Cement Under CCTS – Why India's Hardest-to-Abate Sector Faces a 19% Profit Hit by FY2027

Introduction: The Cement Sector's Carbon Crossroads

India's cement sector is at a critical juncture. As the world's second-largest cement producer, with an annual production capacity exceeding 500 million tonnes, the sector is among the first to receive legally binding emission intensity targets under the Carbon Credit Trading Scheme (CCTS).

The targets, notified in October 2025, require cement manufacturers to reduce their greenhouse gas emission intensity by 4.7% to 7.6% compared to their 2023-24 baseline, with the pressure intensifying significantly in FY2027.

The financial stakes are substantial. According to an ICRA ESG analysis, carbon costs could cut profits by as much as 19% for some cement firms by FY2027. In worse scenarios, the financial impact could reach up to ₹700 crore.

This is not a distant threat. Compliance obligations are already in force. The first compliance deadline is July 31, 2026. Cement manufacturers that delay action will face higher costs, potential penalties, and a competitive disadvantage in an increasingly carbon-constrained global market.

This guide provides a comprehensive analysis of what the CCTS means for India's cement sector, the financial implications, compliance pathways, and what cement producers must do to prepare.

---

Why Cement? The Sector's Emissions Profile

The Scale of the Challenge

Cement manufacturing is one of the most carbon-intensive industrial processes on the planet. The sector contributes roughly 15–20% of India's total greenhouse gas emissions.

India is the world's second-largest cement producer, with an annual production capacity exceeding 500 million tonnes. The sector is a cornerstone of the country's infrastructure development, but it comes at a significant environmental cost.

The Chemistry Problem

Approximately 60% of cement emissions come from the chemical process itself — the calcination of limestone (calcium carbonate) into clinker (calcium oxide) releases CO₂ as a byproduct. This means that even if a cement plant switches entirely to renewable energy, it still cannot eliminate its core process emissions. The carbon is chemically inherent to the product.

The Energy Emissions

The remaining 40% of emissions come from the energy required to heat the kiln — typically from fossil fuels like coal and petcoke. This creates a dual challenge: reducing both process emissions and energy-related emissions.

Why Cement Was Prioritized

Reason	Explanation
High Emissions Intensity	Cement is one of the most carbon-intensive industrial products
Scale of Production	India is the world's second-largest cement producer
Abatement Potential	While hard-to-abate, there are proven technologies to reduce emissions
Export Exposure	Cement exporters face increasing pressure from international regulations

---

The CCTS Targets for Cement: The Numbers

The Baseline Year

Emission intensity targets use fiscal year 2023-24 as the baseline.

The Target Range

The required reduction range for the cement sector is 4.7% – 7.6%. This means that by the end of the compliance period, cement plants must reduce their emission intensity (tonnes of CO₂ per tonne of cement produced) by between 4.7% and 7.6% compared to their 2023-24 baseline.

The Back-Loaded Structure

The targets are back-loaded: about 40% of the required reduction must be achieved in FY2025–26 and the remaining 60% in FY2026–27.

Year-by-Year Breakdown

Compliance Year	Required Reduction	Context
FY2025-26	~1.5% reduction	Transition year. Manageable with modest efficiency improvements
FY2026-27	~2.7% reduction or higher	Significant pressure. Requires meaningful operational changes

The Sector Coverage

Cement is among the sectors covered under the compliance mechanism, which presently covers Aluminium, Cement, Chlor-Alkali, Fertilizer, Iron & Steel, Petrochemical, Petroleum Refinery, Pulp & Paper and Textile.

The Breakeven Thresholds

To meet targets without buying credits, cement companies need to reduce emission intensity by approximately:

• 0.7% in FY2026 compared to FY2024 levels
• 2.7% in FY2027 compared to FY2024 levels

---

The ICRA ESG Warning: Up to 19% Profit Impact

The Study

An ICRA ESG analysis examined 14 major companies (10 cement and 4 aluminium) and found that while FY2026 will be a relatively manageable transition year, FY2027 will bring tighter rules and higher financial risks if companies don't reduce emissions fast enough.

The Findings

Sector	FY2026	FY2027
Cement	Mostly meet targets if 1.5% reduction achieved	30% face deficits even under favourable conditions
Financial Impact	Manageable	Up to 19% profit hit for some firms

The Worst-Case Scenario

In worse scenarios, the financial impact could reach up to ₹700 crore.

The Deficit Projections

In cement, emission deficits are estimated at about 0.5 million tonnes of CO₂ equivalent in FY2026, rising to around 1.3 million tonnes in FY2027 under higher growth scenarios.

Why This Matters

Scenario	Outcome
If emissions stay the same	Companies could face shortfalls, forcing them to buy carbon credits
If production grows	Deficits widen significantly
If companies act early	They can earn surplus credits and gain competitive advantage

The ICRA ESG Conclusion

"FY2026 offers a transition period with manageable costs, but FY2027 will significantly increase pressure. Large companies may see profits hit by carbon costs, while smaller, more efficient players could gain an advantage by cutting emissions faster."

