India's carbon dioxide (CO2) emissions growth has slowed to a near-halt in 2025, marking a significant shift in the country's environmental trajectory. This slowdown is particularly notable given the previous decade's rapid growth, with annual increases averaging 4.9% since 1990 and 4-11% during 2021-24. The 0.7% rise in 2025 was the slowest since 2001, excluding the impact of Covid in 2020. This trend is a testament to the country's efforts in transitioning towards cleaner energy sources and more sustainable practices.
One of the key drivers of this slowdown is the power sector, which has seen a 3.8% year-on-year decline in emissions. This is largely due to the substantial growth in clean energy, with the addition of 38 gigawatts (GW) of solar, 6.3GW of wind, 4.0GW of hydropower, and 0.6GW of nuclear power in 2025. The annual electricity generation from this new capacity amounts to 90 terawatt hours (TWh), which is twice as much as the clean generation added in 2024, a record in itself. Power generation from solar grew by 30TWh and from wind by 20TWh, exceeding the 18TWh increase in total output. Hydropower also performed strongly due to high rainfall and capacity additions, with generation growing 21TWh.
The slow growth in total power demand, from 7.4% in 2019-23 to 1% in 2025, has also played a significant role in the fall in power-sector emissions. This slowdown was due to both weather conditions, with milder temperatures reducing the demand for air conditioning, and a more sustained slowdown in demand that had already started in late 2023 and was initially masked by the heatwaves. Notably, the increase in clean-power generation from newly added capacity in 2025 was sufficient to cover demand growth of up to 5%.
The fall in power-sector emissions is particularly notable, given it was the largest driver of emissions increases in 2021-2023, responsible for half of the total growth. Across the sectors, the reductions and weak growth in fossil-fuel consumption have eased India's vulnerability to the recent price and supply disruptions caused by the attacks on Iran by the US and Israel, as well as Iran's subsequent retaliation. Notably, India's fossil-fuel imports were disproportionately affected by falling demand overall. For example, consumption of imported coal at power plants fell by 20% in 2025.
Despite these positive trends, India is planning major expansions in its capacity for coal power, petrochemicals, and coal-based steel. The country's Paris Agreement targets for 2035, which were published yesterday, did not reflect the potential for slower emissions increases or continued clean-energy growth. The path of India's CO2 emissions over the coming years depends on how it resolves these apparent contradictions regarding its future demand for fossil fuels.
In the petrochemical and cement industries, demand has slowed due to an increase in India's imports of plastics and precursors, as well as a shift towards using more domestic coal in response to rising petcoke prices. The transport sector has also seen a moderation in petrol and diesel growth, as the slow rebound to the pre-Covid trend in demand has played out. Meanwhile, compressed natural gas (CNG) and electric vehicles have cut into the markets for passenger cars and light commercial vehicles, eating into petrol and diesel demand, respectively. EV sales grew 16% in 2025 and made up 8% of auto sales, helped by a reduction in the goods and services tax (GST) on EVs from 12% to 5%.
The steel industry, however, has continued to increase output, even though it is struggling with profitability and concerns about overcapacity. Output growth has led to a situation of oversupply, resulting in falling profitability and capacity utilisation, particularly at smaller mills, which account for 41% of total steel production. Delays in construction and infrastructure projects are also weighing down on India's steel demand, leading to rising inventories and falling prices. This is likely to affect the demand for steel, cement, and bitumen in 2026.
Despite these challenges, the government is planning for a major expansion of all these industries. The government plans to add 85GW of new coal-fired power capacity over the next seven years. The country is also targeting $1tn of investment in the petrochemical industry by 2040, a 50% increase in steel production capacity from 2025 to 2031, and a 25% increase in cement production capacity in the three years from 2026 to 2028. The planned investment in steelmaking is overwhelmingly coal-based capacity, which will increase the sector's reliance on metallurgical coal, almost entirely imported.
India's energy and emissions trajectory over the next 5-10 years will depend heavily on how these apparent contradictions are resolved. This is particularly true in the power sector, where clean energy and storage are already set to cover future growth. The sharp slowdown in India's overall CO2 emissions growth has now lasted 18 months, making it increasingly likely that it is not just a blip. If clean-energy growth rates continue and if demand growth stays at expected levels, then clean energy will cover all of the growth in electricity demand, leading to a significant reduction in fossil-fuel generation and associated CO2 emissions.
