India’s chemical sector is now at the forefront of the country's decarbonization and net-zero mission, especially after the launch of the Carbon Credit Trading Scheme (CCTS) and tighter, plant-level emission mandates in FY25-26. With the government’s push for climate-aligned growth, sector-specific regulatory and market-based measures are reshaping the chemicals and fertilisers industry’s path to Net Zero 2070.
Regulatory Push: CCTS Draft 2025
The CCTS Draft Notification (June 2025) targets the largest ammonia, urea, and industrial chemical producers by setting GHG Emission Intensity (GEI) targets for FY25–26 and FY26–27. The system directly links every plant’s emission profile to financial incentives and penalties. As per industry estimates, the sector is estimated to emit 70–90 million tonnes CO₂e annually, making it a high-impact focus for reduction initiatives. If a plant outperforms its GEI reduction target, it can earn and sell carbon credits; underperformance requires the firm to purchase credits, creating a robust market mechanism for compliance.
Listed chemical companies reporting verified Scope 1 and 2 emissions under SEBI’s BRSR Core framework (mandatory from FY 2025–26) stand to gain ESG-driven valuation premiums and lower cost of capital, as transparent carbon disclosures enhance investor confidence, access to green finance, and alignment with global sustainability benchmarks. This growing transparency strengthens the competitive positioning of India’s chemical sector in the global decarbonisation landscape.
Plant-level Trajectory and Compliance Market
Twenty major chemical and fertiliser plants, including PSUs like RCF, IFFCO, NFL, and FACT, have been assigned indicative GEI reduction targets for pilot facilities as per draft consultation tables, ranging from 1.4 to 2.6 tCO₂e per tonne of output (depending on plant type, age, and technology). These targets demand steady process improvements and energy switches each year. Plants must self-report data, undergo external verification, and trade credits, making decarbonization both a strategic and financial consideration.
Decarbonization Measures: Technology and Operations
To meet and outperform the CCTS targets, leading chemical plants are:
• Switching to Green Hydrogen: Partial blending—driven by falling renewable H₂ costs—reduces urea’s carbon footprint by ~0.02 tCO₂e/t per 1% green H₂ content.
• Implementing Energy Efficiency Upgrades: This includes condensate recovery, advanced burner controls, and VFDs, with reported CO₂ savings up to 8% through capex projects under ₹40 crore.
• Procuring Renewable Power: Solar and wind PPAs are now widespread; some plants (e.g., FACT Cochin) integrate 20+ MW of solar directly into operations.
• Flare Gas Capture and Reuse: Several Maharashtra facilities now reuse flare gas for internal power, cutting both emissions and energy costs.
• Verifiable Agroforestry Offsets: Verified CSR-based agroforestry projects now count as offset credits, linked to digital MRV platforms for auditability.
Carbon Credit Trading and Compliance Opportunity
The new market for tradeable carbon credits incentivises continuous efficiency: plants that exceed reduction targets profit from their surplus credits, while laggards must pay a financial penalty, calculated in crores annually. For example, a minor 0.07 tCO₂e/t gap from the compliance target at NFL Panipat translates to a liability of 84,000 tCO₂e and ₹10 crore at ₹1,200 per tonne of CO₂e.
Coverage, Limitations & Road Ahead
The CCTS, while a big leap, presently covers only the top 20 chemical and fertiliser facilities—excluding many MSMEs and some high-emission sectors like power and agriculture. The initial annual reduction requirement (1.68% per year, FY23-27) is below what’s needed for aligning with India’s 45% emission-intensity cut by 2030 (NDC target). This calls for steadily tightening future targets and expanding inclusion for broader impact.
Fiscal Advantage
McKinsey reports that digital and operational efficiency measures have the potential to improve EBITDA margins by 6-8 percentage points, while decarbonization through renewable energy adoption can reduce energy costs by 8-10%. However, the sector continues to face margin pressure from rising regulatory costs, project delays with average cost overruns of a considerable percentage, and increased investment requirements for sustainability transitions. Additionally, carbon credit trading is emerging as a financial factor—companies exceeding carbon targets can monetise surplus credits, while others may face purchase obligations or penalties, adding a new layer to profitability management.
With CCTS enforcement, plant-specific GEI targets, digital MRV, renewable integration, and carbon credit incentives, India’s chemical sector is witnessing its biggest ever regulatory and operational transformation. The decade to 2030 will see the expansion of these decarbonization measures, deeper linkages to national NDCs, and more dynamic carbon markets, setting the sector firmly on the pathway to Net Zero 2070.
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