Giving shape to India’s carbon credit mechanism

Giving shape to India’s carbon credit mechanism

Sub: Env

Sec: Climate Change

India’s Climate Strategy and Carbon Market Framework:

• India updated its Nationally Determined Contributions (NDCs) in 2023, emphasizing the creation of a domestic carbon market as part of its climate action plan.
• The Energy Conservation (Amendment) Act of 2022 provides a legal basis for the Carbon Credit Trading Scheme (CCTS) in India.
• The goal: Align India’s climate commitments under the Paris Agreement with broader economic objectives.
• However, a well-designed carbon market is essential for credibility, efficiency, and fairness. India must learn from global experiences for long-term success.

Key Lessons for India’s Carbon Market:

1. Ensuring Carbon Credit Integrity:
   • Integrity of carbon credits is critical to avoid issues like greenwashing, prevalent in the Voluntary Carbon Market (VCM).
   • Concerns exist over overstatements of project benefits, especially in forestry projects, as seen globally and feared in India’s own Green Credit Programme (GCP).
   • The lack of proper “additionality” (ensuring emission reductions go beyond business-as-usual scenarios) could undermine the effectiveness of the CCTS.
2. Aligning with Global Standards
   • India’s carbon market must align with international trading mechanisms, particularly Article 6 of the Paris Agreement.
     • Article 6.2 allows countries to use Internationally Transferred Mitigation Outcomes (ITMOs) for meeting climate targets, requiring stringent compliance.
   • The Article 6 rulebook, established at COP-26 (Glasgow), provides guidelines for transparent carbon trading while ensuring environmental integrity.

Emphasis on Transparency:

• Transparency is key to maintaining credibility and compliance in India’s carbon credit system.
  • Full disclosure of project details, including carbon reduction techniques and third-party verification reports, should be available on a centralized platform.
  • Regular audits and oversight by independent auditors (approved by the Bureau of Energy Efficiency (BEE)) are essential for verifying project sustainability.
  • Real-time tracking of credit transactions can enhance accountability and provide insights into the environmental impacts of projects.
• The Voluntary Carbon Markets Integrity Initiative (VCMI) framework suggests a tiered system for evaluating carbon credit claims to improve market transparency. However, India’s CCTS could face challenges such as transparency issues and the high costs of establishing monitoring, reporting, and verification (MRV) systems, which may deter smaller projects.

Carbon Credit Trading Scheme (CCTS) in India:

• The Carbon Credit Trading Scheme (CCTS) is a statutory framework established under the Energy Conservation (Amendment) Act, 2022 in India.
  • The Act designates the Bureau of Energy Efficiency (BEE) as the nodal authority for overseeing the scheme’s implementation and compliance.
• It is designed to facilitate the creation of a domestic carbon market, aligning with India’s climate commitments under the Paris Agreement.
• The CCTS aims to provide an economic mechanism for reducing greenhouse gas (GHG) emissions by enabling the trade of carbon credits across industries.

About Energy Conservation (Amendment) Act, 2022:

• It seeks to amend the 2001 Act to:
  • Facilitate the achievement of COP-26 goals, and
  • Introduce concepts such as mandated use of non-fossil sources and carbon credit trading to ensure faster decarbonization of the Indian economy.

Key Features of the Act:

Voluntary Carbon Markets Integrity Initiative (VCMI):

• VCMI is an international non-profit organization with a mission to enable high-integrity voluntary carbon markets (VCMs) that deliver real and additional benefits to the atmosphere, help protect nature, and accelerate the transition to ambitious, economy-wide climate policies and regulation.
• The Voluntary Carbon Markets Integrity Initiative (VCMI) was established in early 2021, with the aim of supporting demand-side integrity. That is, ensuring that corporates engaging in the carbon market are doing so in a manner which drives emissions reductions through the application of a mitigation hierarchy. This means that companies cannot solely rely on carbon credits to achieve their emissions reduction goals, but rather their use must be in addition to science-aligned decarbonisation investments where possible.
• To support organisations in making credible climate claims, the VCMI launched their Claims Code of Practice (CCP) in June 2022. The CCP provides organisations with clear standards and guidance on how they can credibly incorporate carbon credits into their climate action plans.
• The organization is fully aligned with the goals of the Paris Agreement and is committed to a world on track to 1.5 degrees and net zero emissions by mid-century, achieved through a just transition that enhances equality and sustainable development for all.
• It enables high-integrity voluntary carbon markets which contribute to the goal of the Paris Agreement, bringing benefits for people and the planet.

Green Credit Programme (GCP):

• The Green Credit Programme (GCP) is an initiative by the Union Environment Ministry aimed at incentivizing sustainable environmental practices and generating “green credits” that can be traded within a voluntary carbon market.
• The GCP is part of India’s broader strategy to address climate change and enhance its commitments under the Paris Agreement.

Key Objectives:

• Promote sustainable practices across various sectors like agriculture, forestry, and energy.
• Encourage corporate and community participation in climate-friendly activities.
• Facilitate the creation of tradable green credits, allowing businesses and entities to earn credits for their sustainable actions, which can be traded or used to offset their carbon footprints.

Major Components of the Green Credit Programme:

1. Voluntary Carbon Market (VCM) Integration
   • The GCP feeds into India’s voluntary carbon market, providing a platform for trading green credits.
   • It aligns with the Carbon Credit Trading Scheme (CCTS) established under the Energy Conservation (Amendment) Act, 2022.
2. Tree Plantation and Forestry Initiatives
   • One of the main activities under GCP is tree plantation, aimed at enhancing carbon sequestration and restoring degraded ecosystems.
   • However, concerns have been raised about the scientific validity of these projects, with critics arguing that the guidelines encourage practices that may lead to greenwashing (misleading claims of environmental benefits).
3. Community and Corporate Engagement
   • The GCP involves community groups, corporate entities, and local stakeholders in projects like afforestation, renewable energy, and waste management.
   • The programme aims to incentivize both individuals and companies to adopt greener practices by offering them tradable credits as rewards.
4. Verification and Accountability
   • To maintain the integrity of the green credits, India plans to implement strict verification protocols.
   • A proposed national registry would track the issuance and trade of green credits to prevent double-counting.
   • The involvement of independent third-party verifiers is critical to ensure the authenticity and additionality of projects, in line with international standards (e.g., IETA, Gold Standard).

Source: TH