India’s evolving carbon market: Eye on policies for uniform emissions trading, Net Zero

The Government of India is taking steps to establish a carbon credit market to help the country meet its nationally determined contributions (NDC), the Union Minister for Power, New & Renewable Energy, RK Singh, said during a recent discussion.

Once the NDC targets of the country are achieved, the remaining credits can be sold in bulk to other countries who will benefit from them, he added.  

One carbon credit permit allows only one tonne of carbon dioxide or any other greenhouse gas to be emitted. 

There has been a murmur about the country’s plan to focus on carbon credit since the central government declared its objectives to achieve Net Zero by 2070. The Lok Sabha passed the Energy Conservation Amendment bill in August 2022, paving the way for the formation of a carbon credit market.

It will be beneficial if the location of the carbon projects are scattered, so that mitigation activity happens over a wider area. This will allow deeper penetration of the domestic carbon market through the development of different mitigation results linked to a single carbon market.

Enabling the carbon market at the domestic level will help organisations in the country trade in their carbon credits effectively. This, in turn, will speed up the energy transition objectives of the country for climate change mitigation.

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India is very well acquainted with carbon credits and the establishment of a carbon market will only add value to the size of the market.

Carbon markets will open up new avenues for organisations that are engaged in developing, trading and consulting carbon credits, while stunting the growth of fossil-fuel generation capacities.

Carbon credits will help developing countries like India carry out economic activities, while keeping the country’s carbon goals in perspective. Last year, the global carbon credits market rose by 164 per cent and is expected to cross $100 billion by 2030.

Carbon credits offer a way to reward the industries and other sectors that have developed practices involving technological innovations to reduce emissions and achieve climate targets. The required $10 trillion investment in areas such as power and hydrogen can be generated through carbon credit trading.

India submitted its updated NDCs under the Paris Agreement to the United Nations Framework Convention on Climate Change (UNFCCC) in August 2022, in which it stressed the fact that it is a step ahead in achieving the long-term goal of Net Zero in 2070. 

Deliberations will be held this November at the 27th Conference of Parties (CoP27) to UNFCCC in Sharm-El-Sheikh, Egypt on the development of the market mechanisms according to Article 6 under the Paris Climate Treaty and the economics for climate change adaptation, mitigation and resilience.

Under the updated NDCs, India is committed to reducing the emissions intensity of its gross domestic products by 45 per cent from 2005 levels by 2030 and achieving 50 per cent of its cumulative electric power installed capacity from non-fossil fuel sources of energy by 2030.

The country is working on expanding its supply chain in the solar manufacturing division, Singh said in response to a question on the deepening energy crisis in Europe due to the Russia-Ukraine war.

The government has taken the necessary steps towards diversification of the supply chain by introducing a production linked incentive scheme for the manufacturing of polysilicon cells into modules.

Carbon markets will play a key role in the drive towards decarbonisation, encouraging the reduction of emissions through various schemes in the short term with an ultimate goal of achieving Net Zero in the long term.

In India, the clean development mechanism under the Kyoto Protocol provided a primary carbon market for the players. The secondary carbon market is covered by the perform-achieve-trade scheme (which falls under the energy efficiency category) and the renewable energy certificate.

The insight gained from each of the schemes will prove to be instrumental in the creation of a national carbon market.   

India is on the path to establishing a carbon market at the national level beginning with the voluntary carbon market and then moving on to a compliance-based market. The effects of climate change reduction should be favorable to sectors such as renewable energy, energy efficiency, transportation, waste, afforestation and reforestation.

The carbon credits market favoured by appropriate regulations and policy will help in the creation of suitable opportunities for the next decade.

Emissions Trading Energy India