Countries assembled in Baku for the annual climate conference, COP29, voted to clear a much-delayed agreement to finalise a global carbon market. 

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About Global Carbon Market

• A Global Carbon market will allow countries to trade carbon credits for certified reductions of carbon emissions among themselves. The prices of these instruments are determined as a consequence of emission caps imposed by countries.
• Aim: To finalise a global carbon market facilitating trade in carbon credits among countries to meet climate targets.
• Background: Article 6 of Paris Agreement provides mechanisms for countries and companies to collaborate in reducing carbon emissions and meet their climate action goals formally known as nationally determined contributions (NDCs).
• Carbon market: Derived from Article 6 of the Paris Agreement which outlines mechanisms for international carbon credit trading. 

• Bilateral Carbon Trade: Article 6.2 Allows for bilateral trading between countries.Framework of Carbon Trade:  Article 6.4 sets the framework for a global market supervised by a UN body.
• Carbon Credit Integrity : A UN supervisory body has developed draft standards for assessing and ensuring genuine carbon credits.
• Operationalizing the Market: The first UN-sanctioned carbon credits will be available by 2025. Significance of Global Carbon Market:
• Economic Impact : Finalising Article 6 negotiations could reduce the cost of implementing national climate plans by $250 billion per year.
• Stricter Standards:The introduction of downward adjustments to project baselines is aimed at preventing inflated claims. 
• Real Impact: Only projects that achieve real and additional reductions in emissions will earn carbon credits.
• Loss and Damage Fund: Activate the Loss and Damage Fund to support vulnerable nations affected by climate change.Expected to start disbursing funds in 2025.

Difference between Compliance-based and Voluntary Carbon Credit Trading

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About Carbon Credit Trading Scheme (CCTS) in India

• The Carbon Credit Trading Scheme (CCTS) is a statutory framework established under the Energy Conservation (Amendment) Act, 2022 in India.
• The Act designates the Bureau of Energy Efficiency (BEE) as the nodal authority for overseeing the scheme’s implementation and compliance.
• It is designed to facilitate the creation of a domestic carbon market, aligning with India’s climate commitments under the Paris Agreement.
• The CCTS aims to provide an economic mechanism for reducing greenhouse gas (GHG) emissions by enabling the trade of carbon credits across industries.

Institutional Framework for Carbon Trading in India

• National Steering Committee for Indian Carbon Market (NSCICM): Established by the Central Government under the Carbon Credit Trading Scheme (CCTS).
  • It comprises members from various ministries and relevant organisations, chaired by the Secretary, Ministry of Power, with co-chairmanship by the Secretary, Ministry of Environment, Forest, and Climate Change.
  • It Recommends procedures, rules, and regulations for institutionalising and operating the Indian carbon market.
  • Sets emission targets, develops trading guidelines, and oversees the market’s operations.
  • Advises on the issuance, renewal, or expiry of carbon credit certificates.
• Bureau of Energy Efficiency (BEE): Acts as the administrator of the CCTS and identifies sectors for GHG emission reduction, setting targets and issuing carbon credits. It also Manages carbon credit certification and market stability mechanisms.
  • Accredits verification agencies and determines fees and charges for implementation costs.
  • Maintains IT infrastructure, data security, and stakeholder capacity-building activities.
• Grid Controller of India (GCI): It Registers entities and manages their carbon credit accounts.
  • Facilitates trading and maintains a secure database, functioning as a meta-registry for the Indian carbon market.
• Central Electricity Regulatory Commission (CERC): It regulates trading activities under the Indian Carbon Market.
  • It also approves power exchange business regulations for trading.
  • Provides market oversight and enforces corrective actions to prevent fraud.
• Accredited Carbon Verification Agency (ACVA): Conducts validation and verification of GHG reduction activities.
  • Accredited by BEE, following detailed eligibility criteria and procedure.

Limitations of India’s Carbon Trading System

• Limited Coverage: Excludes major polluting sectors like electricity and agriculture, reducing its overall impact.
• Delayed Implementation: Potential economic costs due to delayed rollout, especially with global carbon pricing mechanisms like CBAM.
• Effectiveness and Timing: May take several years to significantly reduce emissions, and the effectiveness hinges on the system’s design and coverage.
• Questionable Exclusions: The exclusion of major polluting sectors raises concerns about the system’s ability to drive substantial emissions reductions.
• Greenwashing: Projects overstating environmental benefits, especially in forestry.
• Lack of Stringent Verification: Inadequate checks on carbon sequestration claims.
• Additionality Concerns: Projects claiming credit for activities that would have happened anyway.

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Measures to Improve Carbon Trading

• Robust Verification Protocols: Strict verification procedures and a central registry to prevent double-counting.
• Learning from International Best Practices: Adopting standards from organisations like the Gold Standard.
• Alignment with Global Standards: Integrating with Article 6 of the Paris Agreement and preventing double-counting.
• Transparency and Disclosure: Detailed project information, third-party verification, and real-time tracking of credit transactions.

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