It is anticipated that the voluntary carbon-offset market will experience substantial growth, increasing from $2 billion in 2020 to approximately $250 billion by the year 2050.– ES Ranganathan
As the effects of climate change become increasingly evident worldwide, countries around the globe are exploring innovative solutions to combat the rising threat of greenhouse gas emissions. In India, carbon trading has emerged as a promising mechanism to address the challenges of climate change and foster sustainable development. Carbon Trading is a market-based approach to controlling carbon emissions that offers a ray of hope in the fight against environmental degradation, and its potential impact cannot be overstated, states ES Ranaganathan, a former Marketing Director of GAIL.
Carbon trading, also known as emissions trading or cap-and-trade, operates on the fundamental principle of putting a price on carbon emissions. The system sets a limit, or cap, on the total amount of greenhouse gases (GHGs) that businesses and industries can emit. Participants, typically companies or organizations, are allocated permits, known as carbon credits or allowances, corresponding to their permissible level of emissions. If a company exceeds its allocated limit, it must purchase additional credits from others with surplus allowances. Conversely, entities that have successfully reduced their emissions below their allocated cap can sell their surplus credits to those in need, creating a market for carbon credits. This encourages companies to reduce their emissions, as those with extra credits can capitalize on their reduction efforts.
“The key objective of carbon trading is to incentivize emission reductions by establishing a financial value for lowering carbon footprints. Companies that invest in cleaner technologies or adopt sustainable practices are rewarded for their efforts, while those that struggle to meet their emission targets can offset their excess emissions by purchasing credits from others. This dynamic creates a competitive and market-driven approach to mitigating carbon emissions.”, says Mr ES Ranganathan.
At the heart of international efforts lies the central pillar of managing carbon footprints, driven by the objective to decrease carbon emissions and confront climatic changes head-on. As a prominent member of various international treaties, India remains resolute in making significant contributions to promote sustainable development and combat climate change, aligning itself with the principles set forth in the Paris Agreement. As per the Press Information released on February 03, 2022, by the Ministry of Environment, Forest and Climate Change, India has set ambitious goals to fulfil its COP-26 (Conference of Parties 26) commitment. These include (i) Reaching a non-fossil energy capacity of 500GW by 2030; (ii) Meeting 50 per cent of its energy requirements from renewable energy sources by 2030; (iii) Reducing total projected carbon emissions by one billion tonnes by 2030; (iv) Decreasing the carbon intensity of the economy by 45 per cent by 2030, compared to 2005 levels; (v) Achieving the target of net-zero emissions by 2070.
As one of the fastest-growing economies in the world, India has been an active participant in the international carbon market. “As of now, India holds a significant market share, approximately 21 per cent, of all globally registered projects under the Clean Development Mechanism (CDM). According to a report by the Trade Promotion Council of India, India has attracted over $10 billion in foreign direct investment through CDM until the end of 2020.”, highlights ES Ranganathan. On May 11, 2023, the government unveiled its intention to create the Indian Carbon Market (ICM), introducing a national framework aimed at decarbonizing the Indian economy. This will be achieved by pricing Greenhouse Gas (GHG) emissions through the trading of Carbon Credit Certificates. The Bureau of Energy Efficiency under the Ministry of Power, in collaboration with the Ministry of Environment, Forest & Climate Change, is currently working on developing the Carbon Credit Trading Scheme to facilitate this objective, adds Mr Ranganathan.
As one of the largest and diverse economy of the world, India faces significant challenges in balancing industrial growth and environmental sustainability. With a growing population and increasing energy demands, the country is striving to find a sustainable path to development. In this context, carbon trading has emerged as a progressive mechanism that aligns economic growth with environmental protection.
Highlighting the challenges ahead, Mr ES Ranganathan states, “While carbon trading holds immense promise, its implementation in India faces certain challenges. Lack of awareness, limited market liquidity, and regulatory frameworks are some of the issues that need to be addressed. Additionally, ensuring the transparency and credibility of carbon credits is essential for building trust and confidence in the system.” He further emphasizes, that to leverage the full potential of carbon trading in India, concerted efforts are required from policymakers, businesses, and civil society. Public-private partnerships, innovative financing mechanisms, and capacity-building initiatives can play a pivotal role in overcoming these challenges.
The implementation of carbon trading in India signifies a noteworthy stride towards attaining sustainable development goals and mitigating the risks posed by climate change. Recent progress indicates that India is well-positioned to embrace the potential of carbon trading, leading the way towards a cleaner, greener, and more prosperous future. Amidst the intricacies of balancing economic growth with environmental preservation, carbon trading shines as a beacon of hope, paving the path for a sustainable and resilient India that will endure for generations to come.