CCTS Phase 2 Expansion – What the Inclusion of Iron and Steel, Fertiliser, and Power Sector Means for India's Carbon Market
Introduction: The Next Wave of India's Carbon Market
India's Carbon Credit Trading Scheme (CCTS) is entering its second phase. The first phase, which began in April 2025, brought approximately 490 entities across seven energy-intensive sectors into compliance. The Indian Carbon Market Portal was launched on 21 March 2026, serving as the central digital backbone. The first CCC trading is expected to launch by mid-2026.
But Phase 1 was just the beginning.
Phase 2 of the CCTS expansion is now underway, bringing three of India's largest and most complex emitting sectors into the compliance framework: iron and steel, fertiliser, and the power sector.
The draft notification for iron and steel was issued on June 26, 2026, assigning GHG emission intensity reduction targets to 255 major plants. The fertiliser sector, which emits approximately 25 million tonnes of CO₂ annually, is expected to receive its targets shortly. And the power sector, which accounts for roughly 40% of India's national emissions, is on a phased path to inclusion.
Once fully expanded, the CCTS will cover 740+ entities and 700+ million tonnes of CO₂e, making it one of the largest compliance carbon markets in the world.
This guide provides a comprehensive analysis of the CCTS Phase 2 expansion, what it means for businesses in the newly covered sectors, and how to prepare for the next wave of carbon compliance.
The Current State: 490 Entities, 477 Million Tonnes
The Existing Coverage
As of fiscal year 2025–26, compliance obligations under the CCTS are in force for approximately 490 entities across seven energy-intensive sectors. The targets were notified in two phases:
| Phase | Sectors | Entities | Notification Date |
|---|---|---|---|
| Phase 1 | Aluminium, Cement, Chlor-Alkali, Pulp and Paper | ~282 | October 2025 |
| Phase 2 | Petroleum Refining, Petrochemicals, Textiles | ~208 | January 2026 |
| Total | 7 sectors | ~490 entities |
The Emissions Coverage
These 490 entities cover an estimated 477 million tonnes of CO₂ equivalent. Covered entities now have legally binding GHG emission intensity targets for the compliance years 2025–26 and 2026–27, using fiscal year 2023–24 as the baseline.
The Compliance Mechanism
Entities that outperform their targets will be eligible to receive Carbon Credit Certificates (CCCs), tradeable on India's power exchanges; those that fall short must purchase and surrender an equivalent number.
The Trading Infrastructure
The Central Electricity Regulatory Commission has issued the CERC CCC Regulations, 2026, governing carbon credit transactions, with active trading expected to begin in the fourth quarter of 2026.
The ICM Portal
The Indian Carbon Market Portal, launched on 21 March 2026, serves as the central digital backbone, enabling end-to-end processes from entity registration to the issuance of CCCs.
Iron and Steel: The 255-Plant Expansion
The Notification
On June 26, 2026, the Union environment ministry issued a draft notification to bring the iron and steel sectors under the CCTS. The draft notification covers 255 major plants and assigns GHG emission intensity reduction targets.
The Legal Basis
The draft notification has been issued under Sections 3, 6 and 25 of the Environment (Protection) Act, 1986. It proposes amendments to the Greenhouse Gases Emission Intensity Target Rules, 2025, introducing a new schedule that sets plant-wise GHG emission intensity targets for iron and steel manufacturers.
The Compliance Timeline
Emission reduction targets have been set for 2026-27, taking 2023-24 as the baseline. The sector has skipped the first compliance year of FY 2025-26 entirely, meaning steel producers have a compressed timeline to prepare for their first compliance obligation.
The Scale of the Challenge
The iron and steel sector is among the country's largest industrial emitters. India is the world's second-largest steel producer, and the choices made today will shape the sector's emissions trajectory for decades to come.
The Target Range
The required reduction in emission intensity ranges from 2.1% to 9.3% across various types of steel entities, with a median target of around 5.5%.
The Emissions Intensity Gap
As of 2023-24, the average emission intensity per tonne of crude steel produced in India was 2.54 tonnes of CO₂, while the global average stands at 1.9 tonnes of CO₂. This gap represents a significant competitive disadvantage in carbon-constrained export markets.
The 75 Plants with 2.2 tCO₂e or Lower
Among the obligated entities, 75 sites have been assigned emission intensity targets of 2.2 tCO₂e or lower per tonne of equivalent product. Together, these sites produced 39.97 Mt in FY 2023-24, accounting for 26.88 per cent of the total production covered under the mechanism.
