Context: 

The Centre is expected to clarify, later this year, the specifics of a carbon trading market in India.

About Carbon Markets:

• ‘Carbon markets’ are a catch all term and need clarity, especially in the Indian context.
  • The objective of such markets is to incentivise investments in renewable energy sources.
• A decade or more ago, they meant stock market-like exchanges that traded in ‘carbon offsets’ made legitimate under the Clean Development Mechanism (CDM). 
  • Under CDM, industrial projects in developing countries that avoided greenhouse gas emissions were eligible for credits that, after verification, could be sold to European companies that could buy them in lieu of cutting emissions themselves. 
• Carbon credits became valuable because they could be used as permits in EU ETS exchanges. 
• Such permits are a ‘right to pollute’ and being tradeable on an exchange, akin to shares, are expected to fluctuate in value depending on a company’s need to balance profitability and comply with pollution norms.

India’s efforts:

• While India has maintained its right to grow its carbon emissions in the near future, it has committed to cutting the emissions intensity (emissions per unit of GDP) of its growth by 45% (of 2005 levels) by 2030. 
• It has been doing this, partly, via the Perform, Achieve and Trade (PAT) scheme, where around 1,000 industries have been involved in procuring and trading energy saving certificates (ESCerts). 

Performance of carbon market:

• Since 2015, various cycles of the PAT have shown emission reductions of around 3%­- 5%. 
• The European Union, which runs the oldest emission trading scheme since 2005, had cut emissions by 35% from 2005-­2019 and 9% in 2009, over the previous years. 

Conclusion 

• The Perform, Achieve and Trade scheme has already shown emission reductions, but it remains to be seen if carbon trading can meaningfully reduce emissions in the Indian context. 
• The government must balance pressure on industry to participate in the market with proven non-market initiatives.

News Source: The Hindu 

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