Carbon costs for cement and aluminium to rise as India's new climate rules tighten by FY2027: ICRA ESG

The study looked at 14 major companies (10 cement and 4 aluminum) 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.

In FY2026, cement companies can mostly meet targets if they reduce emission intensity by about 1.5%. But if emissions stay the same or increase, companies could face shortfalls, forcing them to buy carbon credits. Some firms may still benefit by cutting emissions early and selling surplus credits.

By FY2027, the situation becomes tougher. Around 30% of cement companies could face deficits even under favorable conditions. In worse scenarios, the financial impact could reach up to Rs 700 crore, and carbon costs could cut profits by as much as 19% for some firms. To stay on track, companies need to reduce emission intensity by roughly 0.7% in FY2026 and 2.7% in FY2027 compared to FY2024 levels.

Aluminum companies start with better efficiency, but rising production will increase pressure. In FY2026, larger firms may already need carbon credits, while smaller firms benefit from efficiency improvements. By FY2027, stricter targets could widen the gap further, with carbon costs reaching up to 3% of profits for some players. To meet targets, aluminum firms may need to cut emission intensity by 1.6% in FY2026 and 5.2% in FY2027.

If companies continue at current emission levels while production grows, none are likely to meet targets. The report highlights that steady emission reductions of 1-3% for cement and 2-5% for aluminum will be essential to control costs and stay competitive.

In short, 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. (ANI)