Finance Minister Nirmala Sitharaman’s Budget speech has for the first time signalled that polluting industries, such as iron, steel, and aluminium will have to conform to emission targets.

“A roadmap for moving the ‘hard to abate’ industries from ‘energy efficiency’ targets to ‘emission targets’ will be formulated. Appropriate regulations for transition of these industries from the current ‘Perform, Achieve, and Trade’ mode to ‘Indian Carbon Market’ mode will be put in place,” Ms. Sitharaman said in her address.

While emission norms have usually applied to large industries, her Budget address suggests a tightening of norms for even small and micro-scale industries. “An investment-grade energy audit of traditional micro and small industries in 60 clusters, including brass and ceramic, will be facilitated. Financial support will be provided for shifting them to cleaner forms of energy and implementation of energy efficiency measures. The scheme will be replicated in another 100 clusters in the next phase,” Ms. Sitharaman said.

These directives come in the backdrop of the proposed India Carbon Market that has been in the works for a few years but yet to be fully spelt out by the government. A carbon market, or an emissions trading scheme, works as a trading platform where carbon credits, created as a consequence of preventing carbon emissions, can be bought and sold on negotiated prices on a portal. The system only works if an industry is required to curb annual emissions, failing which they may be fined.

Currently, industry in Indian has no curbs on emissions in lieu of carbon credits but are incentivised to achieve energy efficiency targets via a scheme called Perform, Achieve, Trade that has been operational since 2015. Caps on emissions also tie in with new international norms, such as the Carbon Border Adjustment Mechanism, to be imposed by the European Union (EU) from 2026. This will entail a tax on iron, steel, and aluminium goods imported into the EU that are produced by looser emission standards that that imposed on similar industries in the EU. Indian manufacturers have protested the norms and accused the EU of ‘protectionism’.