Date: July 26, 2023
Economies worldwide have come to recognize the pressing need to combat climate change by limiting carbon emissions. One effective approach to achieve this goal is by implementing a carbon market, where carbon credits can be traded, creating a financial incentive to reduce emissions. India’s Ministry of Power (MoP) has recently introduced the Carbon Credit Trading Scheme (CCTS) 2023, which aims to establish a domestic market for tracking and trading carbon credits. While this move is a positive step towards India’s compliance and voluntary carbon markets, there are still several critical questions that need clarity to operationalize the market effectively.
The concept of carbon credits is not new in India, with existing domestic carbon compliance markets like Perform, Achieve and Trade (PAT) for tradable energy certificates (ESCerts) and the Renewable Purchase Obligation (RPO) for renewable energy certificates (RECs). The CCTS will transition from ESCerts to carbon certificates expressed in tonnes of carbon dioxide (CO2) equivalent, laying the foundation for the domestic carbon market.
The recent CCTS notification outlines the structure of the market, including the establishment of a National Steering Committee to govern it. The Bureau of Energy Efficiency (BEE) will administer and develop procedures for accrediting carbon verification agencies, while the Central Electricity Regulatory Commission (CERC) will regulate the trading of certificates. While some suggestions from the Institute for Energy Economics and Financial Analysis (IEEFA) were adopted in the notification, several operational aspects remain unclear.
Firstly, there is no timeline provided for operationalizing the carbon market, leaving questions about which section will start first. The notification defines obligated and non-obligated entities, but it is uncertain whether entities under the existing PAT scheme will be mandated to transfer to the carbon credit market.
Moreover, the eligibility of sectors and industries to participate in the domestic carbon market remains unspecified. There is an existing Green Credit Programme (GCP) aiming to incentivize environmentally conscious practices through trading green credits, which could intersect with the carbon market. Understanding the distinction between the two and how they will interact is essential.
Another crucial aspect is the linkage between India’s domestic carbon market and the international carbon markets. With India having participated in selling carbon credits through the Clean Development Mechanism (CDM) and the voluntary carbon market, determining how these markets will run parallel is necessary to maintain India’s strategy in attracting foreign investment in decarbonization activities.
Accurate carbon price discovery is vital for the effectiveness of the carbon market. The methodology for price discovery should be robust and balanced to ensure market stability while encouraging real emissions reduction.
Additionally, the governance structure for voluntary carbon markets needs clarification. As multiple agencies with different standards exist, understanding how standards will be decided and the potential interoperability between international and domestic voluntary carbon credits is crucial.
While the CCTS is a commendable step towards a carbon-neutral future, operationalizing the market requires comprehensive efforts, including consumer profiling, target setting, and robust monitoring and verification. Clarity on the timeline and structure of the voluntary market is essential, especially with the National Stock Exchange (NSE) and the Indian Energy Exchange (IEX) already expressing interest in exploring this space.
In conclusion, India’s carbon market holds great potential to drive emissions reduction and promote environmental responsibility. By addressing the questions and aspects highlighted, the nation can establish a clear and efficient market framework, paving the way for a greener and sustainable future.