Impact of India's Carbon Credit Trading Scheme on Cement and Aluminium Industries
Cement firms may see up to 19% profit hit under carbon scheme: ICRA
Business Standard
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India's Carbon Credit Trading Scheme (CCTS) may lead to a profit decline of up to 19% for cement firms and 3% for aluminium producers by FY27, according to ICRA ESG Ratings. While initial costs are manageable, reliance on carbon credit purchases could escalate production expenses as emission targets tighten.
- 01Cement companies could face a profit decline of up to 19% under the new carbon scheme.
- 02Aluminium firms may see a profit hit of around 3%.
- 03Initial compliance costs are absorbable, but reliance on carbon credits could increase production costs over time.
- 04Emission gaps in the cement and aluminium sectors are projected to widen significantly by FY27.
- 05Companies that invest in emission reduction strategies could limit compliance costs.
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India's recently launched Carbon Credit Trading Scheme (CCTS) is expected to have a limited immediate financial impact on hard-to-abate sectors like cement and aluminium, according to a report by ICRA ESG Ratings. The analysis of 14 companies indicates that while initial compliance costs are manageable, ongoing reliance on carbon credit purchases could escalate production costs as emission targets tighten. By FY27, some cement firms could see profitability decline by up to 19% at a carbon price of $10 per tonne of CO2, while aluminium companies may experience a 3% hit. The report highlights a widening emission gap, with the cement sector's deficit projected to increase from 0.5 million tonnes of CO2 equivalent in FY26 to 1.3 million tonnes in FY27. For aluminium, the deficit is expected to rise from 0.5 million tonnes to 1.4 million tonnes in the same period. ICRA ESG emphasizes that the scheme aims to encourage companies to reduce emission intensity rather than rely solely on market purchases of credits. Companies that proactively adopt measures such as blended cement and renewable energy could generate surplus credits, mitigating compliance costs. Conversely, firms that maintain current emission levels may face recurring credit requirements, especially with higher production growth. The report outlines necessary emission reductions for cement and aluminium companies to meet targets without incurring additional credit costs.
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The CCTS could significantly affect the profitability of cement and aluminium companies in India, leading to higher production costs and potential job impacts in these sectors.
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