As India advances its economic development to meet the increasing demands of its population, it will encounter significant hurdles arising from climate change and the imperative to reduce carbon emissions. The intensifying impacts of global warming have created a pressing need to adopt strategies that mitigate the release of greenhouse gases (GHGs).
One of the proposed solutions to address this urgency is the establishment of a robust carbon trading network. This system involves the concept of carbon credits, akin to temporary permits that allow organizations to emit a specific quantity of CO2 within a given year. Entities with low or no emissions can sell these credits in a carbon trading marketplace, offsetting the emissions of other organizations willing to purchase these credits.
With global temperatures and GHG emissions on the rise, governments, investors, consumers, and various stakeholders are increasingly conscious of their carbon footprint and the necessity to control it. However, reducing emissions is particularly challenging for certain industrial sectors, including cement, chemicals, iron and steel production, and non-ferrous metals, due to their unique processes and higher associated costs compared to industries like transportation and power generation. Nevertheless, these industrial giants, responsible for a significant portion of global GHG emissions, are compelled to meet emission reduction targets, either due to local regulations or their internal policies.
Carbon credits can be a valuable tool for such companies to achieve their sustainability objectives. They can purchase credits or invest in programs that generate carbon credits. The Indian government is planning to establish the Indian Carbon Market (ICM), creating a national framework for pricing GHG emissions through the trading of carbon credit certificates. The draft framework for the Indian Carbon Credit Scheme 2023 has recently been announced by the government, with the Bureau of Energy Efficiency and the Ministry of Environment, Forest & Climate Change collaborating to develop the Carbon Trading Scheme.
The government is confident that the ICM will attract investments to transition to a low-carbon ecosystem and help India reduce the emissions intensity of its GDP by 45% by 2030, compared to 2005 levels, meeting its commitments under the Nationally Determined Contribution (NDC) related to global climate goals.
While India already has an energy savings-linked market mechanism, carbon credit trading will further accelerate the transition towards a low-carbon economy, covering a broader range of potential energy sectors. Emission intensity targets and benchmarks will be aligned with domestic emissions trajectories in accordance with climate goals, ensuring that carbon credit trading aligns with sector-specific performance.
It’s essential to note that the government’s draft notification lacks provisions for the procedures, regulations, or guidelines governing carbon markets, which will be overseen by a National Steering Committee chaired by the Secretary of the Ministry of Power.
As India aims to achieve net-zero emissions by 2070, the ICM will aid in decarbonizing commercial and industrial sectors. While regulated, the ICM will offer flexibility to hard-to-abate industries to enhance their GHG reduction efforts through carbon market credits.
This mechanism can attract financing and technology for sustainable projects that generate carbon credits, playing a pivotal role in mobilizing the funds needed for a low-carbon transition. The government’s decision will also drive awareness, change, and innovation in hard-to-abate industries, as they incorporate the environmental impact as a crucial parameter in their strategic decisions, promoting investments in low-carbon practices.
As carbon-related tariffs such as the Carbon Border Adjustment Mechanism (CBAM) begin to directly influence trade, businesses must consider both national and international implications. Given the complexity of global trade, accurately predicting and modeling the impact is challenging. Therefore, regulatory authorities must closely monitor the dynamics of the carbon credit market and establish systems to ensure its smooth operation.
In the journey towards a net-zero future, decarbonizing industrial activities will be paramount. Industry leaders in carbon management solutions and clean energy transition can play a pivotal role in facilitating this transition, assisting India in shifting from fossil fuel and legacy technologies to clean energy systems. As India strives to balance its economic needs with environmental concerns, a vibrant carbon trading mechanism can be a crucial element in creating a more sustainable future.
