Giving shape to India’s carbon credit mechanism

Context: The Conference of Parties-29, from November 11 to 22,
2024, in Baku, Azerbaijan, is about to shift focus to the heated discussion on
the aspect of climate finance again. An essential component of this discussion
will be the carbon credits framework and disagreements over it between
developed and developing countries. India updated its Nationally Determined
Contributions (NDCs) in 2023 to underline, among other things, the
establishment of a domestic carbon market as a part of its climate strategy.
The Energy Conservation (Amendment) Act of 2022 provided a statutory mandate
for such a Carbon Credit Trading Scheme (CCTS).

Key points

·      
Overview: India’s carbon credit mechanism needs to be aligned
with international and domestic realities if it is to be effective. India aims
to align its climate commitments under the Paris Agreement with broader
economic goals.

·      
Nationally
Determined Contributions (NDCs): Nationally Determined Contributions (NDCs) are countries' plans to
reduce greenhouse gas emissions and limit global warming. India is a party to
the United Nations Framework Convention on Climate Change (UNFCCC) and the
Paris Agreement and has submitted NDCs in the past.

·      
Carbon
Credit Trading Scheme, 2023: The
Carbon Credit Trading Scheme, 2023, is a new initiative by the Ministry of
Power to regulate and incentivize the reduction of greenhouse gas emissions in
India. It involves the issuance and trading of carbon credits to meet emission
targets. The compliance segment of CCTS will commence in 2025-26, allowing
non-obligated entities to participate and trade carbon credit certificates
(CCCs).

·      
Carbon
Credits: They represent a reduction in
greenhouse gas emissions that can be traded. One carbon credit equates to one
ton of carbon dioxide equivalent (tCO2e) reduced or avoided. Carbon credits can
be generated through various activities, such as:

Ø  Implementing energy-efficient technologies, reducing
waste, or transitioning to renewable energy sources.

Ø  Preventing deforestation or promoting reforestation.

Carbon credit certificates - The carbon credit certificates will be issued by the
Bureau of Energy Efficiency (BEE) to entities that surpass their assigned
emission reduction targets.

Grid Controller of India Limited (GCIL) - GCIL acts as the registry for the scheme, undertaking
the registration of entities and maintaining a record of transactions.

·      
Voluntary
Carbon Markets Integrity Initiative (VCMI): The VCM aims to mitigate climate change by creating space for private
actors to finance activities that remove greenhouse gas (GHG) emissions from
the atmosphere or reduce GHG emissions associated with industry,
transportation, energy, buildings, agriculture, deforestation, or any other
aspect of human life.

·      
Way
forward: India is at a pivotal moment,
where establishing a carbon market can effectively balance its climate goals
with economic development. By strategically designing this market, integrating
existing schemes, and encouraging innovation, India can position itself as a
global leader in sustainable growth. As India moves towards a low-carbon
future, now is the time to act decisively and lead the way in creating a
resilient, climate-conscious economy.