Countries assembled in Baku for the annual climate conference, COP29, voted to clear a much-delayed agreement to finalise a global carbon market.
Carbon Credit
According to the United Nations Framework Convention on Climate Change (UNFCCC), a carbon credit represents a unit of carbon dioxide or an equivalent amount of another greenhouse gas that has been reduced, sequestered, or avoided.
Carbon credits are typically generated through projects that reduce emissions, such as renewable energy projects, reforestation, or energy efficiency initiatives. |
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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.
India’s NDC
To reduce emissions intensity by 45% by 2030 (compared to 2005 levels) and increase forest cover to create a carbon sink of 2.5 to 3 billion tonnes by 2030. |
- 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
| Feature |
Compliance-based |
Voluntary |
| Regulatory Framework |
Governed by regulations and mandates |
Self-regulated, driven by corporate social responsibility |
| Emission Limits |
Strict limits imposed on emissions |
No mandatory limits, voluntary participation |
| Market Participants |
Primarily regulated industries and governments |
Wider range of participants, including corporations, individuals, and NGOs |
| Motivation |
Regulatory compliance and avoiding penalties |
Environmental responsibility, brand reputation, and risk management |
| Credit Verification |
Rigorous verification and certification processes |
Varying levels of verification, often based on international standards |
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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.
13 Nov 2024
