Recent years have seen rising interest in carbon credits (CCs) as tools to combat climate change. Farmers planting native trees on degraded land generate CCs that companies buy to offset emissions. This creates a complex system of environmental accounting balancing growth and climate risks. However, the carbon credit market faces challenges of accuracy, fairness and effectiveness.
About Carbon Credits and Markets
A carbon credit equals one tonne of CO2 equivalent reduced, avoided or removed. Two main markets exist – mandatory and voluntary. Mandatory markets began with the 1997 Kyoto Protocol, setting legal emission caps for companies. Entities can trade CCs to meet these limits. Voluntary markets emerged around 2000, driven by social and corporate responsibility. These involve projects such as reforestation, renewable energy, methane capture and regenerative agriculture. Projects are registered under standards like Gold Standard or VCS. Independent auditors verify emission reductions. Verified credits are sold and retired through registries. Market watchdogs oversee quality and integrity.
Weaknesses in Carbon Credit Systems
Carbon trading simplifies complex ecological processes into numbers, risking inaccuracies. Satellite and soil data used to estimate carbon savings often have large error margins. Studies reveal systemic overestimation of emission reductions. The principle of additionality demands projects create reductions that would not happen otherwise. However, many projects fail this test, leading to greenwashing. India is a major supplier of offset projects but benefits rarely reach local communities. Only a tiny fraction of climate funds support them. Many forestry projects fail due to lack of community rights and benefit sharing. Permanence of carbon storage is uncertain. Natural disasters like cyclones can release stored carbon, invalidating credits. Buffers held by registries are insufficient in extreme events.
Economic Scale and Future Prospects
The mandatory carbon market is valued around $800 billion and may reach $1.88 trillion by 2030. Voluntary markets are smaller but growing from $3 billion to an expected $24 billion. India’s voluntary market is about $500 million but suffers from poor oversight and high value loss in supply chains. Emerging technologies like AI and machine learning help detect inflated baselines and improve transparency. New regulatory frameworks, such as India’s Carbon Credit Trading Scheme (2024), aim to enforce stricter standards and integrity. Start-ups are creating platforms to empower communities and ensure fairer distribution of benefits.
Role of Carbon Credits in Climate Strategy
Carbon credits can either delay real emission cuts or support sustainable projects. They are tools of responsibility, not mere commodities. For example, purchasing credits from afforestation projects should not justify continued fossil fuel use. The goal is to transform CCs into instruments of justice that serve communities and markets equally. India’s net-zero ambitions depend on credible and inclusive carbon markets aligned with environmental and social goals.
Questions for UPSC:
- Taking example of the Kyoto Protocol, discuss the evolution and impact of international carbon markets on global climate governance.
- Examine the challenges in ensuring additionality and permanence in carbon offset projects and their implications for climate policy.
- Analyse the role of technology such as AI and machine learning in improving transparency and accountability in voluntary carbon markets.
- Discuss in the light of India’s carbon credit market, the socio-economic impacts of climate finance on rural and indigenous communities and the measures needed to enhance equity.
