On the 28th of June, 2023, a ground-breaking initiative was set in motion by the Ministry of Power in India – the Carbon Credit Trading Scheme 2023. This visionary scheme aims to combat greenhouse gas emissions and foster sustainability by valuing each ton of reduced or avoided carbon dioxide equivalent (tCO2e) as a carbon credit. This systematic approach establishes a structured framework for the nation’s carbon market, encouraging industries to play a vital role in India's ambitious emission reduction targets. As the scheme unfolds, numerous energy-intensive industries will be designated key contributors, each assigned specific carbon emissions targets to fulfil. However, amidst the potential promise of transformation, it is imperative to explore the nuances of its implementation and anticipate potential challenges that might arise within the Indian context. In this article, we delve into the intricacies of India's Carbon Credit Trading Scheme 2023, gaining a deeper understanding of its mechanics and paving the way for a greener future.
CARBON CREDIT AND RELATED TERMS
A Carbon Credit or Carbon Offset corresponds to one metric tonne of Carbon Dioxide that has been either removed from the atmosphere or recycled. While Carbon Credits generally indicate a reduction in greenhouse gas emissions, Carbon Offsets encompass activities related to greenhouse gas removal, recycling, and Carbon Sequestration among others.
Industries are granted specific allowances by the Government to emit a certain amount of Carbon Dioxide or other greenhouse gases into the atmosphere. Organizations that manage to keep their emissions below the permitted threshold are issued Carbon Credit Certificates. On the other hand, those exceeding the allowed limit must either purchase Carbon Credits from organizations holding Carbon Credit Certificates to compensate for their excess emissions or face penalties imposed by the Government.
A Carbon Credit Certificate is a document issued by the Government or an authorized agency to an institution or organization that has either prevented greenhouse gases from entering the atmosphere or actively participated in removing them. The credits mentioned in the Certificate represent the quantity of Carbon and other greenhouse gases removed or reduced, which is calculated through advanced remote sensing data over time.
THE OBJECTIVE OF THE SCHEME
India’s recently launched carbon credit scheme has a clear and ambitious objective: to curtail, eliminate, or prevent greenhouse gas emissions within the country's economic landscape. This is accomplished by assigning a monetary value to greenhouse gas emissions and fostering their trade through carbon credit certificates. Aligning with its updated Nationally Determined Contributions (NDC), India aims to reduce the emissions intensity of its GDP by 45% by 2030 from 2005 levels. The scheme is a potent tool for realizing India's vision for a sustainable and green future.
LAYOUT OF SCHEME
The Indian Government is making significant strides in tackling climate change by implementing a ground-breaking initiative aimed at reducing greenhouse gas emissions. The plan involves the introduction of carbon certificates, which will be traded on dedicated platforms such as the Indian Energy Exchange (IEX) or other specified platforms exclusively dedicated to carbon credit trading.
The IEX, a prominent bourse in the country, is not only supporting this initiative but has gone a step further by establishing a wholly-owned subsidiary dedicated solely to the voluntary carbon market. This move reflects the growing interest in sustainable practices and carbon reduction strategies among various stakeholders.
Moreover, the National Stock Exchange (NSE) is also actively exploring opportunities in both electricity derivatives and the voluntary carbon credit (VCC) market. By diversifying its product portfolio and venturing into environmentally conscious endeavours, the NSE aims to evolve into a multi-asset stock exchange that embraces sustainable practices.
Key governmental bodies such as the Bureau of Energy Efficiency and the Ministry of Environment, Forest & Climate Change are actively involved in developing the Carbon Credit Trading Scheme. Their collaborative approach is evident through stakeholder meetings, indicating a commitment to transparency and inclusivity in the implementation of this crucial scheme.
POSSIBLE HURDLES
India has made a commitment to decrease its emissions as part of its long term goal of reaching net-zero by 2070. To achieve this goal, the country must establish distinct targets for various sectors, such as industries, transportation, and power producers, to reduce their carbon footprint.
One of the major challenges in India would be that generating domestic demand for carbon certificates poses a significant challenge due to the complex interplay of national priorities and economic considerations. Balancing the need for emission reduction with economic growth while ensuring industry-specific participation requires thoughtful strategies. Moreover, fostering public awareness and participation becomes crucial to building a successful domestic carbon trading market. As the nation strives to combat climate change and prioritize sustainable development, finding the delicate equilibrium between these factors remains essential in driving effective climate action at home.
Another potential issue arises if these industries decide to sell their achieved carbon savings to foreign entities. In such a scenario, India would not be able to count these carbon savings towards its own emission reduction targets. This is a precautionary measure to avoid "double counting" of emission reductions.
The decision on which types of carbon credits to allow for international sale is yet to be determined. It is a complex matter since the international market operates based on its own logic and interests, not necessarily aligned with national priorities. Striking a balance to protect India's interests and facilitate a mature market is a challenging task.
WAY FORWARD
The government's immediate focus should be on publishing a transparent and comprehensive framework for the carbon credit scheme. This framework must clearly outline the eligibility criteria for participation, the process for obtaining and trading carbon credits, reporting and monitoring obligations, and penalties for non-compliance. Clarity in these aspects will foster stakeholder confidence, ensuring a smooth implementation process. Further, to address pricing concerns, conducting thorough market analyses is essential. This will allow the government to set a fair and competitive price for carbon offsets, finding the balance between industry interests and environmental goals. Moreover, aligning the Indian registry's verification and certification protocols with international standards will enhance credibility and enable seamless integration into global carbon markets, opening doors for international opportunities for Indian industries.
The government's use of third-party audits to verify emission reductions is crucial in accurately measuring business entities' progress. Incentivizing early adopters through tax benefits and other incentives can stimulate demand and drive participation in the scheme. Exploring partnerships with international organizations and the private sector for voluntary offsetting programs can broaden the scheme's reach. Also, introducing a secondary market for carbon and green credits has potential but requires careful regulation to prevent market manipulation and price volatility. To ensure fairness, mechanisms like setting a price floor or implementing a buy-back system can compensate credit generators appropriately.
India's Carbon Credit Scheme holds promise for a sustainable future. By incentivizing emission reductions and fostering carbon trading, the nation can collectively work towards ambitious climate goals. However, continuous monitoring and adaptability will be essential for the scheme's success in driving positive environmental and economic change.
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