Indian Carbon Market (ICM) and Carbon Credit Trading Scheme (CCTS), 2023

The Indian Carbon Market (ICM) is making strides toward establishing a carbon trading framework known as the Carbon Credit Trading Scheme (CCTS), 2023. This move is driven by the government's commitment to reduce carbon emissions through a 'cap-and-trade' system, introducing an external cost for carbon emissions that contribute to climate impacts. The ICM and CCTS are set to play a pivotal role in India's fight against climate change and in achieving its sustainability goals.

Introduction

The global challenge of climate change has spurred nations into action, and India is no exception. The Indian government's ambitious plan to establish an Indian Carbon Market (ICM) marks a significant step towards reducing carbon emissions and combating climate change. The recent draft framework for carbon trading, known as the Carbon Credit Trading Scheme (CCTS) 2023, has set the stage for the development of this carbon market. With the growing recognition of the need for a 'cap-and-trade' system to regulate carbon emissions, India aims to expand its coverage of industrial sectors eligible for mandatory emission cuts based on market-based carbon credits.

In this comprehensive article, we will explore the intricacies

of India's imminent carbon market and the challenges it faces. We will delve

into the pricing of carbon, the governance structure of the market, the choice

between voluntary and compliance markets, and the lessons learned from the

Perform, Achieve, and Trade (PAT) scheme. Furthermore, we will discuss the

rules of engagement, the role of various stakeholders, and the importance of

credibility and equity in the ICM. Let's navigate this minefield and uncover

the potential and challenges of India's carbon market.

The Need for Carbon Pricing and its Diverse Approaches

Carbon pricing has emerged as a crucial mechanism for mobilizing finance and driving climate action. With estimates showing that about 23% of emissions worldwide are covered by carbon pricing systems, the need to establish a carbon price is more critical than ever. The World Bank, in a 2017 expert report on carbon pricing, recommended a carbon price of at least $40 per tonne to discourage fossil fuel usage and fund adaptation needs for vulnerable communities. As India seeks to incorporate carbon pricing into its supply chains, there is a wide variety of approaches and prices assigned to carbon in different regions. This section will delve into the importance of carbon pricing and the diversity of approaches employed.

Understanding the Carbon Credit Trading Scheme (CCTS)

The recent draft framework, the Carbon Credit Trading Scheme (CCTS) 2023, forms the cornerstone of India's carbon market. It outlines the governance structure and responsibilities of various stakeholders who will play key roles in the market's functioning. The National Steering Committee for Indian Carbon Market, comprising 19-22 members, will oversee the market's operations, with the Bureau of Energy Efficiency (BEE) acting as the administrator. This section will provide a detailed understanding of the CCTS and the role of the BEE in developing market rules and setting industry-specific emission reduction targets.

Voluntary Market vs. Compliance Market: Which Way to Go?

India faces a critical decision regarding the type of carbon market it will establish. While expectations leaned towards a preliminary voluntary market, the CCTS seems to favor an imminent compliance market. In a voluntary market, credits are traded based on voluntary commitments and self-imposed targets by industries. On the other hand, a compliance market relies on legislative tools and codified industry-specific targets to sustain demand for credits. This section will weigh the pros and cons of each market type and discuss their implications for India's Nationally Determined Contributions and its net-zero pledge.

Learning from the PAT Scheme: Successes and Challenges

The Perform, Achieve, and Trade (PAT) scheme, designed for energy efficiency in industries, provides valuable insights into India's carbon market. While the PAT scheme achieved significant improvements in industrial energy use, actual emission reductions were inconsistent. Challenges such as loose targets, non-transparency, and limited coverage of industries surfaced during its implementation. This section will analyze the successes and challenges of the PAT scheme and draw lessons that can be applied to the ICM.

Laying the Groundwork: Recent Amendment to the Energy Conservation Act

The recent amendment to the Energy Conservation Act serves as the foundation for the imminent voluntary market. By allowing notification of energy consumption standards for various entities, including vehicles, vessels, industrial units, buildings, and establishments, the amendment paves the way for a credit-granting authority. This section will explore the details of the amendment and how it shapes the scope of the Indian Carbon Market.

