Climate change is one of the biggest threats facing our planet today. Rising global temperatures due to greenhouse gas emissions have resulted in catastrophic consequences like rising sea levels, extreme weather events, melting glaciers and more. As nations worldwide recognize the urgency to act on climate change, carbon credits have emerged as a market-based solution to lower emissions levels across the world.
What are Carbon Credits?
A carbon credit represents one metric ton of carbon dioxide or other greenhouse gases like methane reduced or sequestered through specific projects and programs. These projects fall under three categories - renewable energy, energy efficiency and forestation. Carbon credits are certified and verified by independent third parties to ensure credibility. They can then be traded in carbon markets between governments, companies and other entities to facilitate emission reduction activities on a large scale.
Eligible projects that generate carbon credits include solar and wind power generation, fuel efficient vehicles, waste management programs, reforestation initiatives and more. The credits allow flexibility to those unable to lower their own emissions to offset them by purchasing credits from others who have cut emissions more than required. The key role of carbon credits is to put a monetary value on greenhouse gas reductions and make emission cuts an economically rewarding decision.
The Global Carbon
The Global Carbon Credit has grown steadily over the past two decades and involves both compliance and voluntary programs. Compliance carbon markets are established under cap-and-trade schemes like the European Union Emissions Trading System (EU ETS). Companies and other organisations regulated under such schemes must hold sufficient allowances or credits to cover their annual emissions. Those who cut below required levels can sell excess allowances or credits.
Voluntary carbon markets, on the other hand, facilitate carbon offsetting activities not linked to any compliance obligations. Various individuals, organizations, projects and programs generate carbon credits by adopting climate-friendly solutions which others can purchase to neutralize their emissions. Major voluntary markets include the Verra registry, Gold Standard and Climate Action Reserve. According to World Bank data, the global carbon market crossed $277 billion in 2021, indicating its significant scale and effectiveness in enabling ambitious climate action worldwide.
India's Efforts towards a National Carbon
As a large developing economy, India is gearing up to play an important role in curbing global emissions. While per capita emissions are still low, the country is urbanizing rapidly with energy demand expected to rise substantially in the coming decades. To achieve its Paris Agreement targets of reducing emissions intensity by 33-35% from 2005 levels by 2030, India has taken several steps to put a price on carbon.
In 2016, the government launched the Perform Achieve and Trade (PAT) scheme as a market-based mechanism for improving energy efficiency in energy intensive industries. Eight sectors including power, steel, cement and aluminum were initially covered under PAT with the goal of reducing emissions through production efficiency improvements. Building upon the success of PAT, India is now working towards establishing a national emissions trading program.
In 2020, the government released draft regulations to set up an Indian Carbon Exchange as a platform for trading compliance and voluntary credits generated from various domesticoffset projects and programs. Last year, India also launched the first pilot carbon trading program in Delhi to explore opportunities for reducing air pollution through market-based incentive structures. With a supportive policy framework and accounting infrastructure for crediting, verification and registration, India aims to operationalize its national emissions trading scheme by 2022. This would make it only the fourth country after the EU, China and South Korea to adopt mandatory carbon pricing on a nationwide scale.
Role of India's Carbon Credit Projects
Once functional, India's emissions trading is set to generate large volumes of carbon credits from across the country that can be traded internationally as well. Many Indian projects are already registered with registries like Verra and generating credits annually through various greenhouse gas mitigation activities.
Some major examples of credit-generating projects in India include efficient cookstoves distribution that reduces biomass combustion, large-scale wind and solar plants, waste management programs, biogas Capture from waste to replace fossil fuels, public transport system modernization projects, afforestation and reforestation initiatives, etc. With scope for replication all over the country, such projects have the potential to contribute significantly to India's Paris targets while promoting green development alongside carbon reductions.
International Carbon Trading Opportunities
As more nations introduce plans for net-zero emissions by mid-century, the global demand for high-quality carbon credits is expected to multiply in the coming decades. This opens up huge export opportunities for Indian credits validated under the country's national carbon accounting framework once established. With a large renewable energy capacity addition target of 450 GW by 2030, India's planned project pipeline has robust potential to yield credits over long periods given proper safeguarding mechanism to ensure environmental integrity.
To harness these international trading opportunities, India is working on mutual recognition arrangements with carbon markets in other developed and developing economies. Bilateral partnerships are being explored with the EU under the India-EU Partnership on Environment and Climate Action. Accessing global compliance markets would provide further encouragement for India's voluntary offset projects. Integrating India into international carbon trading would simultaneously aid its climate action and channel much-needed investments towards green infrastructure and low-carbon growth.
Conclusion
As one of the largest carbon credit project pipelines globally, India is well-positioned to emerge as a forerunner in global emissions trading. A robust policy push and enabling framework, coupled with international linkages, can maximize the mitigation potential of Indian projects. Carbon credits present a win-win approach for India to reduce emissions cost-effectively while boosting renewable energy, energy efficiency and conservation efforts. With coordinated national and state level action, India's carbon can play a leadership role in stimulating climate action via-based instruments for a sustainable future.
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