The Missing Sub-Classification
In contrast to the cement sector, where facilities are categorised based on their production processes, the steel notification does not classify sites by sub-sector or process type, making it difficult to understand the operational characteristics of the obligated sites.
The Public Consultation
The draft notification has been issued for a 60-day public comment period from the date of publication in the Official Gazette.
What This Means for Steel Producers
| Implication | Action Required |
|---|---|
| Legally binding targets | Must meet emission intensity reduction targets |
| Compliance cost | Must reduce emissions or purchase CCCs |
| Competitive pressure | Efficient producers gain advantage |
| CBAM exposure | Steel exports to EU face 20-35% tax burden |
Fertiliser: The Ammonia Challenge
The Current Status
The fertiliser sector is included in India's CCTS but no GEI benchmark has been notified yet. This creates uncertainty for fertiliser companies, which must prepare for compliance without knowing their specific targets.
The Scale of Emissions
The fertiliser sector emits approximately 25 million tonnes of CO₂ annually. Approximately 95% of these emissions come from a single molecule: ammonia.
The Ammonia Problem
Ammonia production is the backbone of India's fertiliser industry. The Haber-Bosch process, which combines nitrogen and hydrogen to produce ammonia, is highly carbon-intensive. Most hydrogen in India is produced through Steam Methane Reforming (SMR) of natural gas, which releases significant CO₂.
The Green Hydrogen Solution
Green hydrogen, produced through electrolysis of water using renewable electricity, can replace fossil fuel-based hydrogen in ammonia production. This would eliminate the vast majority of emissions from the fertiliser sector. The National Green Hydrogen Mission targets 5 million tonnes per annum of green hydrogen production by 2030.
The Major Plants
The CCTS will cover the largest ammonia, urea, and industrial chemical producers in India, including:
| Plant | Location |
|---|---|
| RCF – Trombay Chemical Complex | Maharashtra |
| RCF – Thal Ammonia Unit | Maharashtra |
| Gujarat Narmada Valley Fertilizers – Bharuch | Gujarat |
| IFFCO – Kalol Unit | Gujarat |
| IFFCO – Phulpur Ammonia Unit | Uttar Pradesh |
| NFL – Panipat Unit | Haryana |
| NFL – Nangal Unit | Punjab |
| NFL – Bathinda Unit | Punjab |
| Chambal Fertilizers – Gadepan | Rajasthan |
What This Means for Fertiliser Companies
| Implication | Action Required |
|---|---|
| Uncertainty | Do not yet know specific GEI targets |
| Preparation time | Time to prepare, but not unlimited |
| Opportunity | Can engage with the regulatory process early |
| Green hydrogen | Significant decarbonisation potential |
The Power Sector: The Elephant in the Room
The Scale of the Gap
The power sector accounts for roughly 40% of India's national emissions. It sits outside the initial CCTS compliance boundary and is kept under voluntary participation.
Why the Power Sector Matters for Carbon Markets
In other carbon markets, power utilities are among the most active participants, and fuel-switching dynamics between coal and gas are among the strongest drivers of carbon price movements. Their initial absence will concentrate compliance demand among industrial firms whose trading may cluster around settlement deadlines, weakening the informational content of periodic market-clearing prices.
The IEEFA's Warning
Without a credible integration roadmap, the CCTS will lack the primary channel through which carbon pricing shapes energy investment. The IEEFA recommends planning for phased inclusion of the power sector while aligning electricity market regulations.
The Regulatory Hurdle
Future power sector integration will need to address the statutory tariff determination process under the Electricity Act 2003, which lacks an established framework for treating carbon compliance costs as a legitimate, automatic pass-through.
The Phased Approach
The phased approach to power sector inclusion reflects the importance of working through how carbon costs interact with India's electricity regulatory framework. South Korea's experience, where reforms from 2022 progressively embedded carbon costs into dispatch decisions even where retail price pass-through remained constrained, illustrates how this integration can be sequenced thoughtfully.
