India, the third-largest emitter in the world, shocked analysts by saying at the COP26 session in Glasgow late last year that it will reach net zero emissions by 2070. The South Asian economy is less developed and faces more climatic issues, despite being a decade behind fellow Asian juggernaut China. For the time being, China's market only includes coal- and gas-fired power producing facilities, which together account for around 40% of its CO2 emissions. By 2030, the India hopes to reduce its emissions by 1 billion tonnes as a first step toward achieving its objective.
In an effort to speed up the switch to cleaner fuels, India intends to launch a carbon trading market for large emitters in the energy, steel, and cement sectors. System would initially be limited to hard-to-abate sectors. The proposed market in India is modelled after a comparable one in China, which introduced a required trading system for all large power plants last year. However, the market has only witnessed mediocre buying and selling of allowances due to delays and issues with data collection.
Participants would be able to exchange credits obtained by reducing emissions on a market initially restricted to hard-to-abate sectors. Making ensuring that state-owned energy corporations like Oil & Natural Gas Corp., Indian Oil Corp., and NTPC Ltd., as well as steel and cement businesses, may profit from planned investments in carbon-capture projects, is one of the objectives.
The market would use the existing Perform Achieve and Trade programme as a foundation and include RECs and ESCerts now traded on power markets.
Energy Saving Certificates (ESCs), which are awarded to facilities that have exceeded their targets in energy savings, are part of the Perform Achieve and Trade (PAT) programme of the Indian government. According to the Energy Conservation Act of 2001, units that are unable to reach the targets by their own efforts or by purchasing ESCerts are subject to financial penalties.
The holder of a renewable energy certificate (REC), a market-based instrument, is declared to be the owner of one megawatt-hour (MWh) of power. Once the power provider has put the energy into the system, the REC obtained can then be sold on the open market as an energy commodity. To fulfillstandardization their Renewable Purchase Obligation (RPO), which requires them to buy or produce a minimum amount of their needs from renewable sources, all electricity distribution licensees in India exchange RECs.
The issue with standardization is one. How can it be verified that Emission Reduction Certificates (ERCs) are given to indicate the same effective quantity or quality of emission reductions when different methodologies and efficiencies of the emission reduction process are applicable for different sectors and production processes. Thus, it will be crucial how these reductions are measured. On the other hand, if the restrictions are excessively restrictive, the quantity of ERCs issued can drop too low to support a vibrant market that represents actual emission reductions.
These will also have an impact on the cost of these credits, which will be a major factor in determining how effectively the market works to reduce actual emissions.
Phase one would concentrate on boosting demand, improving the fungibility of EScerts and RECs, expanding the buying pool, and connecting other markets to a voluntary carbon market. The PAT program's designated consumers, who account for 50% of India's primary energy consumption, state-designated agencies, distribution businesses with renewable purchase responsibilities, and airlines would all be sources of demand.
The next stage would concentrate on expanding the market's supply.
Project level registration, adequate validation, verification, and issuing of emission reduction units would be the essential supply-side push (ERU). A project-specific reference case would be used to cite participant contributions. This would be done for emissions reduction initiatives by assigning a greenhouse gas intensity factor to the production in question. The reference scenario for carbon capture and storage projects would be "zero sequestration."
The third and final phase is on switching to a cap-and-trade system with emission quotas assigned to particular industries and businesses. A baseline for the program's first crediting period would be established using anticipated sectors development over the following several years. Then, an NDC-alignment coefficient would be implemented in order to comply with India's climate commitments.
Each organization would have to put up monitoring, reporting, and verification system in addition to a GHG emissions inventory in order to participate.
The majority of Indian businesses in the high-carbon steel, cement, and fertilizer industries have not yet declared any net-zero commitments. Earlier this year, Indian steelmakers requested legislative support from the government to aid in their transition to environmentally friendly steelmaking. Cap-and-trade schemes are potentially effective climate tools. When properly implemented, they can generate significant public income, which might be used, for example, to finance decarbonization initiatives or balance any social impacts from the carbon pricing policy. They can also effectively set a decarbonization incentive by pricing carbon. To do this, it's critical to stay away from the traps of free allocation and excessive allowance distribution, which industries would undoubtedly support.