The Central Government has recently approved the “Carbon Credit Trading Scheme” for the Indian Carbon Market (ICM) through a gazette notification on June 30, 2023. The Scheme aims to help India achieve the Nationally Determined Contributions (NDC) goal of reducing Emissions Intensity of the GDP by 45 percent by 2030 against 2005 levels. The scheme is likely to spur mobilization of investments for transition to low-carbon pathways.
India was able to show concrete and collective resolve to ensure harmony and energy security in the world even at a time when global energy supply chains were in troublesome state and a crisis of essentials was present all over the world. And this is yet another concrete step to continue its pursuits towards reducing emissions intensity to the target levels.
The ‘Carbon Trading Scheme, 2023’ was drafted by the Bureau of Energy Efficiency (BEE) and it was first announced under the Energy Conservation Act, with an aim to set up a domestic carbon trading market in India.
Blueprint of Functioning of the Indian Carbon Market
According to the Notification dated June 30, 2023, the Centre will constitute a “National Steering Committee for the Indian Carbon Market” to govern and oversee the functions of the market as under:
Chairman:
The Secretary, Ministry of Power shall be the ex-officio chairperson, while the Secretary for the Ministry of Environment, Forest and Climate Change will be the co-chairperson.
Members:
The committee may have members from the ministries of Finance, New and Renewable Energy, Steel, Coal and Petroleum, and Niti Aayog among others.
Scope of Work:
The steering committee will recommend to the Bureau of Energy Efficiency (BEE) for the formulation and finalisation of procedures for institutionalizing the Indian carbon market and formulation of greenhouse gas emission targets for “obligated entities”.
Regulation of the Indian Carbon Market :
The Central Electricity Regulatory Commission (CERC) shall be empowered to regulate the ICM. It will register the power exchanges and approve the carbon credit certificate trading in the Indian carbon market from time to time.
The power exchanges shall formulate their respective bylaws and rules for trading of certificates in the power exchange and seek approval of the Commission for the same and perform functions regarding trading of carbon credit certificates, in accordance with the regulations notified by the commission.
Further, BEE would constitute, technical committees for different sectors as per the compliance mechanism for the purposes of this scheme.
The power ministry would decide what sectors are to be included under compliance mechanism of the Indian Carbon Market based on the recommendations of BEE. The bureau would also develop the trajectory and targets for the entities under compliance mechanism.
Under the compliance mechanism, the Ministry of Power, after duly considering the recommendations of Bureau and National Steering Committee for Indian carbon market, shall recommend the notification of greenhouse gases emission intensity targets to the Ministry of Environment, Forest and Climate Change for them to notify the same under the Environment Protection Act, 1986.
Need to Institutionalize the Carbon Trading Market
The Carbon Credit Trading Scheme (CCTS) has been formulated by the Government of India, for the institutionalization and functioning of the ICM and regulating it through a compliance mechanism in which emission objectives will be established for specific industries and organizations, surpassing which they will receive credit certificates.
There is a need to develop the Indian Carbon Market (ICM) at the national level to decarbonize the Indian economy by pricing the Green House Gas (GHG) emission through trading of the Carbon Credit Certificates.
India currently has an energy savings-based market mechanism and so the new Carbon Credit Trading Scheme will further give more strength to the energy transition efforts with an increased scope that will cover the potential energy sectors also in India. For these sectors too, Green House Gases emissions intensity benchmark and targets will be developed, which will be aligned with India’s emissions trajectory as per climate goals.
The trading of carbon credits will thus take place based on the performance against these sectoral trajectories. Further, it is envisaged that there will be a development of a voluntary mechanism concurrently, to encourage GHG reduction from non-obligated sectors.
Creation of competitive market to foster mobilization of resources toward low carbon pathways
The ICM will create a competitive market which will provide incentives to climate actors to adopt technologies that offer low-cost options and mobilizing their funds towards sustainable projects that generate carbon credits.
The ICM, on one hand, will develop methodologies for the estimation of carbon emissions reductions and removals from various registered projects, and on the other hand, it will stipulate the required validation, registration, verification, and issuance processes to operationalize the scheme.
Monitoring, Reporting, Verification (MRV) guidelines for the emissions scheme will also be eventually developed by the setting up of the comprehensive institutional and governance structure with specific roles of each stakeholder involved in the execution of ICM. This will facilitate capacity building of all entities as they adapt to the new mechanism.
The ICM will create new mitigation opportunities to meet the demand for emission credits by private and public entities. A well-designed, competitive carbon market mechanism would enable the reduction of GHG emissions at the least cost, both at the micro level (i.e., at the level of entity), as well as at the macro level ( i.e., at the level of the Industry/overall sector) and would encourage faster adoption of clean technologies. This is so very nice a thing to have in a growing economy like India.
India has been at the forefront of climate action to meet the climate goals through its ambitious NDC under Paris Agreement and has emerged as a global forerunner in the field of pursuing environmentally sustainable, low carbon initiatives across all key sectors of the domestic economy .
The government of India has given the mandate to develop the ICM in order to facilitate the achievement of India’s enhanced climate targets and to meet the future goals,. By accelerating the transition to a low carbon economy, let us hope that the ICM will facilitate achievement of the NDC goal of reducing Emissions Intensity of the GDP by 45 percent by 2030 against 2005 levels.
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