Evolving Structure of the Voluntary Carbon Market in India

India’s efforts in combating climate change have taken a revolutionary turn with the introduction of the Voluntary Carbon Market (VCM). Aiming to fulfill the Nationally Determined Contribution (NDC) under the Paris Agreement, the foundation for this ambitious project is built upon the pre-established PAT program. This article delves into the phased development of VCM, offering insights into each phase and its objectives.

1. Foundations of the VCM

The Perform, Achieve and Trade (PAT) program, covering approximately 1073 designated consumers across 13 sectors, forms the bedrock for VCM’s evolution. Thanks to the Bureau of Energy Efficiency (BEE)’s comprehensive policy development, the mechanism is tailored to align with various stakeholders. Leveraging the existing structure and enhancing policies creates an opportunity to manifest the VCM dream.

2. Phased Implementation of VCM in India

Figure illustrates a three-phase approach to the proposed VCM development. The phases, broken down, provide a detailed perspective on the direction VCM is taking.

2.1 Phase-1: Bolstering Demand in VCM

Phase-1 revolves around expanding demand within the current ESCerts market, making the tool more flexible, pooling more participants, and connecting other Indian markets to the proposed VCM.

• Principal Sources of Demand:
  • Voluntary buyers: Corporate agencies in India are potential participants. Companies, aiming for aggressive targets like the SBTi, can bring significant demand to the new market.
  • Airlines Sector: Global concerns over aviation emissions have risen. CORSIA, an initiative by ICAO, mandates airlines to counterbalance CO2 emissions growth beyond 2020 levels. Indian airlines, having witnessed a surge in emissions, can find VCM a feasible solution.
  • State and City’s: Cities aiming to climb the rankings can adopt energy-efficient procurement strategies.
  • DISCOMs: With stringent enforcement and growing RPO compliance, DISCOMs may emerge as strong demand pillars.

For the successful integration of these demand sources, pivotal policy changes are essential. This includes altering trading unit fungibility for ESCerts and RECs, updating PAT market rules for voluntary participants, and modifying trading periods.

2.2 Phase-2: Augmenting Supply in VCM

Phase-2 emphasizes boosting VCM’s supply post the Phase-1 enhancements. The central supply impetus comes from project-level registration and the consequent validation, verification, and issuance of emission reduction units (ERU).

It showcases the activities meriting credit in this phase. A rigorous process ensures real, measurable emission reductions. It’s a journey from conceiving a project idea to issuing tradeable credits, encompassing stages like Project Design Documentation, Validation, Verification, and finally, Issuance. The stringent process ensures that emission reductions are genuine and quantifiable.

2.3 Phase-3: Transition to a Cap-and-Trade System

Phase-3 envisions a transition to a cap and trade system. Here, sectors and their respective entities are earmarked for a fixed emission quota.

The goal is to establish an entity-specific GHG-emissions intensity factor for the current situation and forecast BAU emissions based on expected sectoral growth. The NDC alignment is achieved via an NDC-alignment coefficient (NAC). This methodology is unique and unprecedented in global carbon offset schemes, positioning the Indian model as a trailblazer.

Entities aspiring to participate must have a GHG emissions inventory and an MRV scheme. This high-level approach allows significant companies to engage their entire value chain simply and effectively.

3. Drawing Parallels with the EU ETS

Interestingly, the scheme proposed in Phase 3 bears a striking resemblance to the EU ETS.

Conclusion

 India’s endeavor to establish a VCM, leveraging the foundational PAT program, offers a comprehensive, multi-phased strategy to combat climate change. Each phase presents unique challenges but combined, they create a cohesive framework for a sustainable future.