---

The Chemistry Problem: Why Cement Is Hard to Abate

The Calcination Process

The production of cement involves heating limestone (calcium carbonate) to extremely high temperatures in a kiln. This process, known as calcination, releases carbon dioxide as a byproduct of the chemical reaction:

CaCO₃ → CaO + CO₂

Approximately 60% of cement emissions come from this chemical process itself. The remaining 40% come from the energy required to heat the kiln — typically from fossil fuels like coal and petcoke.

The Hard-to-Abate Reality

Cement is considered a "hard-to-abate" sector because:

• The chemistry of cement production inherently produces CO₂
• High-temperature processes require significant energy
• Capital-intensive nature makes technology transitions slow
• The sector is essential for infrastructure development

The Global Context

India is not alone in facing the challenge of cement decarbonisation. Cement producers worldwide are under pressure to reduce emissions. The choices made today will shape the sector's emissions trajectory for decades to come.

---

The Compliance Pathways for Cement Producers

Pathway 1: In-House Reduction

Strategy	Description	Potential Impact
Blended Cement	Replace clinker with fly ash, slag, or pozzolana	Up to 30-40% reduction
Alternative Fuels	Replace coal with biomass, industrial waste, or RDF	10-20% reduction
Waste Heat Recovery (WHR)	Capture waste heat to generate electricity	5-10% reduction
Renewable Energy	Install solar panels or wind turbines	Variable
Process Optimisation	Optimise kiln operations, improve grinding efficiency	2-5% reduction
Carbon Capture, Utilisation and Storage (CCUS)	Capture CO₂ emissions from the kiln	Up to 90% reduction in process emissions

Pathway 2: Credit Procurement

Entities that fall short of their targets may be required to purchase Carbon Credit Certificates (CCCs) from the domestic market. This creates a financial incentive to reduce emissions while providing a compliance pathway for those that cannot achieve the required reductions in the short term.

The Economic Logic

If the cost of reducing emissions is less than the carbon price, reduce in-house. If the cost of reducing emissions is greater than the carbon price, buy credits.

The Hybrid Approach

Most cement companies will benefit from a hybrid strategy that combines both pathways: reduce emissions where it is cost-effective, and procure credits for the remaining gap.

---

The Transition Period: FY2026 vs. FY2027

FY2026: A Manageable Transition

Aspect	Details
Required Reduction	~1.5%
Compliance Outlook	Manageable
Financial Impact	Limited
Key Action	Incremental efficiency improvements

FY2027: The Pressure Intensifies

Aspect	Details
Required Reduction	~2.7% or higher
Compliance Outlook	30% of companies face deficits
Financial Impact	Up to 19% profit hit
Key Action	Significant operational changes

The ICRA ESG Warning

"FY2026 offers a transition period with manageable costs, but FY2027 will significantly increase pressure. Large companies may see profits hit by carbon costs, while smaller, more efficient players could gain an advantage by cutting emissions faster."

What This Means for Cement Companies

Scenario	Action Required
Already efficient	Maintain efficiency, earn surplus credits
Moderately efficient	Implement cost-effective reductions, procure credits for the gap
Inefficient	Significant investment required, or face high credit procurement costs

---

Who Wins and Who Loses in the Cement Sector

The Winners

Company Type	Advantage
Efficient producers	Lower compliance costs, surplus credits to sell
Early movers	First-mover advantage in carbon credit generation
Blended cement producers	Lower clinker factor means lower emissions
Renewable energy adopters	Lower Scope 2 emissions

The Losers

Company Type	Disadvantage
Inefficient producers	Higher compliance costs, deficit credits to buy
Late movers	Higher costs, missed opportunities
High clinker factor producers	Higher process emissions
Coal-dependent producers	Higher energy emissions

The Competitive Dynamics

Factor	Impact
Emission intensity gap	Efficient producers have a cost advantage
Credit revenue	Efficient producers can sell surplus credits
Compliance costs	Inefficient producers face higher costs
Market perception	Net sellers are seen as leaders; net buyers as laggards

The ICRA ESG Assessment

"Smaller, more efficient players could gain an advantage by cutting emissions faster."

---

The CBAM Connection: Export Competitiveness

What Is CBAM?

The Carbon Border Adjustment Mechanism is the European Union's carbon tariff on imports. It came into effect on January 1, 2026.

The CBAM Impact on Cement

Cement is one of the sectors covered by CBAM. Indian cement exporters to the EU face significant costs unless they can demonstrate carbon compliance.

The CBAM Certificate Price

The first quarterly price for CBAM certificates was set at EUR 75.36 per tonne of CO₂ equivalent for Q1 2026 and €75.28 for Q2 2026.

The India-EU FTA CBAM Annexure

The EU and India have committed to launching a platform on climate action in the first half of 2026, with €500 million in EU support envisaged to help India's GHG mitigation efforts.

