ICRA Flags Up To 19% Profit Hit For Cement Firms Under Carbon Market Rules

India’s Carbon Credit Trading Scheme (CCTS) has just started. Early impact on heavy industries may stay limited. That said, costs can rise over time.

A report from ICRA ESG Ratings points in the same direction. It expects pressure to build slowly, especially in sectors where cutting emissions is harder. The report covers 14 companies across the aluminium and cement sectors.

CCTS aims to push companies to lower emissions over time. Even so, the data suggests the impact can turn meaningful in the next few years.

At an assumed carbon price of $10 per tonne of CO₂, profit for some cement companies could fall by up to 19% by FY27. Aluminium companies may see a smaller effect, closer to 3%.

What Could Change For Cement Companies Under CCTS?

Initial compliance costs are likely to be manageable for now. That may not remain the case as targets become tighter. If current emission levels continue, the need to purchase credits could persist. This may add to costs, particularly if output increases.

The gap between actual emissions and required levels is also expected to widen over time. In the cement sector, the deficit could rise from about 0.5 million tonnes of CO₂ equivalent in FY26 to roughly 1.3 million tonnes in FY27.

Why Does The Cost Impact Increase Over Time?

The scheme works more like a signal than a penalty.

Companies that cut their emission intensity can earn credits. These can be used later or sold in the market. On the other hand, firms that do not cut emissions will need to buy credits more often.

The report also gives a sense of what is required to stay neutral. Cement companies would need to reduce emission intensity by about 0.7% in FY26 and 2.7% in FY27, compared to FY24 levels. This can help them meet targets without taking on extra credit costs.

For aluminium companies, the required reduction is higher, at 1.6% and 5.2%, respectively.

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What Will Decide The Final Impact?

Companies that act early can keep costs under control. Steps like using blended cement, shifting to alternative fuels, or increasing renewable energy use can help reduce emissions.

Those that delay could face higher costs later, especially if they depend on buying credits year after year.

The broader message is clear. The carbon market is not just a compliance requirement. It is pushing companies to rethink how they produce and manage energy.

For cement companies, this could influence margins in the coming years.

Sources:

Business Standard

The Economic Times