China’s Carbon Market

China is seeking public feedback on a plan to include cement, steel, and aluminium production in its carbon emissions trading scheme (ETS) by the end of the year, in an attempt to boost market liquidity.

Carbon Market 

• About: Carbon markets are systems designed to help control and reduce greenhouse gas emissions by assigning a price to carbon dioxide (CO2) emissions. 
  • They function by allowing the trade of carbon credits or allowances between entities that emit CO2 and those that reduce or sequester it.
    • Carbon Credits: Carbon credits are tradable permits that represent the removal, reduction, or sequestration of one tonne of carbon dioxide from the atmosphere. The value of a carbon credit is measured according to United Nations standards.
    • Carbon Allowances (Caps): Carbon allowances, or caps, are limits set by governments or countries based on their emission reduction targets. These caps regulate the total emissions allowed, creating a framework for trading.

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History of Carbon Trading

• Kyoto Protocol: Carbon trading was formally introduced in 1997 under the United Nations’ Kyoto Protocol, establishing a global framework for emissions trading. The Kyoto Protocol introduced the following mechanisms: 
  • Introduction of ‘Cap and Trade’: The Kyoto Protocol introduced the concept of “cap-and-trade,” where countries were allocated emission limits, and carbon credits could be traded among them.
  • Introduction of Clean Development Mechanism (CDM): It enables developed countries to invest in emission reduction projects in developing nations and earn carbon credits, which they could use to meet their own targets.

Carbon Market in India

• Indian Carbon Market (ICM) Initiative: The Government of India is planning to establish the Indian Carbon Market (ICM) with a national framework aimed at decarbonizing the domestic economy.
• Carbon Credits Trading Scheme (CCTS): The CCTS is a unified Indian Carbon Market (ICM) established to reduce GHG emissions through the trading of carbon credit certificates.​ Obligated entities will have GHG emission intensity targets and will receive or purchase carbon credit certificates based on their performance. 
• Market Based Emission Reduction Scheme: India currently operates two market-based emission reduction schemes: the Perform, Achieve and Trade (PAT) scheme and the Renewable Energy Certificates (REC) system.
  • Perform, Achieve and Trade (PAT) scheme aims at reducing Specific Energy Consumption (SEC) i.e. energy use per unit of production for Designated Consumers (DCs) in energy intensive sectors, with an associated market mechanism to enhance the cost effectiveness through certification of excess energy saving which can be traded.
  • Renewable Energy Certificate (REC) mechanism is a market based instrument to promote renewable energy and facilitate compliance of renewable purchase obligations (RPO). 
    • It is aimed at addressing the mismatch between availability of RE resources in state and the requirement of the obligated entities to meet the renewable purchase obligation (RPO).
• Panchamrit Pledge: Recognising a moral responsibility towards a greener planet, India took the Panchamrit Pledge with targets till 2030 and India being carbon-neutral by 2070.
• CBDR-RC principles: As highlighted during the COP 27, India balances its developmental needs with lower carbon emissions through Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) principles. 
• Energy Conservation (Amendment) Act, 2022: It came into effect in 2023. This act allows the ministry of power and central government authority to create and manage  carbon trading schemes and issue Carbon Credit Certificates.
• Carbon Credit Certificates: Under section 14AA Act, the government can issue carbon credit certificates to entities that follow carbon credit trading schemes. These certificates can be sold to 
  • The organisations that emit more levels of Carbon than authorised; 
  • The Government of India to fulfil its commitments;
  • Other nations that need help to fulfil their commitments

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