Short-term relief, long-term strain: CCTS impact on cement and aluminium sectors

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India’s Carbon Credit Trading Scheme (CCTS) has now come into force, and for the moment, its impact on cement and aluminium producers looks fairly moderate. Companies in these sectors are not expected to face serious financial strain straight away, although that position is likely to change as the rules become stricter over time.

A review by ICRA ESG Ratings, based on 14 firms across both industries, suggests the scheme has been set up to ease businesses into a new regulatory environment rather than imposing high costs from the outset. The intention appears to give companies some breathing space while they begin adjusting to lower-emission operations.

At this early stage, most firms should be able to deal with compliance costs without major difficulty. The initial targets leave enough room for companies to absorb the expense within their existing budgets. Designed as a transition mechanism rather than an immediate cost burden, this is a strong indication of the gradual shift in compliance expectations. 

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However, this relatively comfortable position may not last long. As emissions limits are tightened in the coming years, the challenge of meeting them is expected to increase.

Businesses that do not manage to cut their emissions sufficiently will have to turn to the carbon market, buying credits to make up the shortfall. That, in turn, is likely to add to their overall costs. In due course, these added expenses affect the product pricing strategy as well as the plan of future investments. As a result, companies relying extensively on purchased carbon credits may see a sharper rise in production costs as emission targets become stricter.

Sheetal Sharad, Chief Rating Officer at ICRA ESG, has said this rollout will bring a significant change in how India is approaching climate policy.

She explained that the immediate cost impact is still manageable and also highlighted that the scheme is already influencing how companies think about their emissions. By putting a price on carbon, it creates a clear financial incentive to reduce it. She also noted that the rollout marks a structural shift in India’s climate-policy architecture and is already sending a strong economic signal to industry players. 

The scheme seems to be less about immediate penalties and more about setting direction. The pressure remains limited as of now, but the message is clear. Companies that act early to cut emissions are likely to be better placed than those that delay, especially as the requirements become more demanding in the years ahead.

The report indicates that emission gaps are likely to widen if growth accelerates. Cement companies may see a shortfall of about 0.5 million tonnes of CO₂ equivalent in FY2026, rising further in FY2027, while aluminium producers could face an increase from roughly 0.5 to 1.4 million tonnes. Even at current emission levels, many, especially larger firms, would still need to regularly buy carbon credits.

The impact on profitability is not uniform across sectors. At an assumed carbon price of USD 10 per tonne of CO₂ equivalent, some cement companies could see margins shrink by as much as 19 per cent in FY2027. Aluminium producers, on the other hand, are likely to face a more limited impact, estimated at around 3 per cent.

ICRA ESG has also set out indicative breakeven levels for emission reduction. Cement companies may need to lower emission intensity by about 0.7 per cent in FY2026 and 2.7 per cent in FY2027. For aluminium firms, the required reductions are higher, at around 1.5 per cent and 5.2 per cent respectively, to avoid relying on additional credit purchases.

The framework judges companies more on how efficiently they emit rather than how big they are, giving an edge to those already moving towards cleaner operations like blended cement, alternative fuels, and renewable power. Small but consistent gains in emission performance can keep costs in check, whereas falling behind could gradually increase the financial burden as norms become stricter.