NDC, would give industries the clarity and confidence to plan for a genuine transition toward a low-carbon economy.

Anusha Das, Anirudh TR and Vishnu Teja are researchers at Climate Risk Horizons 

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