In Short : The Indian government is planning to amend the Carbon Credit and Trading Scheme to further enhance its effectiveness in addressing climate change. These amendments are aimed at promoting sustainable practices and encouraging industries to reduce their carbon emissions. By creating a robust framework for carbon credit trading, India aims to incentivize businesses to adopt greener technologies and reduce their environmental impact. This initiative aligns with India’s commitment to combat climate change and achieve its sustainability goals, making significant strides toward a greener future.
In Detail : The Carbon Credit and Trading Scheme (CCTS) notified earlier this year for the upcoming Indian Carbon Market (ICM) will likely be amended soon, revealed a recently organised stakeholder consultation meeting by the central government agency Bureau of Energy Efficiency (BEE).
The meeting was held on October 20, 2023 in New Delhi and was attended by a large number of stakeholders from the industry, public policy institutions, government and energy auditing firms. There were a lot of questions surrounding the new policy. The New Delhi-based think tank Centre for Science and Environment (CSE) also attended the event.
The Bureau unfolded some crucial aspects of the ICM and what it holds for the future of decarbonising India. The workshop focused on detailing the compliance mechanism for the ICM and accreditation process for carbon verification agencies.
CCTS was notified on June 28, 2023, which set up the regulatory framework for the ICM, with BEE as the administrator. The notification highlighted the formation of a National Steering Committee for Indian Carbon Market (NSCICM). The stakeholder workshop comes after the first meeting of NSCICM in August 2023.
“ICM will incentivise technology for greenhouse gas emission reduction (in the industrial sector).” Saurabh Diddi, director for BEE said at the inaugural event.
The ICM will be set up with the aim of reducing GHG-linked emissions from the industrial sector of India. The industrial sector accounts for about 20 per cent of total GHG emissions. The emissions from the industrial sector are crucial, as these are hard-to-abate sectors.
It is not easy to mitigate or decarbonise the process emissions from energy intensive industries like cement, iron and steel and aluminium. Moreover, India’s updated Nationally Determined Contributions to the United Nations Framework Convention on Climate Change also commits to reduce GHG emissions intensity of GDP by 45 percent by 2030.
Speakers from BEE revealed that the current CCTS would build on the existing Perform, Achieve and Trade (PAT) framework, as the latter has essential elements required for GHG emission reduction. Essentially, the PAT scheme had energy efficiency targets measured in reductions per tonne of oil equivalent, whereas the CCTS would have reductions per tonne of GHG emissions.
The scheme would mainly cover carbon dioxide emissions and perfluorocarbons emitted from aluminium smelting. Other GHG gases (methane and nitrous oxide) which have a smaller share in emissions will not be covered. The cost of monitoring is also high for these gases.
Interestingly, the European Union Emission Trading System (ETS) also covers only carbon dioxide and perfluorocarbons.
Although NSCICM and the Bureau will be responsible for target and trajectory setting, it was told that the targets and emission norms will be notified to the industrial sectors by the Union Ministry of Environment, Forest and Climate Change under Environmental Protection Act, 1986.
The compliance mechanism lecture revealed that the compliance cycle would be of a financial year, after which verification and issuance of credits would take place in the next two to three quarters.
Unlike the PAT cycle, which had a target period for three years, CCTS would have yearly targets.
Unlike other major emission trading systems like European Union Emissions Trading System, California cap-and-trade and Korean Emissions Trading System markets, ICM would not have a cap-and-trade mechanism. As in, there would not be an overall cap on the absolute emissions but emission intensity baseline will be the instrument to decide targets.
This is called the baseline-and-credit system, where baseline emissions are decided per tonne of product and deviation from them would result in a trade of credits.
Monitoring, reporting and verification are crucial components to ensure effective implementation of the scheme. The Bureau said it will empanel and accredit third-party carbon verifiers, eligibility criteria for which were laid down during the workshop.
The empanelled Accredited Energy Auditors (AEAs) under PAT will be eligible to become accredited carbon verifiers (ACVs). The AEAs — around 1200 — will also have training on carbon verification in capacity building sessions conducted by BEE.
Currently, targets are being prepared for four industrial sectors — cement, iron and steel and pulp and paper. There were concerns regarding inclusion of the power sector but the Bureau asserted that the sector is not being included momentarily.
It seems that the compliance cycle for CCTS might start from the financial year 2024-25. The CCTS notification will be amended soon and a voluntary offset mechanism will be introduced to infuse credits from the voluntary carbon market, the workshop also highlighted.
“CSE’s recent report on the voluntary carbon market highlighted India’s significant presence in the unregulated global voluntary carbon market, revealing flaws and integrity issues that also relate to fundamental questions for India’s climate goals. The government’s initiative to bring the market under regulation is indeed welcome,” said Trishant Dev, programme officer for climate change, CSE.
“However, looking ahead, it’s crucial for policymakers to emphasise transparency, conduct more extensive consultations, and prevent conflict of interests during the process of shaping this regulatory framework,” Dev added.