Carbon Trading Market In India

Prelims level : Environment Mains level : GS-III Environment & Biodiversity |Conservation-National Guidelines, Legislations & Other Programmes.
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This article discusses the prospects of the carbon trading market in India.

Carbon Trade and Carbon Market:

  • Carbon trade is the buying and selling of credits that permit a company or other entity to emit a certain amount of carbon dioxide or other greenhouse gases.
  • The carbon credits and the carbon trade are authorised by governments with the goal of gradually reducing overall carbon emissions and mitigating their contribution to climate change.Rules for a global carbon market were established at the Glasgow COP26 climate change conference in 2021, enacting an agreement first laid out in the 2015 Paris Climate Agreement.

India’s Evolving Carbon Market:

  • India’s carbon market is still evolving, and the country is taking steps to develop a robust and effective carbon trading system. Here are some of the key developments and initiatives in India’s evolving carbon market:
  • Pilot carbon trading platforms: The Union government has launched pilot carbon trading platforms in collaboration with various organisations, such as the World Bank and the Federation of Indian Chambers of Commerce and Industry (FICCI). These platforms aim to test and refine different approaches to carbon trading in India.
  • National Carbon Market: In February 2021, the Indian government announced its intention to establish a national carbon market. The market will be based on a “cap-and-trade” system, where the government sets a cap on emissions and allows companies to trade emissions allowances. Parliament amended the energy conservation bill in 2022 in order to establish a carbon market in India.
  • Carbon pricing: India has implemented several policies to put a price on carbon, such as a tax on coal and a clean energy cess. These policies aim to incentivize companies to reduce emissions by making it more expensive to use high-emitting fuels.
  • Clean Development Mechanism (CDM) projects: India is one of the largest beneficiaries of the Clean Development Mechanism under the Kyoto Protocol, with over 2,200 CDM projects registered in the country.
  • Renewable Energy Certificates (RECs): India has a market-based system for trading RECs, which represent the environmental attributes of renewable energy.
  • India has also notified the National Designated Authority for the Implementation of the Paris Agreement (NDAIAPA) to take decisions in regard to the type of projects that may take part in the international carbon market under Article 6 mechanisms of the Paris Agreement.

Carbon trading in European Union (EU):

  • EU-Emissions Trading Systems is the world’s first and the biggest major carbon market.
  • Under EU-Emissions Trading Systems (ETS), government-mandated emission limits on industrial sectors such as aluminium or steel plants require industries to either cut emissions or buy government-certified permits from companies that cut more emissions than required or were auctioned by governments.

Significance of the Carbon Market:

  • The significance of the carbon market lies in its ability to incentivize and facilitate emissions reductions in a cost-effective way.
  • The carbon market can help developing countries access finance for low-carbon development and provide an incentive for developed countries to invest in emissions reductions in developing countries.
  • Carbon markets can provide finance for low-carbon development and support sustainable development projects, such as energy efficiency upgrades, sustainable transport, and afforestation.
  • This can help India meet its development goals while also reducing emissions.
  • As a developing country with a large and rapidly growing economy, India’s climate actions are closely watched by the international community.
  • By participating in carbon markets and demonstrating its commitment to reducing emissions, India can enhance its international climate leadership and influence.
  • The carbon market creates a transparent and standardized system for measuring, reporting, and verifying emissions reductions, which can help increase accountability and trust in climate action.
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