India plans to open carbon market: What is it and how will it help in the fight against climate change?

As part of its attempts to go green and achieve its climate targets, India plans to open a carbon trading market for major emitters in the energy, steel and cement industries.

Sources within the government were quoted as telling Bloomberg and Live Mint that Prime Minister Narendra Modi will announce the new platform on 15 August, Independence Day. As per the Bloomberg report, the establishment of the carbon market has been in the works since March as the Centre has been in talks with ministries and companies.

The news of setting up a carbon market comes after Power Minister RK Singh on Wednesday introduced the Energy Conservation (Amendment) Bill, 2022 in Parliament, which provides for the same. Besides, the Bill also seeks to mandate the use of non-fossil sources, including green hydrogen, green ammonia, biomass and ethanol, for energy and feedstock.

As the buzz around the carbon market rises, here’s what we know about them and why they are important in the fight against climate change.

What’s a carbon market?

First things first.

A carbon market turns emission reductions and removals into tradeable assets. What this means is that an industrial unit which outperforms the emission standards stands to gain credits. It also would allow units struggling to attain their standards to buy credits and show compliance.

All in all, the carbon market will create incentives to reduce emissions or improve energy efficiency.

There are generally two types of carbon markets — compliance and voluntary.

Do carbon markets exist elsewhere?

On an international level, a carbon market was set up under the United Nation’s 1997 Kyoto protocol on climate change.

Under that agreement, developed countries had targets to reduce their greenhouse gas emissions, but developing countries did not. So if a developing country reduced its emissions by building a solar panel plant or planting trees for example, they could sell a ‘credit’ to a developed country, which could count that emission reduction in its own target.

However, that market collapsed due to concerns over environmental efficacy and corruption.

A similar carbon market is being worked out under the Paris Agreement, but the details haven’t been finalised yet.

Carbon markets already exist within some countries and regions. In Europe, industrial units have prescribed emission standards to adhere to, and they buy and sell credits based on their performance.

In America’s California, the government puts a cap on the amount of greenhouse gases that can be emitted by a given industry or sector of the economy. Businesses are then given an allowance of how many metric tonnes of carbon dioxide they can emit. Those who emit less than their allotment can sell the extra to other businesses, pushing everyone to cut down emissions faster.

China also has its own domestic market.

Why India needs a carbon market?

Carbon markets have proven to be one of the most effective drivers of reducing emissions, offering the lowest-cost emission reductions.

An Intellecap report said carbon credits would incentivise entities with low reduction costs to reduce emissions beyond their mandate.

The Live Mint report said that it would spur innovation and finance clean projects from Indian MSMEs, which have huge scope for emission reduction. They can also provide greater liquidity to reduction certificates from India, encouraging greater reductions globally.

“Countries and companies can do a lot more with carbon markets than they can do without. But they have to be designed well,” said Alex Hanafi, director of multilateral climate strategy at the Environmental Defense Fund, in a Quarz report.

Experts have said that the carbon market would help a long way in India’s aim of turning carbon-neutral by 2070.

India’s carbon emissions

In 2019, India was lambasted as the world’s third highest polluter with 2.88 CO2 gigatonnes (Gt). The country comes second only after China at 10.6 Gt and the United States at five Gt.

At the 26th Conference of Parties (CoP26) in November 2021, Prime Minister Narendra Modi set a target of net zero greenhouse gas emissions by 2070.

He declared a five-fold strategy — termed as the panchamrita — to achieve this feat. These five points include:

1 India will get its non-fossil energy capacity to 500 gigawatt (GW) by 2030 2) India will meet 50 per cent of its energy requirements from renewable energy by 2030 3) India will reduce the total projected carbon emissions by one billion tonnes from now onwards till 2030 4) By 2030, India will reduce the carbon intensity of its economy by less than 45 per cent 5) So, by the year 2070, India will achieve the target of Net Zero

With inputs from agencies

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