Carbon Credits in India: A Step Toward a Sustainable Future - zenith

Carbon credits are a right to emit one ton of carbon dioxide and may be transferred among carbon markets. Carbon credits are created by activities that either lower the amount of carbon dioxide emitted into the atmosphere or that remove carbon dioxide from the atmosphere. The tradability of these credits allows buying and selling of reduction in emissions as well as transfer of emissions reductions, and there often is a market price for carbon emissions. Carbon markets are strategically crafted so that they will encourage the decrease in greenhouse gas emissions, hence promoting environmental sustainability, and are aligned with the push toward a clean and sustainable future.

Carbon credits are of vital advantages

Environmentally, such credits enable business corporations to balance out the greenhouse gases and in the process generate incentives through other sustainable activities.

On the financial business side, it makes a positive impression on the investors in terms of the organisational commitment to climate change mitigation. Thus, enhancing the organisational brand name. For example, Reliance Industries have become a large player who has resulted in investors’ highest appreciation in the carbon-reducing industry. It has made multiple investments in the clean energy sector and is working towards producing green hydrogen.

The credits so obtained are exchangeable in the carbon markets and, in return, get incentives and funding for green initiatives.

It takes the world one step further to attain sustainable development goals.

Indian carbon market and system overview

The modified Energy Conservation Act, 2022 authorises Indian Government to set up carbon market and to authorise specified agencies to issue carbon credit certificates (CCC). One CCC would be equivalent to one tonne of CO2 equivalent (tCO2e) emission reduction or removal from the atmosphere. In July 2024, the government in India launched comprehensive rules for the future compliance carbon market under the Carbon Credit Trading Scheme (CCTS) for both direct (scope 1) and indirect (scope 2) emissions.

The compliance mechanism, which tries to manage emissions of its energy use and industrial activities, and the offset mechanism, which promotes voluntary action by parties for GHG reductions, are the two principal mechanisms of the Indian Carbon Market Framework.

The government informs obligated entities of a required emissions intensity goal (baseline) in terms of tons of CO2 equivalent per unit of output for every year of the compliance period specified. Participants that overachieve their target of GHG emissions intensity will qualify to receive the issue of CCCs, and participants that fail to meet their target will be obliged to buy and surrender a similar number of certificates to cover the shortfall. Entities can bank any excess certificates at the close of the compliance year for offset against future requirements or sell them to other participants.

The certificates will be traded through the national power exchanges. Obligated entities need to register on a national list, whereas trading participation is voluntary for non-obliged entities in case they want to participate. The scheme will not initially allow over the counter (OTC) trading. Regulatory frameworks of CCTS are controlled by the Ministry of Power.

Types of carbon credits in India

Indian carbon credits are typically divided into two categories: compliance carbon credits and voluntary carbon credits, which both seek to reduce greenhouse gas emissions.

Compliance carbon credit: These are obligatory for entities that belong to certain sectors, and to follow the regulatory framework established by the government. It encompasses the Mandatory Carbon Credit Certificates (M-CCC) which are for the energy intensive industries. NTPC, Tata Steel, Ultratech Cement are some of the organizations following the compliance carbon market.

Voluntary carbon credit (VCM): These are produced by projects which voluntarily reduce or prevent GHG emissions via their projects, thus enabling non-obligated parties to engage in the carbon market. In January 2022, there were 921 projects in the two prominent carbon crediting programs, Verra and Gold Standard. By June 2023, there were 1,451 registered projects. They target renewable energy and sustainable agriculture practices, where farmers practice sustainability and earn extra money from carbon markets.

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