India is on the path to establishing a carbon credit market to help it meet its Nationally Determined Contributions (NDCs), a significant move initiated by the Ministry for Power, New & Renewable Energy. This move is part of a global trend sparked by the COP26 climate change summit held in Glasgow in November 2021, where the creation of a worldwide carbon credit offset trading market was agreed upon.
Understanding Carbon Credits and Carbon Markets
A carbon credit, also known as a carbon offset, is basically a permit that gives the holder the right to emit a specified amount of greenhouse gases. This can be used by governments, industries or private individuals to offset their emissions. The carbon credit system draws its roots from the “cap-and-trade” model that effectively curbed sulfur pollution back in the 1990s. Today, one carbon credit is equivalent to one metric ton of carbon dioxide or carbon dioxide equivalent gases (CO2-eq) in some markets.
Carbon Markets, on the other hand, are platforms where emission reductions and removals are traded. This makes reducing emissions or improving energy efficiency financially attractive, thereby driving change. These markets can be compliance-based or voluntary and originated from the United Nations’ Kyoto Protocol on climate change which garnered support from more than 150 nations in 1997.
The Significance of Carbon Markets
Carbon markets present new opportunities for organizations involved in developing, trading and consulting carbon credits. They help reign in the growth of fossil-fuel generation capacities and reward industries that have adopted technological innovations to reduce emissions. With the global carbon credits market surging by 164% in 2021 and an expected growth crossing USD 100 billion by 2030, carbon markets are seen as a potent tool in pushing for decarbonization and achieving Net Zero targets.
The Indian Emission Targets and Related Initiatives
In its updated NDCs submitted in August 2022, India expressed its commitment towards reducing its emissions intensity by 45% from 2005 levels by 2030 and achieving a 50% non-fossil fuel-sourced electric power installed capacity by 2030. It is also focused on expanding its solar manufacturing supply chain to support these targets.
To support this drive, India has rolled out several initiatives. The Production Linked Incentive (PLI) Scheme was introduced to diversify the supply chain by incentivizing the manufacturing of polysilicon cells into modules. Under the Kyoto Protocol’s Clean Development Mechanism, India established a primary carbon market. In addition, the secondary carbon market is managed via the perform-achieve-trade scheme and the renewable energy certificate. Moreover, the Energy Conservation (Amendment) Bill, 2022 empowers the government to specify norms and standards of energy efficiency for appliances and buildings with high energy consumption.
Looking Towards the Future
India is working towards establishing a national-level carbon market, beginning with the voluntary carbon market and transitioning to a compliance-based one. This move is expected to benefit sectors such as renewable energy, energy efficiency, transportation, waste, afforestation, and reforestation. With the right supporting policies and regulations, the carbon credits market can open up vast opportunities over the coming decade.
India’s steps towards building a carbon market not only puts it in line with global efforts to mitigate climate change but also provides an opportunity to restructure its economy along more sustainable lines. Through these steps, it aims to strike a balance between its development goals and environmental responsibilities.