The Integration Timeline
| Phase | Timeline | Status |
|---|---|---|
| Phase 1 | 2026-2027 | Power sector excluded |
| Phase 2 | 2028-2030 | Power sector integration planned |
| Phase 3 | 2030+ | Full integration |
What This Means for Power Generators
| Implication | Action Required |
|---|---|
| No compliance obligation | No direct carbon cost (currently) |
| Uncertain future | Prepare for eventual inclusion |
| Opportunity | Early preparation = competitive advantage |
The Combined Impact: 740+ Entities, 700+ Million Tonnes
The Expansion Path
| Phase | Sectors | Entities | Emissions | Timeline |
|---|---|---|---|---|
| Phase 1 | Aluminium, Cement, Chlor-Alkali, Pulp & Paper | 282 | ~200 MtCO₂e | October 2025 |
| Phase 1b | Petroleum Refining, Petrochemicals, Textiles | 208 | ~277 MtCO₂e | January 2026 |
| Phase 2a | Iron and Steel | 255 | ~358 MtCO₂e | Draft June 2026 |
| Phase 2b | Fertiliser | ~35+ | ~25 MtCO₂e | Pending |
| Phase 3 | Power Sector | TBD | ~40% of emissions | 2028-2030+ |
| Total | 9+ sectors | 740+ entities | 700+ million tCO₂e |
The Global Context
Once fully expanded, the CCTS will place India among the largest compliance carbon markets in the world, comparable in scale to the EU ETS and China's national ETS.
The Emissions Coverage
The expanded CCTS will cover:
- Iron and Steel: 358.6 million tonnes CO₂e (255 units)
- Cement: ~200 million tonnes CO₂e (186 units)
- Aluminium: ~30 million tonnes CO₂e (13 units)
- Petroleum Refining: ~150 million tonnes CO₂e (25 units)
- Petrochemicals: ~50 million tonnes CO₂e (30 units)
- Textiles: ~30 million tonnes CO₂e (173 units)
- Fertiliser: ~25 million tonnes CO₂e (35+ units)
- Power Sector: ~40% of national emissions
The Significance
The expansion to iron and steel, fertiliser, and the power sector transforms the CCTS from a policy framework into a working compliance market for hard-to-abate industries. As the world's second-largest steel producer, the choices made today will shape the sector's emissions trajectory for decades to come.
What Phase 2 Means for the Carbon Price Signal
The Supply and Demand Dynamics
The expansion to iron and steel, fertiliser, and eventually the power sector will significantly increase both the supply and demand for Carbon Credit Certificates. The impact on price will depend on:
- Target stringency: How ambitious the targets are
- Compliance pressure: Whether targets create genuine scarcity
- Legacy credits: How PAT ESCerts are handled
- Banking behaviour: Whether firms bank surplus credits
The IEEFA's Warning
The IEEFA has emphasised that benchmark calibration will be one of the most important determinants of carbon price formation under the scheme. Because the CCTS is intensity-based, allowable emissions rise alongside production output, meaning both credit supply and demand can increase simultaneously.
The Price Formation Challenge
The report said transparent benchmark-setting methodologies, independent verification and robust industry data would be critical for maintaining market scarcity and ensuring an effective carbon price signal.
The Power Sector Effect
Without the power sector, compliance activity is expected to remain concentrated among industrial participants, potentially reducing market liquidity and limiting the influence of carbon pricing on energy investment decisions.
The Price Projections
| Phase | Expected Price Range | Key Drivers |
|---|---|---|
| Phase 1 (2026-27) | $10–15 per tonne | Initial trading, limited sectors |
| Phase 2 (2028-30) | $15–25 per tonne | Iron & steel, fertiliser added |
| Phase 3 (2030+) | $25–50 per tonne | Power sector integration, absolute cap |
Implications for Businesses in Covered Sectors
For Iron and Steel Producers
| Implication | Action Required |
|---|---|
| Compliance obligation | Must meet emission intensity targets from FY 2026-27 |
| Compressed timeline | Skipped first compliance year |
| Reduction range | 2.1% to 9.3% reduction required |
| Competitive advantage | Efficient producers can earn surplus credits |
| CBAM exposure | Steel exports to EU face 20-35% tax burden |
For Fertiliser Producers
| Implication | Action Required |
|---|---|
| Pending targets | Targets not yet notified |
| Preparation time | Use the window to prepare |
| Green hydrogen | Significant decarbonisation potential |
| Ammonia challenge | 95% of emissions from one molecule |
For Power Generators
| Implication | Action Required |
|---|---|
| Current status | Excluded from mandatory compliance |
| Future inclusion | Planned for 2028-2030 |
| Preparation | Start preparing now for eventual inclusion |
For All Businesses
| Implication | Action Required |
|---|---|
| Rising costs | Carbon compliance costs will increase |
| Competitive pressure | Efficient producers gain advantage |
| CBAM exposure | Exporters face carbon border taxes |
| Strategic imperative | Carbon management is now a strategic priority |
