India prepares own carbon trading system and decarbonisation measures to counter EU’s CBAM

August 21, 2023
Posted by: OptimizeIAS Team
Category: DPN Topics

India prepares own carbon trading system and decarbonisation measures to counter EU’s CBAM

Subject :Economy

Section: External sector

In News: Government working on setting an Indian carbon trading system in addition to taking measures to counter EU’s Carbon Border Adjustment Mechanism (CBAM)

Key Points:

India is aiming to set up its own carbon trading system apart from measures that push high-emission industries towards decarbonisation in order to mitigate impact of the Carbon Border Adjustment Mechanism (CBAM) to be implemented by the EU from October 1 this year.

CBAM Mitigating Measures:

Providing “hand-holding” across some industries, bringing in specific definitions and auditing standards apart from carrying out certification processes.
Select Ministries, such as Commerce & Industry and External Affairs, will take up issues that support India’s stand on CBAM across appropriate international fora.
Efforts will be made towards keeping MSMEs out of the ambit.
India is in talks with the EU to allow energy auditors from the country to verify carbon- intensive exports, including aluminium.

Carbon Market:

Plans are afoot to develop the Indian Carbon Market (ICM), where a national framework will be established. A notification on the Carbon Credit Trading Scheme 2023 was notified recently.
Government has proposed amendments to a 20-year-old energy conservation law that will provide the framework for a carbon market in an attempt to incentivise emission reduction by industries and commercial units.
Union cabinet approved India’s climate pledges made at the COP26 in Glasgow last year. Under India’s updated pledge, it aims to have 50% of its energy come from non-fossil fuel sources by 2030 and reduce the emission intensity of its GDP by 45% over 2005-levels.

Carbon Market

The carbon credit trading system incentivises entities that push for a transition to low-carbon practices by assigning a value (known as carbon credit) to each ton of carbon dioxide equivalent reduced or avoided.
Companies surpassing their targets will be rewarded with carbon credit certificates, while those falling short will be required to purchase certificates to offset their deficit or face penalties.

How Is The Price Of Carbon Fixed?

Countries and companies alike have different ways of setting a price for carbon. These are usually achieved by either putting a carbon tax, or through a market-based approach like an emissions trading system.
India does not have an explicit carbon pricing, it does that in the form of levies. The central government’s fuel excise taxes and coal cess are two such examples.
This way of pricing carbon, however, results in individuals and households bearing the brunt as cost increases due to levies are usually passed on to the end consumer.