Linking PAT and REC Trading Schemes with India’s Carbon Market

As the world continues to grapple with the impacts of climate change, reducing greenhouse gas emissions has become a top priority for many countries. One way to incentivize companies to reduce their carbon footprint is through the creation of carbon markets. In this article, we will discuss how India can create a domestic carbon market to encourage CO2 reduction projects and achieve its climate goals.

Examples of Carbon Markets

Carbon markets have been established in several countries, including Canada, China, the USA, and Europe. In Canada, the federal government implemented a carbon pricing system in 2018, which sets a price on carbon emissions for provinces that do not have their own carbon pricing system. China launched its national carbon market in 2020, which covers more than 2,200 power companies and is the world’s largest carbon market. In the USA, several states have established carbon markets, including California and the Regional Greenhouse Gas Initiative (RGGI) in the northeastern US. In Europe, the European Union Emissions Trading System (EU ETS) is the world’s largest carbon market, covering more than 11,000 installations in the power and industrial sectors.

Linking PAT and REC Trading Schemes with the Domestic Carbon Market

India has already implemented two successful schemes to reduce carbon emissions – the Perform Achieve and Trade (PAT) scheme and the Renewable Energy Certificate (REC) trading scheme. These schemes can be linked with the domestic carbon market to further incentivize companies to reduce their carbon footprint. The PAT scheme mandates energy-intensive industries to reduce their specific energy consumption by a certain percentage, and if they achieve their targets, they are issued energy-saving certificates that can be traded. The REC trading scheme enables renewable energy generators to sell their certificates to obligated entities, who use them to meet their renewable energy obligations. By linking these schemes with the domestic carbon market, companies can benefit from multiple incentives to reduce their emissions.

New Policy Announced by Government of India

The government of India recently announced a new policy that aims to achieve net-zero emissions by 2070. The policy includes several measures to reduce carbon emissions, such as increasing the share of renewable energy in the country’s energy mix and promoting electric vehicles. The policy also emphasizes the importance of carbon pricing and the creation of a domestic carbon market to incentivize companies to reduce their emissions. This is a positive step towards creating a sustainable and low-carbon economy in India.

Voluntary Carbon Market for Achieving Net Zero Targets by Businesses

In addition to the domestic carbon market, the voluntary carbon market can also play a crucial role in achieving India’s net-zero targets. Many businesses have set their own net-zero targets and are looking for ways to offset their emissions. By participating in the voluntary carbon market, businesses can purchase carbon credits from CO2 reduction projects and use them to offset their emissions. This can help drive investment in CO2 reduction projects and create a market demand for carbon credits.

Capture Costs and Incentivizing Scale and Innovation

As stated in the Niti Aayog report, capture costs are dependent on several factors, such as the source, density, and purity of the CO2 emission stream. Transportation and injection costs depend on volume and distance, and utilization costs depend on the application. These costs can add up, preventing the development and implementation of CO2 reduction projects. To overcome these challenges, a market model that encourages and incentivizes scale and innovation is necessary. Innovation in the CO2 reduction context could involve technologies and applications that create value-added products from CO2, such as CO2 to chemicals, cement, and advanced carbon materials. These innovations can reduce costs across the CO2 reduction value chain and bring forth new pathways for using CO2 as a feedstock, leading to higher demand and prices for carbon and CO2 reduction.