From Voluntary To Mandatory: India’s Industrial Emission Intensity Rules (2025)

Policy Update

Sruti Halder

Background

For over a decade, India’s principal industrial energy-efficiency instrument was the Perform, Achieve and Trade (PAT) scheme, a rolling, cycle-based mechanism administered by the Bureau of Energy Efficiency (BEE) under the Ministry of Power. PAT set legally binding specific energy consumption (SEC) reduction targets for Designated Consumers under the Energy Conservation Act, 2001, and functioned as a market-based compliance mechanism: overachievers earned tradable Energy Saving Certificates (ESCerts), traded on the Indian Energy Exchange at market-determined prices (roughly ₹200–1,200 per certificate in PAT Cycle I) (Sarangi, 2021) while underachievers were required to purchase ESCerts to cover their shortfall or face financial penalties under the Act.

Even so, non-compliance remained significant — an estimated 9 percent of Designated Consumers failed to meet targets in PAT Cycle I, rising to about 56 percent in PAT Cycle II, and enforcement was rarely invoked. Critically, PAT targeted energy consumption, not greenhouse gas (GHG) emissions, so it carried no direct linkage to GHG accounting despite its binding structure.

According to India’s Updated Nationally Determined Contribution Under Paris Agreement (2021–2030), India’s Nationally Determined Contributions (NDCs) under the Paris Agreement, aims to reduce emission intensity of GDP by 45 percent  below 2005 levels by 2030 (Government of India, MoEFCC, 2022).

While PAT had improved energy efficiency at the margin, it carried no direct linkage to GHG accounting and in the first paragraph you’ve written ‘PAT had legally binding SEC targets’ , leaving a gap between voluntary industrial efficiency gains and the country’s formal climate commitments. The legal foundation for the shift lies in the Energy Conservation (Amendment) Act, 2022, which inserted Section 14(AA) into the Energy Conservation Act, 2001, empowering the Central Government to specify a carbon credit trading scheme.

Building on this, the Ministry of Power notified the CCTS on June 28, 2023, and BEE published detailed compliance-mechanism regulations in July 2024. The 2025 GEI Rules operationalise this structure by translating broad scheme design into measurable, enforceable obligations for named industrial entities.

The objective is to convert emission reduction from a voluntary, reputational exercise into a market-priced compliance obligation, using an emission-intensity approach (tonnes of CO₂-equivalent per unit of output) rather than absolute caps, so that industrial growth is not constrained even as intensity falls.

Targets were first drafted in April 2025, opened for public consultation, and finalised for four energy-intensive sectors like aluminium, cement, chlor-alkali, and pulp & paper on October 8, 2025, using FY 2023-24 as the baseline and covering 282 plants. A second tranche covering petroleum refineries, petrochemicals, textiles, and secondary aluminium was notified on January 16, 2026, adding 208 more entities including major public sector undertakings such as Indian Oil, BPCL, HPCL and ONGC, alongside private players like Reliance Industries.

Once all nine originally identified energy-intensive sectors are covered, roughly 740 entities will carry legally binding targets, together accounting for close to 16 percent of India’s total emissions and over 700 million tonnes of CO₂ equivalent, placing the compliance market among the largest emissions trading systems in the world by coverage (International Carbon Action Partnership, 2025).  This paragraph is good policy framing, but add one sentence on why an intensity approach is chosen for India’s growth context. 

Source: MoEFCC Gazette Notification G.S.R. 739(E), October 2025; International Carbon Action

Partnership, 2025; Down To Earth, 2025.

The diagram below traces this legislative arc  from PAT’s voluntary, efficiency-only design to a legally binding emission-intensity regime.

Functioning

Operationally, the Act functions as an enabling legal framework; its effect depends on subordinate rule-making by the Ministry of Finance-equivalent body here, MoEFCC, and IRDAI-equivalent regulator BEE. The CCTS operates through two parallel tracks: a mandatory compliance mechanism for obligated entities and a voluntary offset mechanism open to non-covered participants.

Under the compliance track, each obligated plant receives a two-year emission-intensity target spanning FY 2025-26 and FY 2026-27, back-loaded so that roughly 40 percent of the required reduction falls in the first year and 60 percent in the second, allowing industry a graduated adjustment path. Entities that perform better than their assigned intensity target earn tradable Carbon Credit Certificates (CCCs); those that fall short must either purchase certificates from the market or pay environmental compensation set at twice the average traded price of certificates during that compliance cycle, enforced by the Central Pollution Control Board.

