Carbon credits are a vital tool in the fight against climate change. The concept of carbon credits revolves around creating a market-based incentive for reducing greenhouse gas emissions (GHG). Carbon credits are tradable permits that allow individuals and organizations to emit a certain amount of greenhouse gases. Each credit represents a tonne of carbon dioxide equivalent (CO2e) emissions. The idea behind carbon credits is to incentivize the reduction of greenhouse gas emissions by giving companies a financial incentive to reduce their carbon footprint. On the other hand, carbon offsetting involves investing in projects that reduce greenhouse gas emissions to offset one’s emissions.

There are two main types of carbon credits:

· Certified Emission Reductions (CERs)

· Verified Emission Reductions (VERs)

CERs are carbon credits issued under the Clean Development Mechanism (CDM) of the Kyoto Protocol. Developing countries earn them for reducing greenhouse gas (GHG) emissions through clean energy projects or other sustainable development initiatives. CERs are considered high quality and subject to rigorous standards and verification processes.

VERs, on the other hand, are carbon credits that are not issued under the CDM but are instead issued by third-party organizations to companies that have reduced their emissions through voluntary action. VERs are considered lower quality than CERs, as they are not subject to the same rigorous standards and verification processes.

The Kyoto Protocol is a legally binding international agreement that requires developed countries to reduce their greenhouse gas emissions by a certain amount. Under the Kyoto Protocol, developed countries can offset their emissions by investing in CERs issued by developing countries that have reduced their emissions through clean energy projects or other sustainable development initiatives.

The Paris Agreement, which replaced the Kyoto Protocol, is a global agreement that aims to limit global warming to well below 2 degrees Celsius above pre-industrial levels. The Paris Agreement uses carbon credits as a way to reduce emissions. However, the Paris Agreement allows for a broader range of carbon credit mechanisms, including VERs, as long as they meet specific standards and are subject to rigorous verification processes.

India is one of the world’s largest emitters of greenhouse gases but is also a significant player in the global carbon market. The country has set ambitious targets for reducing its emissions, including increasing its share of renewable energy to 40% by 2030. India has several carbon credit projects, including the Clean Development Mechanism (CDM) and the National Clean Energy Fund. These projects aim to reduce greenhouse gas emissions while promoting sustainable development in the country. India’s carbon credit projects have successfully reduced emissions and promoted sustainable development. The country will likely play a crucial role in the global carbon market in the coming years.

The Government of India has passed an amendment to the Energy Conservation Act 2001, which leads to establishing a carbon credit market in India (The Energy Conservation (Amendment) Bill, 2022).

The amendment provides a legal framework for a carbon market with the objective of incentivizing actions for emission reduction. Under the amendment, the entities can register as “Registered Entities” for the carbon credit trading scheme. The central government or any authorized agency will issue the carbon credit certificate, and any other person or entity may also purchase ESCerts or carbon credit certificates voluntarily.

Section 2 of the amendment introduces alternative forms of carbon markets and their key characteristics. Section 3 is a brief history of carbon markets under the United Nations. Section 4 describes the existing emission mitigation market-based instruments in India and the details of the carbon credit market in the proposed amendment to the Energy Conservation Act 2001. Section 5 outlines the key takeaways from a stakeholder consultation meeting with industry representatives at CEEW and the proposed recommendations. Section 6 is our recommendation for the way forward.

The Government of India’s announcement of setting up a carbon credit trading scheme is path-breaking. Based on stakeholder discussions, the key recommendation is that India must align the initial phase of the transition process with developing an ETS similar to other ETSs prevalent in Asia and worldwide, like the EU-ETS and Korean ETS.

The Indian government should not intervene in the voluntary offset carbon market and let it function efficiently and independently. However, India’s compliance market, i.e., the ETS, should reflect its national circumstances and economic structure while learning from the experiences of other ETS systems worldwide.

Furthermore, Indian stakeholders should view the domestic ETS as an instrument for decarbonization and domestic climate finance rather than international climate finance. Ideally, the process for setting up the same should be clean and straightforward and avoid the pitfalls of fungibility-related issues that could confuse market participants. Enough time should be given to market participants and regulators to understand the operational nature of the ETS through a pilot phase. To achieve success, we must start by clarifying all necessary concepts and bring all the stakeholders to par with an evolved understanding of alternative forms of the market, which is also the motivation behind this issue brief.

Because of the shared responsibilities that India has agreed to and its own Nationally Determined Contribution (NDC) goals determined as per the Paris Agreement, India remains committed to reducing its GHG emissions by 45% while aiming at generating 50% of its power from renewable energy sources and reaching net zero emissions by 2070. The market for carbon credits in recent times has increased by 164% globally, according to 2021 estimates. The market valuation for carbon credits globally is also anticipated to reach $100 billion by the end of 2030.

The position India is in right now stands to profit from the trade in carbon credits. However, for now, the Indian government intends to restrict international trade to an extent to meet the targets envisioned under the Paris Agreement. The government’s recent steps towards promulgating an indigenous carbon credits market and its focus on developing domestic trade on carbon offsets should be seen as a long-term strategic advantage for the country.

Carbon credits are a vital tool in the fight against climate change. They provide a market-based incentive for reducing greenhouse gas emissions (GHG) and successfully promote sustainable development in developing countries.

The two main types of carbon credits, CERs and VERs, have different standards and verification processes, with CERs generally of higher quality. Carbon credits are regulated by international agreements such as the Kyoto Protocol and the Paris Agreement, which set targets for reducing greenhouse gas emissions and provide a framework for using carbon credits. Using carbon credits will likely continue to be an essential tool in the fight against climate change in India and worldwide.

Tags: No tags

Add a Comment

Your email address will not be published. Required fields are marked *