Opportunities for Project Developers and Investors
The Growing Market
The expansion of the CCTS to iron and steel, fertiliser, and the power sector creates significant opportunities for:
- Carbon credit project developers: New projects in covered sectors
- Technology providers: Abatement technologies, MRV systems
- Financial institutions: Carbon asset lending, trading
- Investors: Carbon credits as an asset class
The Technology Opportunities
| Technology | Opportunity |
|---|---|
| Green hydrogen | Decarbonise fertiliser and steel production |
| Carbon capture | Capture emissions from hard-to-abate sectors |
| Energy efficiency | Reduce emissions and costs |
| Digital MRV | Technology-enabled monitoring and verification |
| Biochar | Premium CDR credits |
The Carbon Credit Opportunity
The expanded market will create demand for carbon credits from:
- Obligated entities: Required to meet compliance targets
- Exporters: Seeking to reduce CBAM liability
- ESG-conscious companies: Voluntary carbon neutrality commitments
The Investment Opportunity
The India carbon credit market is estimated to be valued at USD 5.90 billion in 2026 and is expected to reach USD 66.79 billion by 2033.
The CBAM Connection: Export Competitiveness at Stake
The CBAM Reality
The European Union's Carbon Border Adjustment Mechanism (CBAM) came into effect on January 1, 2026. India's steel and aluminium exports to the EU fell 24.4% in FY 2025, with steel alone down 35.1%.
The CBAM Tax Burden
Under the EU's CBAM, Indian exports of steel, aluminium, and cement to the EU could face tariffs of 20-35 per cent. Indian steel and aluminium exporters have been forced to cut prices by 15-22 per cent to absorb the tax burden.
The CBAM Expansion
The EU Council agreed to strengthen the CBAM, expanding its reach to more products and introducing strict anti-circumvention measures. While the initial mechanism focused on raw materials, the new rules will now cover over 180 additional processed goods.
The CCTS Shield
A functioning domestic carbon market gives Indian producers a documented basis for demonstrating carbon costs already paid. The India-EU FTA includes provisions for engagement on carbon border measures, including the possibility to take into account the carbon price effectively paid.
The Strategic Imperative
As the IEEFA notes, irrespective of the ongoing international discussions around CBAM, a credible domestic carbon market can strengthen India's long-term industrial competitiveness. International experience points to the design choices—from benchmark calibration to the eventual role of auctioning—that shape how much carbon value is recognised and retained at home.
The IEEFA Framework: Sequencing and Design Choices
The Core Finding
The IEEFA report emphasises that determining the CCTS's trajectory now is about sequencing choices, and the window to shape them is open before path dependencies harden. Priority should be given to foundational elements, including credible stringency, robust MRV systems, and genuine enforcement.
The Four Themes
The IEEFA analysis is organised around four themes:
- Financial market participation: When and how financial intermediaries can be brought into the market
- Power sector integration: The regulatory and institutional conditions required to embed carbon costs into dispatch and merit-order decisions
- Sectoral expansion: The implications of incorporating new sectors
- Offsets and Article 6: Managing offsets and international opportunities while safeguarding market integrity
The Sequencing Principle
More advanced features should be designed early but introduced only as the market matures. Financial intermediaries—whose presence will be critical to improve liquidity and continuous price discovery—can be brought into the market through well-designed market-making rules and oversight.
The Power Sector Recommendation
The IEEFA recommends planning for phased inclusion of the power sector, which accounts for nearly 40% of India's emissions, while aligning electricity market regulations.
The CBAM Recommendation
Design the CCTS to better align with CBAM requirements, protecting India's exporters and preserving carbon value domestically.
The Enforcement Challenge: Will the CCTS Deliver?
The PAT Legacy
The Perform, Achieve and Trade (PAT) scheme was marked by limited emissions reductions, persistent non-compliance, and a price discovery mechanism that functioned poorly. The entities entering the CCTS are the same ones that operated under PAT, yet they have little reason to believe that the rules have fundamentally changed.
The Weak Penalty Problem
The cost of purchasing credits for major companies in the steel, aluminium, and cement sectors is between 0.6% and 7% of profits, assuming credit prices are $10 per tonne. This raises the risk that "paying to pollute" could become a preferred business strategy.