What This Means for Cement Exporters

Implication	Action Required
CBAM Costs	Higher export costs unless carbon compliance is demonstrated
CCTS Compliance	CCTS compliance can help demonstrate carbon costs paid
Competitive Advantage	Early CCTS participation provides a competitive edge
Market Access	Non-compliance may affect access to EU markets

---

The Technology Solutions: How Cement Can Decarbonise

Blended Cement

What it is: Replacing a portion of clinker with supplementary cementitious materials (SCMs) like fly ash, slag, or pozzolana.

Why it works: Clinker production is the most emissions-intensive part of cement manufacturing. Reducing clinker content directly reduces emissions.

Potential reduction: Up to 30-40% reduction in emissions per tonne of cement.

Status: Widely adopted but room for further optimisation.

Alternative Fuels

What it is: Replacing fossil fuels (coal, petcoke) with alternative fuels like biomass, industrial waste, or refuse-derived fuel (RDF).

Why it works: Alternative fuels often have lower carbon content and can reduce overall emissions.

Potential reduction: 10-20% reduction in energy-related emissions.

Status: Growing adoption, but supply chain challenges remain.

Waste Heat Recovery (WHR)

What it is: Capturing waste heat from the cement kiln and using it to generate electricity.

Why it works: Reduces purchased electricity consumption (Scope 2 emissions).

Potential reduction: 5-10% reduction in total emissions.

Status: Proven technology. Many large plants already have WHR systems.

Renewable Energy

What it is: Installing solar panels or wind turbines to power plant operations.

Why it works: Reduces Scope 2 emissions from grid electricity.

Potential reduction: Varies based on installation size.

Status: Increasingly cost-competitive.

Process Optimisation

What it is: Optimising kiln operations, improving grinding efficiency, and reducing heat loss.

Why it works: Small efficiency gains add up to significant emission reductions.

Potential reduction: 2-5% reduction in total emissions.

Status: Ongoing improvement area for all plants.

Carbon Capture, Utilisation, and Storage (CCUS)

What it is: Capturing CO₂ emissions from the kiln and storing or utilising them.

Why it works: Directly removes CO₂ from the emissions stream.

Potential reduction: Up to 90% reduction in process emissions.

Status: Still expensive and not yet commercially viable at scale in India.

---

What Cement Companies Must Do Now

Immediate Actions

Action	Timeline	Priority
Calculate Baseline	Using FY 2023-24 data	High
Understand Target	Know your notified target	High
Assess Gap	Calculate current vs. target intensity	High
Identify Reduction Opportunities	Blended cement, alternative fuels, WHR	High
Procure Credits	If needed, buy CCCs early	Medium
File Form A	By July 31, 2026	Critical

Strategic Recommendations

Recommendation	Why It Matters
Invest in blended cement	Most cost-effective reduction lever
Adopt alternative fuels	Reduce energy emissions
Install WHR	Reduce Scope 2 emissions
Engage with regulators	Provide input on future targets
Seek professional advice	Navigate the complex CCTS landscape

Common Mistakes to Avoid

Mistake	Consequence
Waiting too long	Higher costs, missed opportunities
Ignoring the legal framework	Penalties, reputational damage
Underestimating the financial impact	Up to 19% profit hit
Going it alone	Inefficient compliance, higher costs

---

Our Services

Service	What We Do
Compliance Assessment	Understand your obligations and assess your position
Baseline Calculation	Accurately calculate your 2023-24 emission intensity
Target Interpretation	Understand your notified target
Gap Analysis	Assess your compliance position
Reduction Strategy	Identify cost-effective reduction opportunities
Credit Procurement	Help you buy CCCs at the best price
Legal Documentation	Draft watertight agreements and handle regulatory filings
Form A Filing	Assistance with documentation and submission

Why Choose Carboned.in?

Reason	Why It Matters
Legal Expertise	Led by Siddharth Gupta, Advocate, Calcutta High Court
Regulatory Knowledge	Deep understanding of CCTS, BEE, and MoEFCC requirements
Sector Experience	Knowledge of the cement sector's unique challenges
Market Intelligence	Real-time insights on pricing and compliance trends
End-to-End Support	From assessment to compliance

Your first consultation is completely free. No obligation. Just honest advice.

---

Conclusion: The Clock Is Ticking

The cement sector is at a critical juncture. With legally binding emission targets now in force, the first compliance deadline of July 31, 2026, fast approaching, and financial impacts of up to 19% of profits, the time to act is now.

Key Takeaways

Aspect	What You Need to Know
Target Range	4.7% – 7.6% reduction
Baseline Year	FY 2023-24
Compliance Years	FY 2025-26 and FY 2026-27
First Deadline	July 31, 2026
Financial Impact	Up to 19% profit hit
Key Strategies	Blended cement, alternative fuels, WHR

The Choice Is Yours

Option	Outcome
Act now	Meet compliance, avoid penalties, earn credits, gain competitive advantage
Wait and see	Face penalties, higher costs, reputational damage, lost competitiveness

📞 Ready to Prepare for Cement Sector Compliance?

Book a free consultation with Siddharth Gupta, Advocate, Calcutta High Court.

• Understand your CCTS obligations
• Calculate your baseline emission intensity
• Develop a reduction strategy
• Procure CCCs if needed

Your first consultation is completely free. No obligation. Just honest advice.