Description

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Context:

The Indian government set GHG emissions intensity targets for entities in eight heavy industrial sectors under the CCTS compliance mechanism.

Introduction:

India’s Carbon Credit Trading Scheme (CCTS), officially notified in June 2023, represents a significant leap towards a market-based approach to achieving the country’s climate mitigation goals.

This scheme aims to establish a national framework for trading carbon credits, enabling the cost-effective and efficient reduction of greenhouse gas (GHG) emissions.

It reflects India’s commitment to fulfilling its Nationally Determined Contributions (NDCs) under the Paris Agreement and transitioning towards a low-carbon economy.

Background and Evolution

India has experimented with market-based instruments like the Perform, Achieve, and Trade (PAT) scheme for industrial energy efficiency and the Renewable Energy Certificate (REC) mechanism to promote clean energy.
However, these schemes operated in isolation, without a unified carbon pricing mechanism.
The Bureau of Energy Efficiency (BEE), under the Ministry of Power, has been tasked with developing the operational framework for the CCTS.
The scheme is supported by the Energy Conservation (Amendment) Act, 2022, which legally enables a carbon credit market.

Key Features of the Carbon Credit Trading Scheme

Aspect	Details
Domestic Scope	CCTS is limited to domestic entities and sectors; not linked to international carbon markets (e.g., Article 6 of Paris Agreement).
Compliance Mechanism	Obligated entities must either reduce their emissions or purchase carbon credits to meet their targets.
Voluntary Mechanism	Non-obligated entities or individuals can purchase credits to meet voluntary net-zero goals.
Sectoral Coverage	Initially includes energy-intensive sectors: Cement, Steel, Thermal Power, Oil & Gas, and Transport. More sectors may be added over time.
Carbon Credit Issuance	Based on verified emission reductions. BEE will set sectoral baselines and monitor protocols; it will act as the market regulator.

Objectives

Cost-effective Emissions Reduction: Helps achieve mitigation targets with lower costs by allowing trade between entities with different abatement costs.
Incentivizing Innovation: Rewards companies that reduce emissions below their baseline, encouraging clean technologies and efficiency improvements.
Meeting NDC Goals: Contributes to India’s target of reducing emissions intensity of GDP by 45% by 2030 (from 2005 levels).
Preparing for Global Integration: Although currently domestic, the scheme may later be aligned with Article 6.2 (bilateral carbon trading) of the Paris Agreement.

Challenges

Lack of Clarity & Framework Readiness	Ambiguity in baseline setting, verification, and regulation of trading platforms.
Institutional Capacity Gaps	BEE's limited ability to monitor and verify large-scale emission data effectively.
Risk of Greenwashing	Weak verification may lead to false claims of emission reductions.
Double Counting	Overlap with schemes like PAT or REC may result in same reductions being counted multiple times.
Limited Stakeholder Awareness	Industries lack knowledge about carbon markets, hindering effective participation.
Exclusion from International Market	Credits not eligible for global trade, reducing financial opportunities for Indian firms.

Way Forward

Clear Operational Guidelines: BEE must provide transparent rules for baseline setting, monitoring, and verification.
Robust MRV Framework: An effective Monitoring, Reporting, and Verification (MRV) system is crucial to ensure transparency and accountability.
Capacity Building: Industries and state governments need training and institutional support to participate effectively.
Linking with Global Markets: India can explore integrating the scheme with international mechanisms under Article 6 of the Paris Agreement once it matures domestically.
Public Disclosure: Emissions and credit data should be made public to ensure transparency and build credibility.

India’s Carbon Credit Trading Scheme is a pioneering initiative that seeks to blend environmental sustainability with economic pragmatism. While the scheme is still evolving and faces multiple challenges, its success lies in designing a transparent, accountable, and robust carbon market architecture.

If implemented effectively, it can not only help India meet its climate goals but also serve as a model for other developing economies aspiring for sustainable development through market-based solutions.

Source: The Hindu

PRACTICE QUESTION

Q. Evaluate the objectives and limitations of India’s Carbon Credit Trading Scheme. How can it be strengthened to effectively contribute to India’s climate goals? (250 words)