Updates about Carbon credit trading market in India
India is preparing to open its national carbon market.
In order to decarbonize heavy industries and influence global carbon trading, the Indian government has approved the development of a national carbon market.
The third-largest emitter in the world, India, is considering creating a national carbon market that could grow to be one of the most significant mitigation experiments ever undertaken and put the nation on track to achieve net-zero greenhouse gas emissions by the target year of 2070.
By the end of the decade, the nation wants non-fossil fuels, such as solar and wind but also large hydro, which up until recently was not classified as a renewable due to its environmental impacts, and biomass, to account for 50% of its capacity for power generation as part of its updated commitment under the Paris Agreement. India, meanwhile, is working hard to reduce its dependency on fossil fuels, with coal still accounting for over 70% of all electricity production.
India is currently considering creating a national carbon market to reduce its reliance on fossil fuels. The Indian government approved the construction of a "carbon credit trading program," in which polluters trade credits equal to a specific quantity of emissions, in its most recent energy bill. The measure states that the government will grant carbon credits to organizations, including companies and other institutions, that opt to register for the program. Members of the scheme will have the freedom to buy and sell credits to meet their own personal carbon budgets.
The carbon market will initially be voluntary, but there are plans to introduce a cap-and-trade system that is required in the future. This means that the government would establish a general cap on emissions and provide a commensurate number of credits that participants may exchange.
According to energy economist Vibhuti Garg of the Institute for Energy Economics and Financial Analysis, a carbon market encourages more industries and businesses to switch to low-carbon fuels and processes (IEEFA). She continues that businesses that struggle to decarbonize their operations due to a lack of funding can still achieve their climate goals by purchasing carbon credits from the market. One illustration is micro, small, and medium-sized businesses (MSMEs).
"There are several companies in India that are very willing to invest in [emissions reductions for] carbon trading, but they are not getting good prices on the international market," says Abhinav Trivedi, an energy consultant with NITI Aayog, the government's primary public policy think tank and policymaking agency that brings together all states. The agency is already developing a framework to flesh out the concept.
That proposal should be published before the end of the year, Trivedi says. "We're starting with the major polluters, like power, steel, cement, and other heavy industries, and we'll gradually expand to include smaller industries," he says.
Researchers at MIT discovered that how energy-intensive industries are managed in the coming decades could make or break India's decarbonization ambitions; emissions from the country's difficult-to-abate sectors are expected to increase 2.6 times by 2050. According to the MIT study, carbon pricing that makes carbon capture and storage technologies economically viable is critical. The researchers warn that without this, decarbonizing India's heavy industries – and reaching net zero by 2070 – will be impossible.
The Indian government wants to develop indigenous technologies that can reduce emissions and support credits in the country's new national carbon market. "We could directly import carbon capture technologies from Europe or the United States," Trivedi says, "but that would not be cost-effective for us." The plan is to develop specific technological solutions for each carbon-intensive sector that the carbon market is targeting. Then, Trivedi explains, "industries can cash in on the market itself."
The international significance of an Indian carbon market:
Carbon markets are expanding globally through trial and error, according to Bonzanni, both in terms of geographical scope and sectors covered. "Then we had a game changer last year [at COP26] in Glasgow with the agreement on Article 6 [of the Paris Agreement]," he adds. According to him, this article, which governs the international exchange of carbon credits, "is expected to open up a new international compliance market and opportunities for linkages between the different national regimes."
Garg is more reserved. "I don't believe [a potential Indian carbon market] can yet be harmonized with other international markets." Carbon prices have risen in Europe, but India, she claims, is not yet at the stage of development where it can absorb such high prices.
This article was written to explain what is happening in carbon market and to re quote the comments or views of industry experts.