Carbon Market in India ЁЯЗоЁЯЗ│
India is establishing a national carbon market to help achieve its climate goals, known as Nationally Determined Contributions (NDCs), and its long-term objective of achieving Net-Zero emissions by 2070. The framework for this market is built upon domestic legislation and is designed to integrate with global climate efforts.
I. Global Context: The Paris Agreement’s Article 6 ЁЯМН
The international foundation for carbon markets is Article 6 of the Paris Agreement. It allows countries to cooperate voluntarily to achieve their emission reduction targets. It has three main approaches:
- Article 6.2 (Cooperative Approaches): This allows for bilateral or multilateral agreements between countries to trade emission reduction units, called Internationally Transferred Mitigation Outcomes (ITMOs). For example, India has signed a Joint Crediting Mechanism (JCM) with Japan under this article.
- Article 6.4 (Centralized Mechanism): This creates a global carbon market, supervised by a UN body, for trading carbon credits known as A6.4ERs. It is the successor to the Clean Development Mechanism (CDM) of the Kyoto Protocol.
- Article 6.8 (Non-Market Approaches): This focuses on cooperation without trading, such as technology transfer and capacity building.
II. The Two Main Types of Carbon Markets
Globally, carbon markets are divided into two categories:
| Feature | Compliance Market | Voluntary Market |
|---|---|---|
| Nature | Mandatory (legally binding) | Voluntary (self-regulated) |
| Participants | High-emission industries with legal obligations | Any business, organization, or individual |
| Objective | Meet legally mandated emission reduction targets | Offset a carbon footprint for ESG or CSR goals |
| Regulation | Government-regulated with strict rules | Regulated by third-party standards (e.g., Verra) |
| Penalties | Heavy fines for non-compliance | No legal penalties |
| Example | EU ETS, China ETS, India’s CCTS | Markets using Verra or Gold Standard credits |
India’s Carbon Credit Trading Scheme (CCTS) is a unique hybrid system, incorporating both compliance and voluntary elements within one integrated framework.
Back to Top ↑III. India’s Domestic Framework
Legal Foundation: The Energy Conservation (Amendment) Act, 2022 тЪЦя╕П
This Act is the cornerstone of India’s carbon market. It amended the original 2001 Act to empower the Central Government to establish a domestic carbon trading scheme.
- Key Provision: Section 14(w) authorizes the government to specify a carbon credit trading scheme.
- Carbon Credit Certificate (CCC): It defines a tradable permit, where 1 CCC = 1 tonne of CO2 equivalent that has been reduced, removed, or avoided.
- Objective: To help India meet its ‘Panchamrit’ climate targets announced at COP26.
The Two-Tier Structure of the CCTS
IndiaтАЩs market has two main components that operate in parallel:
- Compliance Mechanism (Mandatory): For Obligated Entities (461 companies in 9 sectors). The government sets GHG emission intensity targets. Companies that outperform their target earn CCCs, while underperformers must buy CCCs to comply.
- Offset Mechanism (Voluntary): Open to non-obligated entities. Projects in sectors like renewables or forestry can earn CCCs for verified emission reductions, which can then be sold on the market.
IV. The Institutional Framework: Four Key Pillars ЁЯПЫя╕П
The Indian carbon market is managed by four main bodies, each with a distinct role.
- National Steering Committee for Indian Carbon Market (NSCICM):
Role: Governance and Oversight. This apex body, co-chaired by top ministry secretaries, oversees the market’s functioning and recommends policies and targets. - Bureau of Energy Efficiency (BEE):
Role: Administrator. BEE is responsible for day-to-day administration, including developing targets, creating project methodologies, issuing Carbon Credit Certificates (CCCs), and verifying compliance. - Central Electricity Regulatory Commission (CERC):
Role: Market Regulator. CERC regulates the trading of CCCs, registers the power exchanges where trading occurs, and monitors the market to ensure fairness and prevent volatility. - Grid Controller of India Limited (GCIL):
Role: Registry Operator. GCIL maintains the official registry, which is the master electronic ledger for all CCCs. It acts as the “single source of truth,” tracking every certificate to prevent double-counting.
V. How Trading Works ЁЯФД
- Trading Platform: CCCs will be traded exclusively on power exchanges (like IEX, PXIL) that are registered by CERC.
- Price Discovery: The price of a CCC will be determined by supply and demand through bidding on the exchanges, operating within a government-approved price band.
The Trading Process:
- An entity earns a CCC, which is issued by BEE and recorded in its account in the GCIL registry.
- The entity can then sell this CCC on a CERC-regulated power exchange.
- A buyer (e.g., an obligated entity that needs to comply) purchases the CCC.
- After the trade, GCIL updates the registry, moving the CCC from the seller’s account to the buyer’s account, completing the transaction securely.