In the beginning of this month(Aug 2022), Lok Sabha passed the Energy Conservation (Amendment) Bill, 2022, which establishes carbon credit markets. Environmentalists and green entrepreneurs across the nation are hopeful that the Indian government may soon launch a national carbon trading platform, which is estimated to help the country attain net zero carbon emissions by 2070.
With this Carbon Credits has once again become a buzzword in India. Let’s dive deeper into this topic and understand its past, present, and future.
Evolution of carbon Trading
A carbon credit is an offset method for targeted carbon reduction projects where credits are generated in return of equivalent reduction/absorption of atmospheric carbon emissions. All parties seeking to lower their carbon footprint are then given access to these issued credits. In this way, carbon credits can help us reduce our carbon footprint and lessen the impact that inevitable emissions have on the environment. It is seen as one of the most effective market-based mechanisms to price greenhouse gas (GHG) emissions and achieves climate goals.
Carbon trading started formally in 1997 under the United Nations’ Kyoto Protocol on climate change which had more than 150 nation signatories. Under the Kyoto Protocol on climate change, which had more than 150 nation members, carbon trading officially began in 1997. The Kyoto Protocol established the framework for emission reduction in form of Market Based Instruments (MBIs), one of which was the Clean Development Mechanism (CDM). It allowed a country with an emission reduction/limitation commitment to fund a project in the developing world that might earn saleable certified emission reduction (CER) credits to accomplish their Kyoto targets.
Carbon Market Types
There are two types of carbon markets, the compliance market (emission trading resulting from legal and regulatory requirements); and the voluntary market (resulting from voluntary climate commitments by corporations). The VCM is driven by businesses and sectors in tricky industries that rely on carbon credits to accomplish their challenging "voluntary" climate targets. By November 2021, the VCM market had grown by more than 60% from 2020 and was valued at $1 billion. By 2030, this market is predicted to reach at least $50 billion. Premium pricing for projects that produce co-benefits like biodiversity conservation, gender equality, and community economic growth is one of the distinguishing characteristics of VCM.
Some of the most notable examples of mandated carbon markets include the European Union Emission Trading System (EU ETS), Western Climate Initiative (WCI), and Regional Greenhouse Gas Initiative (RGGI), both of which are active in North America. As a result, nations that have ratified agreements like the Kyoto Protocol are required to reduce their emissions.
The Indian Carbon Market
Carbon markets can play a very critical role in India to achieve its decarbonization goals and spur growth in a number of vital sectors, including transportation, agriculture, forestry, waste management, etc. Though India is significantly cutting the emission intensity of several industries, it will still rely largely on the carbon market to offset any remaining emissions to reach net zero. With the help of its agricultural sector, land restoration initiatives, and REDD+ (reducing emissions from deforestation and forest degradation) programs, India can reach a carbon market potential of $30 to $50 billion by 2050 (at a conservative price of $15 per carbon credit).
These additional revenue streams from carbon credits have the ability to drastically change the economics of critical sectors like agriculture, forestry, cooking, and waste management - possessing high social, economic, and environmental impact potential.
A vibrant domestic carbon market in India can also play a key role in empowering the local communities by:
providing small-scale farmers with a supplementary source of income while also ushering in overall additional benefits like generating employment opportunities for local people.
India has a huge coastal area and some of which are very prone to natural calamities, resulting in a huge socio-economic loss. Carbon markets can help by defending local residents and coastal areas against severe weather by encouraging mangrove plantations.
Further such markets can result in enhanced agricultural output by preventing soil erosion, creating a milder microclimate, and improving biodiversity.
With the Ministry of Environment, Forest and Climate Change (MoEFCC) and the Ministry of Power (MoP) creating the necessary legislative, institutional, and technical infrastructures, India is already working actively to shape its domestic carbon market. Once established, these markets could address the issues related to double counting, associated revisions, and the validity and reliability of carbon credits. Apart from that, there is also a significant opportunity to leverage the voluntary carbon market in India. We have the potential to be one of the key attractions for international capital pools of voluntary carbon projects and emerge as a Carbon Trading Leader in Global South.