India will benefit from a carbon trade mechanism to combine its economic requirements with efforts to reduce its GHG footprint.
Due to the effects of climate change and the related need to reduce carbon emissions, India will face significant hurdles as it expands its economy to fulfill the expanding requirements of its population. The need to adopt strategies that reduce greenhouse gas (GHG) emissions is urgently needed as the effects of global warming worsen.
One of the many approaches being used or taken into consideration to address the emergency is a thriving carbon trading network. Carbon credits can be compared to a short-term “licence” that allows an organization to emit a certain amount of CO2 for the year. Through this technique, a business with little or no emissions can sell credits on the open market through a carbon trading system or carbon exchange. This reduces the emissions of a different party that is willing to purchase the credits.
Governments, investors, consumers, and other stakeholders are now aware of their overall carbon footprint and the need to reduce it as global temperatures and GHG emissions rise each year. For some industrial enterprises, however, including hard-to-abate industries like cement, chemicals, iron and steel manufacture, and non-ferrous metals, there are very few decarbonization options available. In comparison to the transportation, power generation, and some other businesses, they are also an expensive proposition for them. Nevertheless, these industrial companies are required to reach emission reduction targets due to either local laws or internal policy because they are some of the greatest sources of global warming gases (GHG) emissions.
Companies can use carbon credits to help them reach their sustainability goals. These organizations can buy credits or support initiatives that generate carbon credits. By creating a national framework that will assist in decarbonizing the domestic economy by pricing GHG emissions through trading in carbon credit certificates, the Center intends to develop the Indian Carbon Market (ICM). The Union government just announced the draft rules for the Indian Carbon Credit Scheme 2023. The Ministry of Environment, Forestry & Climate Change has charged the Bureau of Energy Efficiency, a division of the Ministry of Power, with creating the Carbon Trading Scheme.
The ICM will bolster investment mobilization for the shift to a low-carbon ecosystem, the Center is certain. As a result, India will be able to meet its NDC (Nationally Determined Contribution) target in relation to its international climate commitments by 2030 and reduce the carbon intensity of its GDP by 45% from 2005 levels.
The market mechanism in India is tied to energy savings. However, because of its larger scope for addressing the nation’s potential energy segments, carbon credit trading will help the shift to a cleaner energy source. Afterward, GHG emissions intensity targets and benchmarks would be created in accordance with the trajectory of domestic emissions. As a result, carbon credit transactions will be in line with sectoral trajectory performance.
One must keep in mind, nevertheless, that the draft announcement from the Centre makes no mention of any rules, regulations, or guidelines for the operation of carbon markets. A National Steering Committee, headed by the Secretary of the Ministry of Power, would be in charge of this duty.
The ICM would aid in decarbonizing the commercial and industrial sectors because the Center has set a lofty goal of becoming net zero by 2070. Although the ICM would be governed, it would give businesses in difficult-to-abate segments the opportunity to increase their GHG emission efforts through carbon market credits.
The system might make it easier to secure funding and technology for environmentally friendly initiatives that can produce carbon credits. An efficient method for raising a sizable percentage of the money needed for the low-carbon transition is the ICM.
Additionally, the Center’s decision will spur more awareness, transformation, and innovation in challenging industries. The impact on various businesses of putting a price on carbon footprints is clear. Businesses that are motivated by rewards and punishments would start integrating the environmental impact as a crucial factor in their strategic choices. As a result, investments will be encouraged that will enable businesses and manufacturers to switch to low-carbon manufacturing methods.
Businesses would need to take into account both domestic and international ramifications as carbon-related tariffs like the CBAM (Carbon Border Adjustment Mechanism) started to directly affect commerce. It is difficult to estimate and model the impact accurately due to the interdependencies and complexity of the transaction. Therefore, it is crucial that regulatory agencies carefully monitor the carbon credit market’s developments and develop measures to ensure its smooth operation.
Decarbonizing industrial activities will be important while the nation progressively progresses toward a net-zero world. Here, the nation’s transition from fossil fuel or legacy technologies to clean energy systems presents a critical opportunity for industry leaders in carbon management solutions and clean energy transition to play a crucial role in enabling the transition towards a net-zero future. India is attempting to reconcile its economic requirements with environmental concerns in a careful manner a more sustainable future may be achieved through the use of carbon trading mechanisms.