Certificates can be banked indefinitely for future compliance years, though borrowing against future performance is not permitted. The flowchart below sets out this end-to-end compliance cycle.

Institutionally, BEE serves as the scheme administrator and certificate issuer, the Central Electricity Regulatory Commission (CERC) provides market oversight for trading on India’s power exchanges, and the National Steering Committee for the Indian Carbon Market (NSCICM) provides overarching policy direction.

Entities that submit no verified data have their achieved intensity “deemed equal to baseline,” eliminating any claimed improvement and increasing compliance burden, a design feature intended to discourage non-reporting. In parallel, BEE released Version 1 of the Detailed Procedure for the Offset Mechanism in March 2025 and approved eight voluntary methodologies, spanning renewable energy, green hydrogen, energy efficiency, landfill methane recovery, and mangrove restoration, aimed at generating additional market liquidity from non-covered sectors. As of mid-2026, market infrastructure registry systems and the trading platform on the Indian Carbon Market portal remain under development, with full trading operations expected to commence through 2026, following the sequential notification of remaining sectors such as steel, fertilisers, and power generation.

Performance

Because the compliance cycle only began in FY 2025-26, formal CCTS performance data is not yet available; however, the PAT scheme’s track record offers a useful evidentiary base, since GEI targets build directly on PAT-covered entities and infrastructure.

PAT Cycle I (2012-15) covered 478 designated consumers across eight sectors and achieved energy savings of 8.67 million tonnes of oil equivalent (MTOE), exceeding its 6.686 MTOE target by roughly 30 percent, while avoiding an estimated 31 million tonnes of CO2 emissions. PAT Cycle II (2016-19) delivered about 14.08 MTOE in savings, avoiding roughly 66.01 million tonnes of CO2 (Bureau of Energy Efficiency, 2026).  Academic evaluation using a difference-in-differences approach found the scheme improved energy intensity by 2.7 percent in cement and 1.6 percent in fertilizer firms relative to non-designated peers.

Source: BEE, “Perform, Achieve and Trade,” Government of India; ScienceDirect, Enhancing Energy Efficiency of Indian Industries, 2022; ICAP, 2025.

The GEI Rules translate this efficiency legacy into intensity-reduction ranges that vary meaningfully by sub-sector: roughly 2.8–7.06 percent for aluminium, 4.7–7.6 percent for cement, 3.3–11 percent for chlor-alkali, and up to 15 percent over two years for pulp and paper. These figures indicate that the government has calibrated targets to each sub-sector’s abatement potential rather than applying a uniform standard, a design feature BEE states was informed by extensive technical review and stakeholder consultation.

Impact

Since the compliance obligations became operative only from FY 2025-26, verified impact data on actual emission reductions is not yet published, and assessment must rely on early market and institutional response. Analysts describe the October 2025 notification as a decisive shift from policy intent to enforceable climate compliance, noting that unlike PAT’s energy-focused approach, the GEI Rules directly measure and price GHG emissions, aligning industrial regulation more closely with India’s Paris Agreement obligations.

 The scheme’s scale nearing 740 entities and roughly 700 million tonnes of CO2-equivalent once fully rolled out positions it as one of the largest compliance carbon markets globally by coverage, even before its first credit issuance cycle concludes. Early indicators, such as the swift expansion from four to seven-plus sectors within four months and BEE’s approval of eight voluntary offset methodologies, suggest institutional momentum, though independent verification of actual intensity reductions will only become available after compliance-year audits are completed and certificates are issued, expected once the Indian Carbon Market portal and trading platforms are fully operational.

Emerging Issues

Several implementation challenges have surfaced.

• First, market infrastructure including the registry and trading platform on the Indian Carbon Market portal remained under construction well after targets were notified, creating a lag between legal obligation and the ability to actually transact certificates. 
• Second, overlapping timelines between PAT Cycle VIII and the first CCTS compliance year has left several entities without assigned targets for 2025-26 (Observer Research Foundation, 2026) , raising questions about transitional coverage gaps. 
• Third, the “deemed baseline” provision for non-submission, while designed to deter non-reporting, could disproportionately penalise entities facing genuine measurement or verification difficulties, particularly smaller units within a sub-sector. 
• Fourth, the doubled environmental-compensation penalty depends on an “average traded price” that itself depends on market liquidity, meaning that in early, thinly traded cycles, penalty calculations could be volatile or unpredictable. 
• Finally, extending binding targets to sectors such as power, steel and fertilisers still pending notification will test institutional capacity to monitor compliance across a far larger and more heterogeneous set of obligated entities.