The Missing Regulator
Researchers recommend an independent regulator to ensure transparent governance and accelerate investment in low-carbon technologies.
The IEEFA's Warning
The IEEFA warns that failure to periodically revise baselines to account for the combined impact of companion programmes could result in excess carbon credit supply and weaken market incentives, echoing challenges seen during the early years of the European ETS.
The Path Forward
| Action | Why It Matters |
|---|---|
| Strengthen targets | Future targets must be more ambitious |
| Increase penalties | Make non-compliance more expensive than compliance |
| Establish independent regulator | Ensure transparent governance |
| Include the power sector | Complete the carbon price signal |
| Implement price stability mechanism | Prevent price collapse |
What Companies Must Do Now
For Iron and Steel Producers
| Action | Timeline | Priority |
|---|---|---|
| Calculate 2023-24 baseline | Immediate | High |
| Understand draft targets | Immediate | High |
| Assess reduction opportunities | Q3 2026 | High |
| Procure CCCs if needed | Q3-Q4 2026 | High |
| File Form A | By July 31, 2026 | Critical |
For Fertiliser Producers
| Action | Timeline | Priority |
|---|---|---|
| Calculate 2023-24 baseline | Immediate | High |
| Monitor target notification | Ongoing | High |
| Explore green hydrogen | Q3-Q4 2026 | High |
| Procure CCCs if needed | Q3-Q4 2026 | High |
For Power Generators
| Action | Timeline | Priority |
|---|---|---|
| Monitor integration timeline | Ongoing | High |
| Assess carbon exposure | Q3 2026 | High |
| Prepare for inclusion | Q4 2026 | High |
For All Businesses
| Action | Why It Matters |
|---|---|
| Register on the ICM Portal | Required for participation |
| Understand your obligations | Know your targets and deadlines |
| Develop a compliance strategy | Reduce emissions or procure credits |
| Engage with the regulatory process | Provide input on future targets |
| Seek professional advice | Navigate the complex landscape |
Conclusion: A Market at an Inflection Point
The CCTS Phase 2 expansion to iron and steel, fertiliser, and the power sector marks a significant milestone in India's carbon market development. With 255 steel plants, 35+ fertiliser units, and the power sector (40% of emissions) on the path to inclusion, the CCTS is transforming from a policy framework into a working compliance market for hard-to-abate industries.
Key Takeaways
| Aspect | What You Need to Know |
|---|---|
| Iron and Steel | 255 plants, 358.6 MtCO₂e, 2.1-9.3% reduction |
| Fertiliser | ~35 plants, 25 MtCO₂e, 95% from ammonia |
| Power Sector | ~40% of emissions, phased inclusion 2028-2030 |
| Total Coverage | 740+ entities, 700+ million tCO₂e |
| CBAM Impact | 20-35% tax burden on steel exports |
| IEEFA Warning | Price signal must be established early |
The Choice Is Yours
| Option | Outcome |
|---|---|
| Act now | Understand your obligations, reduce emissions, earn credits, protect export competitiveness |
| Wait and see | Face penalties, higher costs, lost market access, reputational damage |
How Carboned.in can help
Our team covers every dimension of India's carbon market — pick the service that matches where you are.
Frequently Asked Questions
When were iron and steel added to the CCTS?+
The draft notification was issued on June 26, 2026.
How many iron and steel plants are covered?+
255 major plants.
What is the compliance year for iron and steel?+
2026-27, skipping the first compliance year of FY 2025-26.
What is the required reduction range for steel?+
2.1% to 9.3%, with a median target of around 5.5%.
When will fertiliser targets be notified?+
The targets are pending notification.
How much does the fertiliser sector emit?+
Approximately 25 million tonnes of CO₂ annually.
What percentage of fertiliser emissions come from ammonia?+
Approximately 95%.
Why is the power sector excluded from the CCTS?+
Its exclusion simplifies implementation while recognising the complexities of electricity market regulation.
When will the power sector be included?+
The phased approach to power sector inclusion is planned for 2028-2030.
How can Carboned.in help?+
We provide compliance assessment, gap analysis, credit procurement, trading advisory, and CBAM readiness support.
Siddharth Gupta is the founder of Carboned.in and specialist counsel for India's carbon compliance framework — advising obligated entities, project developers, and buyers on CCTS, CR-I registration, and credit transactions.
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