Context:
Government to announce emissions intensity targets for nine industrial sectors by February end. Industries will have one year to implement compliance measures before carbon trading may commence.
Trading in carbon credits expected to start by October 2026.
The Trading Framework of Carbon Credits
- The Indian Carbon Market (ICM) is designed to reduce emissions, remove, or avoid greenhouse gases totally.
- Instead of reducing emissions caused by industries, it simply demands improved efficiency: burning less coal per unit of steel, for example.
- The nine sectors covered by the Guidelines are
- Iron & steel
- Aluminium
- Chlor alkali
- Cement
- Fertilizers
- Pulp & paper
- Petrochemicals
- Petroleum refineries
- Textiles
India’s Carbon Market
Strictly speaking, India has set up carbon markets to trade carbon credits to reduce greenhouse emissions. These markets are meant to help India attain its target of net-zero carbon emissions.
- Operation
- Carbon credits are earned by entities that generate carbon emissions from fossil fuels and are obliged to purchase them.
- Entities that use non-fossil sources of energy earn credits that can be sold in the market.
- The central government will lay down the carbon credit trading scheme.
- Advantages
- The carbon market reduces the over-dependence of India on fossil fuels.
- The carbon market will enable the industries to be able to comply with the carbon emission norms in the world.
- This will provide one more channel for the entities trading in carbon certificates.
India’s Carbon Credit Trading Scheme (CCTS)
India’s Carbon Credit Trading Scheme (CCTS) is a market-based system that aims to reduce greenhouse gas emissions. The scheme will help India meet its climate goals.
How does the CCTS work?
- Compliance mechanism: Mandates energy-intensive industries to reduce their emissions.
- Offset mechanism: Encourages voluntary actions from entities that aren’t covered by the compliance mechanism.
- Measurement, Reporting, and Verification (MRV): Ensures accurate and transparent compliance.
What are the benefits of the CCTS?
- Helps protect coastal areas, Improves agricultural productivity, and Helps conserve biodiversity.
Carbon Market Mechanisms at the Global and Indian Levels
- European model
- Carbon credits represent one ton of CO₂ avoided.
- Companies trade credits based on their emission reductions beyond the maximum limits set under their caps.
- Indian Model
- Emphasis on controlling emissions intensity level (GHG emissions per unit production reduced).
- No direct cap on emissions, however, companies are compelled to adopt modern technologies for mitigation.
Introduction of Voluntary Carbon Offsets and Expanding the Market
- Voluntary offsets (projects for afforestation) create carbon credits.
- These credits may also be sold on the international market for compliance.
- If regulatory conditions are in place, a trading of offsets scheme might commence this year.
India Promised Climate Change Efforts
- Goal: Reduce emissions intensity of GDP by 45% (from 2005 levels) by 2030.
- This is expected to be aided through carbon trading.
