Answer

Carbon trading, finalized at COP29, refers to a market-based mechanism allowing countries or entities to trade carbon credits to meet emission reduction targets under the Paris Agreement. This global framework aims to enhance transparency and accountability in mitigating climate change. For instance, COP29 strengthened Article 6 provisions, promoting international cooperation. Its implications for developing countries like India are significant in balancing energy transition goals with economic development.

Enroll now for UPSC Online Course

The concept of carbon trading finalised at COP29

• Emission Allowances Trading: Carbon trading allows countries to trade emission allowances to meet climate targets, creating a market-driven mechanism for reducing emissions.
  For instance: Countries exceeding targets can buy credits from those reducing emissions below targets, such as Brazil selling credits to Germany.
• Global Guidelines: COP29 introduced standardized global carbon trading rules for consistent tracking, reporting, and verifying emissions reductions across nations.
  For instance: Indonesia can monetize afforestation projects through credits aligned with international verification standards.
• Cost-Effective Reductions: Carbon trading facilitates cost-effective emission reductions by enabling investments in affordable reduction strategies globally.
  For instance: India could buy credits from Bhutan’s hydropower projects instead of investing in high-cost domestic carbon capture.
• Additionality Principle: The system requires traded credits to represent genuine reductions beyond existing policies or natural processes.
  For instance: A solar farm in Kenya selling credits must demonstrate reductions compared to coal-based electricity alternatives.
• Social Safeguards: The framework ensures local community rights and biodiversity protection while achieving emissions reductions.
  For instance: Indigenous groups in Peru must consent to forestry projects generating credits for European carbon markets.

Potential impact on developing countries, particularly India, in achieving their energy transition goals

• Revenue Generation: Carbon trading offers revenue opportunities to finance renewable energy projects, aiding India’s green energy transition.
• Compliance Costs: High compliance costs for emissions-intensive exports challenge sectors like steel and cement in India.
  For example: Indian steel exports to the EU will face CBAM tariffs unless adopting low-carbon technologies.
• Funding Gaps: Access to carbon markets helps bridge funding gaps for clean energy infrastructure in developing nations.
  For example: India can use funds from carbon credit sales to support its National Hydrogen Mission.
• Domestic Reductions Delay: Relying on credit purchases could slow India’s domestic investments in sustainable technologies.
• Pricing Challenges: High carbon credit prices strain fiscal resources, impacting affordable emission reduction initiatives.

Check Out UPSC CSE Books From PW Store

The carbon trading framework finalized at COP29 provides a market-based mechanism to incentivize emission reductions globally. For developing nations like India, it offers a dual opportunity to attract green investments and generate revenue by trading surplus credits. To maximize benefits, India must enhance institutional capacity, prioritize equity, and channel funds into sustainable energy transitions, ensuring inclusive and resilient growth.

DOWNLOAD PDF