Carbon Credit Trading Scheme: Cement profit hit FY27

CCTS starts sending a price signal

India’s newly operational Carbon Credit Trading Scheme (CCTS) is expected to push heavy industries toward lower emissions, but the cost impact will likely diverge sharply between cement and aluminium. ICRA ESG Ratings said the scheme will differentiate companies by their emission-intensity trajectory rather than by scale, which makes operational efficiency central to compliance. In the near term, ICRA ESG expects the compliance burden for hard-to-abate sectors to remain manageable, but it warned that costs could rise as targets tighten and as more firms need to buy credits to close emission gaps.

What ICRA ESG analysed

The ICRA ESG Ratings analysis covered 14 companies across the cement and aluminium sectors. It assessed sector-specific emission intensity targets for FY26 and FY27 against the FY2024 baseline. The report also highlighted differences across companies: larger producers may face higher absolute deficits under growth scenarios, while companies that improve emission intensity are better placed to contain compliance risks or even generate surplus credits.

Aluminium targets and the expected emission gap

For aluminium, ICRA ESG cited emission intensity targets ranging from 13.72 to 20.27 tonnes of carbon dioxide equivalent (tCO₂e) for FY26, and 13.30 to 19.55 tCO₂e for FY27. Under typical conditions, the report said cumulative emission deficits in aluminium could rise from about 0.5 million tCO₂e in FY26 to around 1.4 million tCO₂e in FY27.

ICRA ESG also pointed to early progress on decarbonisation, with an average emission-intensity reduction CAGR of roughly 1.2 percent. But it noted that the aluminium sector’s high dependence on power means sustained reductions will require a clear focus on renewable energy integration, process optimisation, and energy efficiency improvements.

Cement deficits also widen as targets tighten

For cement, ICRA ESG estimated emission deficits of roughly 0.5 million tCO₂e in FY26, widening to roughly 1.3 million tCO₂e in FY27 under a scenario where emission intensity rises. The report’s central message for cement is that recurring reliance on purchased credits can escalate production costs as targets tighten, especially if companies maintain current emission levels while output grows.

The report also flagged that companies using measures such as blended cement, alternative fuels, and renewable energy are better placed to reduce deficits and could generate surplus credits. Firms that do not improve emission intensity are more likely to face repeated credit requirements.

Carbon price assumption and rupee impact

ICRA ESG modelled the financial effect of emission deficits at an assumed carbon price of $10 per tonne of CO₂ equivalent. Based on that assumption, the report estimated the financial impact of deficits rising from about Rs 171 to 174 crore in FY26 to about Rs 472 to 483 crore in FY27.

While the report described early-year compliance costs as “absorbable”, it also cautioned that costs could become more pronounced by FY27 if credit purchases become a recurring item. The price signal is intended to reward firms that move faster on emission-intensity reductions.

Profitability risk: cement vs aluminium

ICRA ESG said that, at the assumed carbon price of $10 per tonne, profitability for some cement companies could decline by up to 19 percent by FY27. For aluminium companies, the profitability impact could be much lower, with some players seeing a hit of around 3 percent by FY27 if emission gaps widen.

The report’s comparison implies that cement firms face higher downside risk from carbon compliance under CCTS, particularly where operational levers for rapid intensity reduction are not implemented in time. Aluminium producers appear relatively better positioned for sustained efficiency gains, although power-related emissions remain a key challenge.

What intensity cuts are needed to avoid buying credits

ICRA ESG outlined “breakeven” thresholds for emission-intensity reductions that would allow companies to meet targets without additional reliance on carbon credit purchases. For cement, the report said companies would need to cut emission intensity by around 0.7 percent in FY26 and 2.7 percent in FY27 from FY24 levels.

For aluminium, the required cuts were higher: about 1.6 percent in FY26 and 5.2 percent in FY27 over the FY24 baseline. Separately, the report also indicated that an emission intensity reduction of about 1.6 percent in FY2026 and 5.2 percent in FY2027 over the FY2024 baseline would enable aluminium producers to meet cumulative targets and limit reliance on carbon credit purchases.

What ICRA ESG said about timing

Sheetal Sharad, chief rating officer at ICRA ESG, said the rollout of CCTS marks a structural shift and is already sending an economic signal. According to Sharad, companies that accelerate emission-intensity reductions will be better positioned to contain risks and could potentially unlock value as the carbon market matures.

Sharad added that moderate but timely improvements can significantly reduce exposure, while delayed action risks compounding costs as targets tighten. The report’s framing suggests FY26 and FY27 are critical years for transition planning, because early reductions can limit the need for credit purchases when compliance becomes stricter.

Key numbers at a glance

Why this matters for investors and operators

CCTS shifts attention from absolute emissions to emission intensity trends, which can change competitive positioning inside each sector. Companies that keep improving emission intensity can potentially contain compliance costs and, depending on performance, generate surplus credits. Companies with stagnant or rising intensity can face recurring credit requirements, which ICRA ESG expects to become a more meaningful cost line as targets tighten.

For aluminium, ICRA ESG highlighted that ongoing reductions depend heavily on cleaner power, process optimisation, and energy efficiency because of the sector’s high dependence on electricity. For cement, the report emphasised operational pathways such as blended cement and alternative fuels to reduce intensity and limit future credit purchases.

Conclusion

ICRA ESG Ratings expects India’s Carbon Credit Trading Scheme to keep near-term compliance costs manageable, but to raise pressure on cement and aluminium companies as FY27 targets tighten. With cement profitability at higher risk than aluminium under the report’s assumptions, the next two years will likely test how quickly companies can cut emission intensity and reduce reliance on purchased credits.