The presence of the goods and services tax impedes the country’s voluntary carbon market
The year 2022 has been favourable for Indian policymakers working towards a clean energy transition. This is despite the turbulent times with unpredictable climate events such as the extreme heat waves throughout the country and soaring energy demand and prices.
India’s power sector has undergone significant development through the increased penetration of renewable energy in the grid and the increasing presence of grid-connected distributed generation.
India ranked third in the Renewable Energy Attractive Index, 2021 by Ernst & Young that analyses the world’s top 40 markets on the attractiveness of their renewable energy investment and deployment opportunities.
In terms of renewable energy installed capacity (including large hydro), India occupies the fourth position globally. India occupies the 4th position for wind and solar power, according to the report released by the Union Ministry of New and Renewable Energy in 2022.
India is the second-largest market in Asia when it comes to new solar photovoltaic capacity additions, and ranked third globally (around 13 gigawatts were added in 2021). Regarding the total installations, the subcontinent stood fourth with a capacity of around 60.4 GW, overtaking Germany, which had a total of around 59.2 GW.
In 2022, India’s total renewable energy installed capacity was 166 GW.
The country has set a target to bring its carbon intensity to under 45 per cent by the end of the decade, achieve 50 per cent of its cumulative electric power installed capacity by 2030 and Net Zero emissions by 2070. Low-carbon applications could create a market share of about $80 billion in India by 2030.
In the Climate Change Performance Index 2023, India occupies eighth position.
The country’s renewable energy sector has received foreign direct investments of more than $13 billion in the past 22 years.
Source: Press Infromation Bureau
India has set a target to generate five million tonnes of green hydrogen by 2030. The country’s green hydrogen target based on electrolyser manufacturing capacity is estimated to reach 8GW per annum by 2025.
Key highlights of the Union Budget 2022
Steps taken by the Government of India for transitioning towards clean energy to improve the twin problems of energy access and reliable energy:
India envisions the expansion of the power grid connectivity to southeast Asian nations and having a unified power market.
India has had a strong cross-border interlinking with Bangladesh, Nepal and Bhutan in the last decade. Besides hydropower, solar energy would be an important component of cross-border energy trade to improve energy access in south Asia.
World-over countries have made commitments to combat climate change issues. This has increased the voluntary carbon market, and for India, the market has kickstarted in a big way.
The market was nearly inactive in 2020 and has come a long way to reach more than $1 billion. More than a third of the 2,000 biggest publicly traded organisations worldwide have pledged to Net Zero by 2050.
Over 4,000 of the science-based targets by organisations have better medium-term targets than Net Zero achievements.
Numerous other organisations worldwide were either carbon-neutral or pledged to be carbon-neutral. Such pledges by enterprises progressively make up many billions of tonnes in terms of Scope 1, 2 and 3 emissions.
The science-based targets necessitate that reduction in emissions is achieved by taking suitable steps to curb it.
Net Zero and carbon-neutral work on the principle of lowering the carbon emissions to the maximum extent possible and then offsetting the rest of it. This has resulted in an exponential rise in the voluntary carbon market worldwide to cover up for the last mile in emission reduction.
The requirement is generated by organisations who want to complete their carbon-neutral obligations and those trying to fix the offset links to accomplish the Net Zero targets in the upcoming years.
India holds a prominent position in producing good quality carbon credits through noteworthy projects. The majority of the requirements for Indian carbon credit come from abroad, with the prices of credits for community-based projects increasing to more than $5. The contracts are made directly with developers. The agreements are made through credit contracts, project financing or forward contracts.
According to India’s 2070 Net Zero pledge towards the nationally determined contributions of the Paris Agreement, the government has stated that the carbon credits generated within the country would be utilised for the country to meet the emission reductions and should not be sold outside the country. In this regard, the government has proposed creating a national carbon market.
The presence of the goods and services tax (GST) impedes the country’s voluntary carbon market. Carbon credits cannot be taxed and are capital assets, according to a Madras High Court ruling.
With increasing volumes of trade, such an arrangement would invite GST. Credit contracts should identify and include suitable provisions for fixing the inevitable.
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