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Carbon Credit and Trading Scheme for Indian Carbon Market

Why is it in the news?

  • The Bureau of Energy Efficiency (BEE) plans to introduce changes to the Carbon Credit and Trading Scheme (CCTS) specifically designed for the Indian Carbon Market (ICM).

Overview of the Bureau’s Plans:

  • BEE has provided insights into the future direction of India’s efforts towards decarbonization through the ICM.
  • The main focus has been the compliance mechanism of the ICM and the accreditation process for carbon verification agencies.
  • The intent is to model the CCTS based on the existing Perform, Achieve and Trade (PAT) framework, which already encompasses fundamental elements for greenhouse gas (GHG) emission reduction.

More about the news

Origins of the Carbon Credit and Trading Scheme (CCTS)

  • It was established by the Union Government as per the Energy Conservation Act, 2001.
  • Purpose is to form India’s inaugural domestic carbon market.
  • BEE has been designated as the overseer, with the vision of creating the National Steering Committee for Indian Carbon Market (NSCICM) for governance and direct management of the ICM.
  • The committee is to be headed by the Secretary (Ministry of Power) and co-chaired by the Secretary (Ministry of Environment, Forests, and Climate Change).
  • As the ICM’s administrator, BEE will define the GHG emissions trajectory and the targets for obligated entities.
  • The Central Electricity Regulatory Commission (CERC) will oversee the trading of carbon credit certificates.


History of Carbon Credits

  • The concept of carbon credits emerged post the Kyoto Protocol, established under the UN Framework Convention on Climate Change (UNFCCC).
  • With the Kyoto Protocol’s conclusion, the Clean Development Mechanism (CDM) market dissipated.
  • It evolved into the unregulated global voluntary carbon market.


Types of Carbon Markets

  • Voluntary Carbon Markets: Include the issuance, buying, and selling of carbon credits voluntarily. The main suppliers are typically private entities or government initiatives.
  • Compliance Markets: Evolve from national, regional, or international policy requirements.


Differences between PAT and CCTS

  • The PAT scheme measured energy efficiency in reductions per tonne of oil equivalent. In contrast, CCTS focuses on reductions per tonne of GHG emissions.
  • PAT has a three-year target cycle, while CCTS targets are annual.
  • Under CCTS, Accredited Energy Auditors (AEAs) from PAT can transition to Accredited Carbon Verifiers (ACVs), provided they undergo training on carbon verification.


Indian Carbon Market (ICM) Features

  • Established to address GHG emissions from India’s industrial sector, responsible for approximately 20% of the total GHG emissions.
  • ICM will not use a cap-and-trade mechanism. Instead, it will employ the baseline-and-credit system, where baseline emissions are fixed per tonne of product, and any deviations result in credit trading.
  • Presently, targets are being set for industries like cement, iron and steel, and pulp and paper.


Challenges with CCTS

  • Decarbonization of Intensive Industries: Difficult to reduce emissions from energy-intensive sectors.
  • Target Rigor: The PAT scheme had lenient targets, so CCTS needs to ensure robustness in its objectives.
  • GHG Coverage: CCTS primarily focuses on carbon dioxide and perfluorocarbons, neglecting others like methane and nitrous oxide.
  • Lack of Focus on Voluntary Market: The current notifications do not mention the voluntary carbon market or credit exports.
  • Monitoring Issues: Effective monitoring, reporting, and verification are vital for the scheme’s successful implementation.


Way Forward

  • Carbon credit trading is pivotal for countering climate change. While the Union Ministry of Power plans to regulate CCTS, there’s a belief that the Union Ministry of Environment and Forest is more suited for this role.
  • Policymakers should prioritize transparency, encourage broader consultations, and avoid conflicts of interest in finalizing the framework.

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