The Role of Stakeholders in the Indian Carbon Market

The success of India's carbon market relies heavily on the active involvement and collaboration of various stakeholders. From landowners to developers, verifiers, and carbon credit registries, multiple entities play vital roles in the ecosystem of the ICM. This section will delve into the responsibilities of each stakeholder and how they contribute to the market's functioning, ensuring credibility and transparency.

Ensuring Credibility and Equity: A Critical Aspect

Credibility and equity are essential cornerstones of the Indian Carbon Market. To create an effective carbon market, projects must be additional and offer climate benefits beyond their existence. Avoiding greenwashing and accurately representing new technologies are crucial factors. Furthermore, the market must prioritize just and equitable projects that address both environmental and social needs. This section will highlight the importance of credibility and equity in the ICM's success.

Ticking Clock and Conflicts: Striking a Balance

As India navigates its carbon market journey, it faces time constraints and conflicts that need resolution. The pressure of cross-border carbon taxes necessitates the establishment of a voluntary market to protect export-oriented industries. However, conflicts between the power ministry and the Ministry of Environment, Forest, and Climate Change remain to be resolved. Adequate representation of states in the market's functioning is essential for striking a balanced approach. This section will examine the time-sensitive challenges and conflicts India must overcome.

Conclusion

The journey of establishing India's carbon market is no easy feat, but it holds significant potential for combating climate change. By addressing the challenges related to pricing, governance, market type, credibility, and equity, India can navigate this minefield successfully. The Indian Carbon Market's success will not only benefit the nation but also contribute to global efforts in achieving a sustainable and carbon-neutral future.

FAQs

1. Q: What is the Indian Carbon Market (ICM)? A: The Indian Carbon Market, or ICM, is a market-based carbon trading system established by the Indian government to reduce carbon emissions and combat climate change. It aims to regulate emissions through a 'cap-and-trade' system, where carbon credits are traded among industries to achieve emission reduction targets.
2. Q: What is the Carbon Credit Trading Scheme (CCTS) 2023? A: The Carbon Credit Trading Scheme 2023 is a draft framework that sets out the basic governance structure and responsibilities of various stakeholders participating in the Indian Carbon Market. It forms the cornerstone of India's carbon market and provides guidelines for emission reduction targets and trading mechanisms.
3. Q: What is the difference between a voluntary market and a compliance market? A: In a voluntary market, carbon credits are traded based on voluntary commitments and self-imposed targets by industries. A compliance market, on the other hand, relies on legislative tools and codified industry-specific targets to drive demand for carbon credits.
4. Q: What lessons can India learn from the PAT scheme for its carbon market? A: The Perform, Achieve, and Trade (PAT) scheme provides valuable insights into India's carbon market. While the scheme achieved improvements in industrial energy use, it faced challenges such as loose targets and limited industry coverage, which must be addressed to ensure the effectiveness of the carbon market.
5. Q: How does the recent amendment to the Energy Conservation Act contribute to the Indian Carbon Market? A: The recent amendment to the Energy Conservation Act lays the groundwork for the imminent voluntary market by allowing notification of energy consumption standards for various entities. This paves the way for a credit-granting authority and shapes the scope of the Indian Carbon Market.
6. Q: What is the role of stakeholders in the Indian Carbon Market? A: Various stakeholders, including landowners, developers, verifiers, and carbon credit registries, play essential roles in the Indian Carbon Market. They contribute to the market's functioning, ensuring credibility and transparency in carbon trading.

Summary

Navigating the minefield of India's imminent carbon market presents both challenges and opportunities. By understanding the significance of carbon pricing, comprehending the Carbon Credit Trading Scheme, and learning from past initiatives like the PAT scheme, India can establish a robust carbon market. Balancing the choice between a voluntary and compliance market, ensuring credibility and equity, and resolving conflicts will pave the way for an effective carbon trading system. As the country progresses on the road to reducing emissions and addressing climate change, the Indian Carbon Market stands as a beacon of hope for a sustainable and greener future.

This article talks about The Indian Carbon Market (#ICM) and Carbon Credit Trading Scheme (#CCTS) which has been introduced in 2023.

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