Current Affairs 2024 - Giving shape to India’s carbon credit mechanism

Carbon markets are pivotal in achieving global climate targets by incentivizing greenhouse gas (GHG) reductions. As COP-29 in Baku highlights the role of carbon finance, India, with its updated Nationally Determined Contributions (NDCs) and ambitions for a domestic carbon market, is poised to lead global climate action. 

However, challenges like ensuring integrity, alignment with Article 6 of the Paris Agreement, and regulatory robustness need to be addressed.

• Definition: Tradable certificates representing avoided or removed GHG emissions, equivalent to one metric ton of CO₂.

• Purpose: Allow entities to transfer and "retire" credits to meet climate targets or contribute to mitigation.
• Certification: Issued by governments or independent bodies, adhering to standardized Global Warming Potentials (GWPs).
• Uses: Serve compliance or voluntary reporting and support broader climate mitigation efforts.

1. Economic Growth:
   • India issued 278 million credits between 2010–2022, accounting for 17% of global supply.
   • Potential to create 200,000+ jobs, boost green finance, and support the $5 trillion economy target.
2. International Climate Leadership:
   • As a top emitter and renewable energy leader, India can shape global climate finance frameworks.
   • Initiatives like the International Solar Alliance highlight India’s leadership potential.
3. Industrial Competitiveness:
   • Carbon pricing drives modernization, innovation, and efficiency.
   • Examples: EU-ETS reduced industrial emissions by 41% (2005–2022); JSW Steel leads in low-carbon solutions.
4. Digital Integration:
   • India’s digital success (UPI, CoWIN) offers a template for carbon trading platforms.
   • Blockchain, IoT, and AI can enhance transparency and reduce verification costs.
5. Green Investment Catalyst:
   • Carbon markets can attract ESG investments (~18% of foreign financing in emerging markets).
   • Supports green bonds and initiatives in renewable energy, efficiency, and conservation.

6. Rural Development:
   • Farmers can earn additional income through carbon farming (e.g., Maharashtra pilot projects).
   • Encourages agroforestry, sustainable agriculture, and rural renewable energy projects.
7. Sectoral Transformation:
   • Opportunities across energy, manufacturing, real estate, and transport sectors.
   • Performance Achieve Trade (PAT) scheme shows industry readiness for market mechanisms.

8. Knowledge Economy Development:
   • Carbon markets foster expertise in accounting, trading, and climate finance.
   • Initiatives like the Climate University Network (100+ universities) build skills and research capacity.
9. Urban Sustainability:
   • Projects in waste management, clean transport, and urban forestry boost sustainable urban development.
   • Examples: Indore’s success in generating revenue from waste carbon credits.

1. Market Design:
   • Balancing environmental goals with economic realities is complex.
   • Uniform pricing mechanisms are difficult due to diverse industrial capacities.
2. Measurement & Verification:
   • Inadequate emissions data and monitoring systems hinder credibility.
   • MSMEs lack technical capacity for accurate reporting.
3. Regulatory Gaps:
   • Implementation delays (e.g., Green Credit Programme) expose institutional constraints.
   • Coordination between multiple agencies creates operational inefficiencies.
4. Industry Readiness:
   • High compliance costs may exclude MSMEs, creating market distortions.
   • Gaps in carbon accounting and trading expertise across sectors.
5. International Alignment:
   • Balancing sovereignty and global standards (Article 6 compliance) is challenging.
   • Risks of carbon leakage and competitiveness concerns require careful policy design.
6. Credit Integrity Issues:
   • Double counting and additionality concerns undermine market credibility.
   • Overlapping schemes like PAT and RECs complicate tracking mechanisms.
7. Regional Disparities:
   • Market benefits may concentrate in industrialized states, neglecting underdeveloped regions.
   • Equity concerns require inclusive mechanisms.
8. Technology Gaps:
   • Secure, transparent trading platforms need significant investment.
   • Digital divides across regions and industries hinder participation.
9. Speculation & Greenwashing:
   • Risk of price manipulation and misuse of offsets (e.g., "phantom credits").

• Ensuring market credibility is critical for consumer trust.

1. Phased Implementation:
   • Begin with high-emission sectors and expand gradually.
   • Build capacity through a tiered approach similar to China’s Emissions Trading System.
2. Digital Infrastructure:
   • Use blockchain for transparent tracking and IoT for real-time monitoring.
   • Standardized digital reporting formats reduce transaction costs.
3. Capacity Building:
   • Develop certification programs for carbon market professionals.
   • Establish guidance for emissions reporting and sectoral pathways.
4. Dynamic Pricing:
   • Introduce price collar mechanisms to prevent volatility.
   • Use market stability reserves to balance supply-demand dynamics.
5. Sectoral Integration:
   • Link PAT, RECs, and carbon markets to prevent overlap.
   • Create compliance mechanisms for hard-to-abate sectors.
6. Regional Frameworks:
   • State-level carbon market cells to provide localized support.
   • Revenue-sharing models to incentivize state participation.
7. International Alignment:
   • Align market rules with Article 6 and establish frameworks for credit transfers.
   • Strengthen bilateral partnerships for capacity building.

India’s carbon market is a transformative step toward sustainable development, aligning with SDG 13: Climate Action. By addressing design, regulatory, and technological challenges, it can drive emissions reductions, attract green investments, and position India as a global climate leader.

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