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India carbon trading framework 2023: What is carbon credits and its market for real reduction in emissions

What is a carbon credit?

A carbon credit is the ownership of the equivalent of one metric ton of carbon dioxide that can be traded, sold or retired. If an organization is regulated by a cap-and-trade system, it likely has credits available to use toward its cap. If an organization produces fewer tonnes of carbon emissions than it is allocated, it can trade, sell or hold the remaining carbon credits.

When the credit is sold, the buyer buys the seller’s emission allowance. The credit becomes tradable for a very real reduction in emissions, but the reduction is due to an activity you may not be aware of, such as flying less or turning off devices at night.

What are carbon markets?

Carbon markets aim to reduce greenhouse gas emissions by allowing the trading of emission units (carbon credits), which are certificates representing reductions in emissions. Trading allows entities that can reduce emissions at lower costs to have higher-cost emitters pay for it.

By pricing carbon emissions, carbon market mechanisms raise awareness of the environmental and social costs of carbon pollution and encourage investors and consumers to choose lower-carbon paths.

India carbon trading framework

India’s carbon trading framework is gearing up for rollout, with the Bureau of Energy Efficiency (BEE) selected to manage the market. The framework may be released this year, and the market for voluntary carbon trading will also open later this year.

BEE CEO Abhay Bakre said in an interview “BEE will be the administrator. It will formulate a complete framework, set up systems along with methodologies for a voluntary market as well as a compliance market for certain sectors, which will come later”.

BEE will assist the energy and environment ministries to independently come up with carbon market announcements, he said, adding that the final decision on the framework would be made by an inter-ministerial body.

BEE CEO Abhay Bakre said “We expect this year, 2023, that the framework will be up and running and the voluntary market will be in place. The compliance market will take time as industries need to be given targets and timelines. It would take about 2-3 years, current Perform, Achieve and Trade (PAT) regime will be transferred to the compliance market”.

PAT is the flagship of the BEE program under the National Mission for Enhanced Energy Efficiency and is a regulatory tool to reduce specific energy consumption in energy-intensive industries. conduct compliance-based PAT trading; so need to transfer it to a regulated carbon market. We need to give the industry time to prepare for this.

Energy exchanges that allow trading of Energy Saving Certificates (ESCerts) converted from excess energy savings are also likely to be a trading platform for carbon credits within the carbon market, Bakre said.

Last month, Indian Energy Exchange announced the formation of a wholly-owned subsidiary, International Carbon Exchange Pvt. Ltd to explore business opportunities in the voluntary carbon market. Parliament on 12 December 2022 passed the Energy Conservation (Amendment) Bill 2022, paving the way for the country’s carbon market.

Draft National Carbon Market Plan

A draft National Carbon Market Plan was released for stakeholder consultation in 2021. It proposed to initiate the development of a voluntary carbon market in India to overcome the barriers to the “ESCerts” market and encourage voluntary entities to participate in the fulfillment of nationally determined contributions. obligations of India.

Under the proposal, the development of the voluntary carbon market from the existing PAT scheme will be split into three phases, with the first phase increasing demand on the existing ESCerts market by focusing on making the instrument more fungible and adding more to the pool participants and by connecting other markets in India to the proposed voluntary market, increasing supply in the voluntary carbon market in the second phase and moving to a cap-and-trade system in the third phase. Under the cap-and-trade system, sectors and sector-specific companies are earmarked for only a certain amount of emissions.

A carbon market would help because many of India’s leading corporations have committed to becoming carbon neutral, and the market will provide flexibility to entities in hard-to-reduce and high-cost abatement sectors to supplement their own reductions. efforts with carbon market credits. The market would incentivize entities with low abatement costs to reduce emissions beyond their mandate. Trading in the carbon market could reduce the overall cost of abatement in India, the company said.

Written by: Vaishali Verma

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