Way Forward

To ensure the transition from PAT’s voluntary efficiency ethos to the CCTS’s mandatory emission-intensity regime delivers genuine climate outcomes, priority should be given to the timely completion of registry and trading-platform infrastructure so that certificate issuance, banking, and trading can commence without further delay.

Phasing in the remaining sectors like steel, fertilisers, and power with adequate lead time and technical consultation, mirroring the graduated approach used for the first two tranches, would help maintain industry buy-in while progressively covering a larger share of national emissions. Strengthening third-party verification capacity within BEE and empanelled auditors will be essential to ensure the credibility of self-reported emission-intensity data, particularly as the “deemed baseline” default could otherwise become a routine outcome rather than an exception. 

Periodic public disclosure of sector-wise compliance rates, certificate issuance volumes, and traded prices  potentially through a dashboard akin to those used for PAT reporting would enhance transparency and allow policymakers, researchers, and investors to track whether the scheme is translating legal obligation into measurable decarbonisation, consistent with India’s 2030 NDC target and its broader net-zero-by-2070 commitment.

References

Ministry of Environment, Forest and Climate Change. (2025). Greenhouse Gases Emission Intensity Target Rules, 2025, G.S.R. 739(E). Government of India. https://www.taxtmi.com/article/detailed?id=15898

International Carbon Action Partnership. (2025). India notifies emission intensity targets for nine sectors under Carbon Credit Trading Scheme. ICAP. https://icapcarbonaction.com/en/news/india-notifies-emission-intensity-targets-nine-sectors-under-carbon-credit-trading-scheme

Down To Earth. (2025). India’s carbon market: New GHG emission intensity targets under CCTS. https://www.downtoearth.org.in/climate-change/india-sets-first-ever-ghg-emission-intensity-targets-under-ccts

International Emissions Trading Association. (2025). India’s Carbon Credit Trading System Scheme (CCTS) — Business Brief. IETA. https://www.ieta.org/uploads/wp-content/Resources/Busines-briefs/2025/IETA_Business_Brief-India_July_final-one.pdf

Bureau of Energy Efficiency. (n.d.). Perform, Achieve and Trade (PAT). Government of India, Ministry of Power. https://beeindia.gov.in/en/programmes/perform-achieve-and-trade-pat

Bureau of Energy Efficiency. (n.d.). PAT — Read more. Government of India, Ministry of Power. https://beeindia.gov.in/en/pat-read-more

Prayas (Energy Group). (2025). PAT III: New Cycle, Old Issues. https://energy.prayaspune.org/power-perspectives/pat-iii-new-cycle-old-issues; Elion Energy. What Is PAT Scheme. https://elion.co.in/what-is-pat-scheme/ 

Insights on India. (2026). Greenhouse Gases Emission Intensity (GEI) Target (Amendment) Rules, 2025. https://www.insightsonindia.com/2026/01/20/greenhouse-gases-emission-intensity-gei-target-amendment-rules-2025/

Drishti IAS. (n.d.). Gas Emission Intensity (GEI) Target Rules, 2025. https://www.drishtiias.com/daily-updates/daily-news-analysis/gas-emission-intensity-gei-target-rules-2025

ScienceDirect. (2022). Enhancing energy efficiency of Indian industries: Effectiveness of PAT scheme. https://www.sciencedirect.com/science/article/abs/pii/S014098832200367X

ESG Broadcast. (2025). MoEFCC notifies Greenhouse Gas Emission Intensity Target Rules under Carbon Credit Trading Scheme. https://esgbroadcast.com/broadcast/moefcc-notifies-greenhouse-gas-emission-intensity-target-rules-under-carbon-credit-trading-scheme/

About the Contributor

Sruti Halder is pursuing an MSc in Economics at the Gokhale Institute of Politics and Economics. She is committed to leveraging data-driven research and evidence-based policymaking to promote inclusive and sustainable socio-economic development. 

Acknowledgment

I am writing to express my sincere gratitude to IMPRI (Impact and Policy Research Institute) for providing me with the opportunity to prepare this policy update article and for fostering a rigorous learning environment that connects research with public policy practice.

Reviewers: Lubina Dua, Neha Kumari

Publisher: Simona Miriam Hughes 

Disclaimer

All views expressed in the article belong solely to the author and do not necessarily represent the views or policies of the organisation.

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