What is Carbon Trading ?
Carbon trading is a process where companies or countries can buy and sell permits or credits that allow them to emit a certain amount of carbon dioxide. It’s a market-based approach to reducing greenhouse gas emissions that incentivizes companies to reduce their emissions by providing financial benefits for doing so. The aim is to encourage industries to adopt cleaner technologies and reduce their carbon footprint in a cost-effective manner. Carbon trading is a central part of many countries’ efforts to mitigate climate change. The European Union Emissions Trading System (EU ETS) is currently the largest carbon trading scheme in the world. It covers more than 11,000 power stations and manufacturing plants in 31 countries, including all EU member states.
Carbon Trading in India
Carbon trading is based on the principle of putting a price on carbon emissions. This is done by setting a limit on the amount of carbon dioxide that a company can emit and issuing permits or allowances that represent the right to emit a certain amount of carbon dioxide. Companies that emit less than their allotted amount can sell their unused permits or credits to those that emit more than their limit.
India has implemented a carbon trading system through the National Clean Energy Fund (NCEF) which was established in 2010 to support the development of clean energy projects. Under the NCEF, the government has also introduced the Perform, Achieve and Trade (PAT) scheme, which is a market-based mechanism to improve energy efficiency in energy-intensive industries. The scheme sets energy efficiency targets for designated consumers, and those who achieve these targets are awarded energy-saving certificates which can be traded on the market.
Recently India has announced (public domain) a list of tech for carbon credit; this list will attract investments with the carbon credits generated from offsetting of carbon emissions through these technologies then shared with the investing country or company under the market mechanism.
Demand Scenario for Carbon Credit ( gigaton per year)
| Source: NGFS, TSVCM & McKinsey analysis |
Trading Policy In India
India’s policy on carbon trading is primarily driven by its commitment to the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement, which aims to keep global temperature increase well below 2 degrees Celsius above pre-industrial levels. The NAPCC identifies eight national missions, including the National Mission for Enhanced Energy Efficiency (NMEEE), which includes the Perform, Achieve, and Trade (PAT) scheme. In addition to this , India has introduced several other policies and measures to promote carbon trading and reduce greenhouse gas emissions, including:
- Renewable energy targets: India has set a target to achieve 175 GW of renewable energy capacity by 2022, which includes 100 GW of solar, 60 GW of wind, 10 GW of bioenergy, and 5 GW of small hydropower.
- Clean Energy Tax: The government has introduced a Clean Energy Tax on coal, lignite, and peat to promote clean energy and reduce greenhouse gas emissions. India has also committed to reducing its greenhouse gas emissions intensity by 33-35% by 2030 compared to 2005 levels under the Paris Agreement.
- Green energy corridors: The government is implementing green energy corridors to facilitate the integration of renewable energy into the grid.
- Carbon pricing: India is considering the introduction of a carbon tax or carbon trading scheme to put a price on carbon emissions and incentivize emissions reductions.
Conclusion:
Carbon trading policies have the potential to play a crucial role in mitigating climate change by creating economic incentives for countries and companies to reduce their carbon emissions. India has implemented various carbon trading policies, such as the NCEF, PAT schemes, to achieve its emission reduction targets. However, there are several policy challenges that need to be addressed. Addressing these challenges can help to create a more robust carbon trading market in India and accelerate the transition towards a low-carbon economy.
