Pollution as a Commodity? The Birth of Carbon Trading in India

Pollution as a Commodity? The Birth of Carbon Trading in India

Why did the world end up trading in pollution? As strange it may sound, carbon trading is now a fundamental aspect of doing business consciously. From trading in sugar to trading in carbon, it is now a chief commodity for organizations to manage and reduce effectively. In India, carbon trading is the newest addition to its many measures of slowing down climate change, after the recent passage and approval of the 2022 Energy Conservation (Amendment) Bill.

What Does a Carbon Trading System Look Like?

Simply put, organizations have a cap on its total carbon dioxide emissions and when it reaches the threshold, it can purchase additional emission permits from the carbon trading market for a price per tonne of CO2. The carbon trading system allows for the exchange of carbon dioxide emission permits, like commodities, in form of “quotas” or “allowances” from energy companies, factories and other structures to be able to emit a specific volume of CO2. For a better understanding, see the infographic below.

An Overview of the Upcoming Carbon Trading Market in India

Primarily an agricultural nation, almost 50 percent of India’s population is associated with or engaged in agricultural activities, contributing to about 20 percent of India’s GDP as per the most recent Economic Survey of 2020-2021—and soil retains the potential to act as both a source and sink for carbon. Through carbon sequestration—absorption of carbon by soil—we are able to simultaneously increase carbon levels in the soil and reduce carbon dioxide levels, a wholesome gain for both the agriculture industry and the ongoing climate change movement.

A breakthrough moment for both Indian farmers and industrial enterprises, carbon trading might become a reality by mid-2023. Organizations could have the opportunity of buying credits created by farmers to offset their own emissions after these credits are offered up on the worldwide voluntary carbon market. Each year, these activities might produce one credit per acre of land, removing one tonne of carbon dioxide from the atmosphere. On the international market, one credit could be purchased for US $15. In preparation of the carbon trading boom, Indian agritech firm Grow Indigo has already signed up approximately 50,000 acres of land across 20 districts in Punjab, Haryana, and the National Capital Region for their carbon credit scheme.

Challenges for the Carbon Trading Market

As businesses continue to generate more carbon emissions, taking the aid of natural resources to offset and slow down the debilitating impact of carbon emission is fitting. But to make the most of the help offered by nature, many challenges need to be overcome, including:

1. Carbon Analytics: Carbon credits from renewable energy projects including solar and wind are measurable, but measuring, monitoring, and verifying carbon credits from agriculture and land-related projects is challenging
2. Slow Returns for Farmers: Once a project is listed, it takes anywhere between 8 to 12 months for cash incentives to reach farmers and Farmers' Producer Organizations
3. Low Awareness: Still in its infancy, carbon credit trading awareness is low and requires an escalation in mainstream media to bring it into public consciousness

In addition, the demand and cost of carbon credits are sure to surge in the coming years as carbon trading enters the mainstream. The success of India’s carbon trading market hinges on how soon a system is co-developed where pollution is efficiently priced, incentives are provided for emission reduction and cost-effective technologies are deployed for detecting the actual quantity of carbon sequestered, at scale. While this transition may take time, the growth and momentum of the carbon credit market will surely keep the climate movement on its toes.