Carbon credits and the Indian carbon market

We hear a lot about carbon credits, but we often don’t know how it works. Permits that allow a factory or business owner to emit a specific amount of carbon dioxide or other greenhouse gases are known as carbon credits, commonly referred to as carbon offsets. One credit allows the emission of one ton of carbon dioxide or another greenhouse gas equivalent.

Carbon was recognized as a tradable good when the Kyoto Protocol was signed in 1997. This was reaffirmed in the Paris Agreement of 2015. Today, carbon is traded internationally in exchange for carbon credits. The carbon trading certificate encourages companies and nations to spend on environmentally friendly initiatives and activities that benefit nature, such as reforestation, to earn the right to emit more carbon dioxide. carbon than what is permitted by law.

Put simply, high-emitting companies earn the right to emit by developing green assets elsewhere in the world to offset their emissions. This has encouraged the growth of renewable projects all over the world. To help India meet its Nationally Determined Contribution (NDC) targets, the Indian government is trying to create a carbon credit market. India recently updated its NDC targets to reflect reducing emissions by 45%, generating 50% of electricity from renewable energy sources and achieving net zero emissions by 2070 .

Focus on internal trade

In the past, India has invested in the production of carbon credits and their export to international companies. Between 2010 and June 2022, India issued 35.94 million carbon credits, or nearly 17% of all voluntary carbon market credits issued globally. The carbon credit market grew by 164% worldwide in 2021. It is expected to reach $100 billion by 2030.

However, the government now intends to ban its exports, guarantee the expansion of a local domestic market for carbon credits and increase its internal trade. India has a high potential to produce increased carbon credits of high quality through initiatives with substantial socio-economic co-benefits.

India’s carbon reduction pledges under the Paris Agreement require it to reduce all internal emissions, and so carbon credits produced here should not be exported. In this context, there is talk of establishing a national carbon market which could have an effect on the discovery of prices and the demand for carbon credits.

Indian sectors that export goods to highly regulated markets and have a commercial incentive to reduce their emissions could be the first to participate in such a market. This will contribute to climate change mitigation and put India on track to achieve its net zero emissions targets.

Carbon markets should limit the expansion of fossil fuel production capacity while providing new opportunities for companies involved in the creation, sale and viewing of carbon credits. Carbon credits are designed to support economic activity while keeping national carbon reduction targets in perspective.

According to Vaibhav Chaturvedi, a member of the Council on Energy, Environment and Water (CEEW), it is important to reduce emissions at the lowest cost, through the principles of trade. “From an offsets perspective, Article 6-driven markets could be useful for India to provide international climate finance,” he says. Under Article 6 of the Paris Climate Agreement, a country can transfer carbon credits earned through reduced greenhouse gas (GHG) emissions to help other countries achieve their climate goals.

The voluntary carbon market is a decentralized market where private parties voluntarily trade certified GHG reductions from the atmosphere for carbon credits. Sectors that play a key role in reducing emissions, such as waste management, transport, renewable energy, energy efficiency, afforestation and reforestation should benefit from the consequences of reducing climate change. A market for carbon credits, supported by sensible legislation and policies, will help create appropriate opportunities for the next decade.

Legislative push

The Energy Conservation (Amendment) Bill 2022, outlining the general parameters of a voluntary carbon credit trading scheme, was tabled in Lok Sabha on July 29, 2022. The previous bill ( Energy Conservation Act, 2001) was amended to include energy efficiency and the ability for government to facilitate internal carbon trading schemes. In December 2022, the Amendment Bill will be presented to the Rajya Sabha, the upper house of Parliament. If approved, it will be enacted into law by Parliament.

The Union Government or any authorized agency is empowered to issue “Carbon Credit Certificates” for the reduction of carbon emissions to companies registered under Section 14 of the Bill. The market can then be used to sell these credits.

According to TV Ramachandra, coordinator of IISc’s Center for Ecological Sciences, Bengaluru, the options left to global climate decision makers are to accelerate the operationalization of effective carbon sequestration and simultaneously push for the reduction of GHG emissions. This involves encouraging efforts to sequester carbon and reduce emissions. The carbon credit initiative, through measurable and verifiable emission reduction mechanisms, would ensure that ecological integrity is maintained with reduced carbon emissions.

“However, this approach would only make sense if we encourage carbon sequestration efforts as well as emission reduction targets,” says Ramachandra.

India’s goal of becoming carbon neutral by 2070 is relevant to the government’s campaign for a national carbon market. For the public, businesses and policy makers, specific standards and rules regarding these carbon credit certificates have yet to be specified.

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