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CSE Roadmap for India’s Carbon Market
Context:
The Centre for Science and Environment (CSE) has released a report outlining pathways for creating an effective carbon market to reduce emissions as India is set to launch its national carbon market.
What are the carbon markets?
Carbon markets are trading systems where carbon credits are bought and sold. These credits, representing one tonne of carbon dioxide or its equivalent, allow companies or individuals to offset their greenhouse gas emissions. Once a credit is used for offsetting, it becomes non-tradable.
More on News:
The Finance Minister of India announced the transition of hard-to-abate sectors from the current Perform, Achieve and Trade (PAT) scheme to the new Indian Carbon Market (ICM) in the 2024-25 Budget.
Objectives of Indian Carbon Market (ICM):
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- Accelerate emissions reduction.
- Achieve India’s Nationally Determined Contribution (NDC) targets for 2030 under the 2015 Paris Agreement.
- Reach Net Zero emissions by 2070, in line with UN Framework Convention on Climate Change guidelines.
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Related scheme:
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- The Carbon Credit and Trading Scheme (CCTS), announced in July 2023, is designed to reduce greenhouse gas emissions.
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Recommendations for Carbon Market:
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- Single Nationwide Scheme: Advocate for a unified approach to streamline the carbon market for high-emitting sectors, crucial for effective implementation.
- Ambitious Targets: Emphasise setting high targets and establishing a high floor price to drive emissions reductions.
- Market Stability: Implement mechanisms to manage market stability and fluctuations in carbon credit supply and demand.
Ensuring Market Integrity:
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- Data Quality and Transparency: Enhance data quality through rigorous verification, improved monitoring, and public access to ensure market integrity.
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Revenue Generation:
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- Support for MSMEs: Create mechanisms to generate revenue from the scheme to support the adoption of clean technologies in the MSME sector.
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Power Sector Inclusion:
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- Integration: Include the power sector in the carbon market to significantly advance India’s decarbonisation goals.
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Impact of ICM:
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- Accelerating Climate Goals: A successful ICM launch could greatly accelerate progress toward India’s climate targets.
- Global Learning: By incorporating global experiences and the CSE report’s recommendations, India can develop a robust carbon market to effectively reduce emissions and support a cleaner future.
Why carbon markets are important?
- IPCC 2021 Report:
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- Rising Emissions: Greenhouse gas (GHG) emissions continue to rise across all major sectors, though at a slower rate.
- Renewable Energy: Renewables have become cheaper, often less expensive than coal, oil, and gas.
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- Climate Challenge:
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- Warming Risk: Scientists warn that 2°C of warming could be exceeded this century unless significant GHG reductions are achieved immediately.
- Investment Needs: Effective climate action requires substantial investment, with costs of inaction being much higher.
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- Developing Countries’ Needs:
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- Funding Requirement: Developing countries will need up to US$6 trillion by 2030 to meet less than half of their climate action goals outlined in their Nationally Determined Contributions (NDCs).
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- Current Financial Shortfall:
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- Insufficient Funds: Financial flows are currently three to six times lower than needed by 2030, with significant disparities across regions.
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- Carbon Markets:
- Potential Solution: Many countries are considering carbon markets as a key strategy to finance and drive the necessary transformation to address the climate crisis.
Global Examples
Emissions Trading Systems (ETS):
- Cap-and-Trade Principle: Businesses or countries are issued emission permits by governments, with a total cap on emissions. Polluters exceeding their limits must buy permits from those with excess allowances.
- European Union ETS: Launched in 2005, it was the world’s first international ETS.
- China ETS: Launched in 2021, it is the largest ETS globally, covering approximately one-seventh of global carbon emissions from fossil fuels.
- Expansion: Many national and subnational ETS are currently operating or being developed.
Clean Development Mechanism (CDM):
- Kyoto Protocol: Adopted in 1997, the CDM allows emission-reduction projects in developing countries to generate carbon credits. These credits can be used by industrialised countries to meet part of their emission reduction targets.