“Understanding India’s Proposed Carbon Market: Key Highlights and Implications”
“The creation of India’s domestic carbon market is not only a major step towards reducing carbon emissions but also a significant contribution towards achieving the country’s updated nationally determined contribution. As the voluntary carbon market faces challenges in the new global framework, India’s initiative to encourage private and public entities to undertake decarbonization measures through the issuance of emission credits sets an example for other countries to follow. The success of the market will depend on its implementation, but the potential benefits are substantial, both for the environment and for the country’s economy.”
The Indian government has recently announced an initiative to develop a domestic carbon market in order to incentivize decarbonization measures across multiple sectors within private and public entities. This initiative, led by the Bureau of Energy Efficiency (BEE) under the Ministry of Power, Government of India, aims to transition from existing schemes to a new carbon credit trading mechanism in two phases between 2023-25 and 2026 onwards. This new market is expected to contribute towards achieving India’s updated nationally determined contribution (NDC) of reducing emission intensity of GDP by 45% by 2030, from the 2005 level, as agreed upon in the 26th UNFCCC’s Conference of Parties (COP) held at Glasgow.
The domestic carbon market will be divided into two dimensions, namely compliance market and offset market. The compliance market will transition from the existing Perform Achieve and Trade (PAT) Scheme, while the offset market will transition from project-based Renewable Energy Certificates (REC) and Clean Development Mechanism (CDM). The market will issue three types of Carbon Credit Certificates (CCCs), namely Converted CCCs (C-CCC) issued after converting ESCerts and RECs, Offset Carbon Certificates (O-CCC) issued under carbon offset mechanism, and Mandatory Carbon Credit Certificates (M-CCC) issued after achieving the target set in phase II of ICM.
The policy document suggests the creation of an Apex Committee for the Implementation of the Paris Agreement (AIPA) for international linkage of the domestic Indian Carbon Market. This committee will overlook the ICM governing board created for domestic carbon market administration. The Central Electricity Regulatory Commission (CERC), Grid Controller of India (erstwhile POSOCO), and Power Exchange (IEX/ PXIL) will act as regulatory authority, registry agency, and trading exchanges respectively.
The development of a domestic carbon market in India is a significant step towards decarbonizing the economy and addressing climate change. It provides a platform for incentivizing carbon reduction measures across multiple sectors and encourages entities to transition to low-carbon alternatives. Additionally, the policy document’s emphasis on international linkage of the Indian Carbon Market highlights India’s commitment towards the Paris Agreement and global efforts to address climate change.
However, the success of this initiative will depend on the effective implementation of the proposed policy document. The government will need to ensure that the regulatory and trading infrastructure is in place to support the functioning of the carbon market. Moreover, there will be a need for continuous monitoring and evaluation to ensure that the market is achieving its intended goals.
The development of a domestic carbon market in India is a positive step towards addressing climate change and decarbonizing the economy. The proposed policy document outlines a clear roadmap for transitioning from existing schemes to a new carbon credit trading mechanism. While the success of this initiative will depend on its effective implementation, it is an encouraging development for the global fight against climate change.