In the pursuit of a greener and sustainable future, India has taken a momentous step by introducing the Carbon Credit Trading Scheme (CCTS). This pioneering scheme, brought into effect through the Energy Conservation (Amendment) Bill, 2022, empowers the central government to establish a carbon trading framework.
With the CCTS, India aims to create a thriving domestic carbon market, encouraging industries and entities to reduce their carbon emissions through a market-based approach. As India endeavours to combat climate change and achieve its emission reduction goals, a comprehensive analysis of the potential, challenges, and the road ahead for this innovative carbon credit trading scheme is imperative.
The Genesis of India’s Carbon Market
The concept of emissions trading revolves around the notion of countries trading excess emission units to aid others in meeting their emission targets. India’s carbon market has been gradually evolving, gaining substantial impetus from the Ministry of Power through the introduction of the CCTS. This visionary scheme lays out the organisational architecture required to establish and operationalise the domestic carbon market in India. Key constituents of the scheme include the India Carbon Market Governing Board, the administrator, the registry, the trading administrator, and more.
The proposed governing board will play a pivotal role in suggesting policies and regulations for the market, devising the framework for voluntary carbon credit trading, and establishing criteria for selling carbon credits to foreign buyers.
The Role of Industries in Emission Reduction
At the heart of the CCTS lies the active participation of industries, which are strategically positioned to contribute significantly to India’s ambitious emission reduction goals. The Ministry of Power has been entrusted with the crucial task of identifying designated consumers, including energy-intensive industries, and assigning them specific carbon emissions targets.
Unlike the previous energy efficiency goals, the CCTS incentivises entities to embrace clean technologies and transition to low-carbon practices by assigning a value, known as a carbon credit, to each ton of carbon dioxide equivalent (tCO2e) reduced or avoided. Companies surpassing their targets will be rewarded with carbon credit certificates, while those falling short will be required to purchase certificates to offset their deficit or face penalties.
Globally, the value of tradable carbon allowances or permits witnessed an astounding 164 percent growth to reach a record 760 billion euros (USD 851 billion) in 2021. The EU’s ETS (Emissions Trading System) contributed significantly to this surge, accounting for 90 percent of the global value. Voluntary carbon markets, while comparably smaller, are gaining traction with a current global value of USD 2 billion. The World Bank anticipates that carbon credit trading could slash the cost of implementing NDCs (Nationally Determined Contributions) by as much as USD 250 billion by 2030.
To maintain global warming within the desired thresholds of 2°C, ideally, no more than 1.5°C, worldwide greenhouse gas (GHG) emissions must decrease by 25 to 50 percent over the current decade. The Paris Agreement has witnessed nearly 170 countries submitting their NDCs, committing to update them every five years. Success in carbon markets is contingent on real emission reductions and removals that align with a country's NDCs, demanding transparency in institutional and financial infrastructure for carbon market transactions.
Embracing Energy System Models (ESMs)
To inform the design of India’s carbon emission trading scheme, energy system models (ESMs) play a crucial role. ESMs simulate and analyse the behaviour of energy systems and their interaction with global land, water, and climate systems. By considering energy demand and supply, technology costs, and environmental constraints, ESMs help policymakers understand different energy sources, technologies, and policies.
These models are vital for long-term energy planning, optimising energy systems, and transitioning to renewable energy sources.
Introducing the Green Credits Programme
Alongside the CCTS, the Indian government has also introduced the ‘Draft Green Credit Programme Implementation Rules, 2023’. The Green Credits Programme extends its focus beyond greenhouse gas emissions reduction or removal, encompassing activities such as tree plantation, water conservation, sustainable agriculture, and more.
This voluntary market complements the obligatory framework of the CCTS, offering an additional avenue for climate action.
Challenges and the Path Forward
While India’s carbon market is a crucial step towards achieving net-zero carbon emissions, it faces several challenges. Ensuring transparency, market integrity, and standardisation are vital for its success. Properly aligning the CCTS with India’s NDC goals and global climate standards is necessary to gain international recognition.
Conclusion
The Carbon Credit Trading Scheme in India marks a momentous step in the battle against climate change. By motivating industries to adopt eco-friendly practices through market incentives, the scheme facilitates a shift towards cleaner and sustainable operations. Although challenges and concerns persist, proactive measures, transparency, and collaboration among ministries and stakeholders promise a greener and climate-resilient future. As India sets out on this remarkable journey, the scheme stands as a beacon of hope, guiding the nation towards a sustainable and verdant tomorrow.
With combined efforts from industries, policymakers, and citizens, India’s commitment to achieving net zero carbon emissions by 2070 will leave an indelible mark in history. As we embark on this transformative path, let P.A.T.H.S — Paving a Sustainable Tomorrow through Harmonious Synergy — lead us towards an equitable and resilient future for generations to come.
—The authors, Dr. Heera Lal, is a senior IAS officer, and Dr. Kaviraj Singh, is Founder and Managing Director of Earthood. The views expressed are personal.
Reference Link: https://www.cnbctv18.com/views/carbon-credit-trading-scheme-17473261.htm