India ratified the Paris Agreement on Climate Change in 2016, committing to limit the global average temperature rise to below 2°C by the end of the century. As part of its first Nationally Determined Contributions (NDCs), India pledged to reduce the greenhouse gas (GHG) emission intensity of its economy by 33-35% by 2030 from 2005 levels. In August 2022, the Indian government revised its NDCs, raising its ambition to a 45% reduction in GHG emission intensity by 2030 from 2005 levels.
Globally, carbon pricing instruments are essential tools in the fight against climate change. These instruments can be categorized into two main types: compliance mechanisms and voluntary mechanisms. Compliance mechanisms, such as Emissions Trading Systems (ETS), are typically implemented and managed by governments. They set a cap on emissions and allow entities to trade emission allowances to meet their targets. Voluntary mechanisms, on the other hand, are often managed by independent standards or non-governmental organizations and enable entities to voluntarily offset their emissions by purchasing carbon credits from projects that reduce or remove GHG emissions. In some of the countries such as China, South Korea, Australia and Japan, there is also government operated voluntary mechanisms.
In the past, Indian industries are familiar with the implementation of both compliance markets (PAT-ESCerts and RECs) and voluntary (offset) projects such as CDM (Clean Development Mechanism) and similar other instruments. Indian agencies have registered 2nd largest number of CDM projects globally. Under the PAT scheme, Indian units have been able to save more than 106 million tonnes of CO2 emissions since 2015 till June 2024.
While compliance-based instruments have pushed entities to take compulsory actions, the voluntary actors have been incentivized for their extra efforts. In both cases the entities were rewarded for their additional savings, through credits or certificates. Hence, there is sufficient familiarity and capacity available in the country to support full–fledge domestic carbon market framework. Therefore, market-based mechanism approach is not new to the entities in India.
In view of the above justification and requirement for the country to meet its ambitious climate goals, a robust National Framework for Indian Carbon Market (ICM) through a reliable national carbon credit electronic platform is being developed. This framework aims to compliment and support various entities by pricing their additional actions towards Green House Gas (GHG) emission reduction, who are undertaking projects to decarbonize the Indian economy.
The Indian Carbon Market Framework has two key mechanism – Compliance mechanism which aims to address the emissions from its energy use and industrial sectors and offset mechanism to incentivize the voluntary actions from entities (not covered under compliance) for GHG reduction, thus providing a comprehensive approach to decarbonization of the economy.
To achieve the aforesaid objectives, necessary amendments were incorporated in the Energy Conservation (Amendment) Act, 2022. One of the provisions of this amendment includes empowering Central Government to “Specify Carbon Trading Scheme” under the Clause (w) of Section 14. The amendment to the Energy Conservation Act also facilitates issue of carbon credit certificates by any agency designated by the Central Government. Each certificate issued will represent one ton of CO2 equivalent (tCO2e) reduction (or removal) from atmosphere.
Under the above provision, the Central Government notified the Carbon Credit Trading Scheme for compliance market.
The Central Government constituted the National Steering Committee for Indian Carbon Market (NSCICM) under the Carbon Credit Trading Scheme (CCTS). NSCICM will oversee the functioning of the ICM. The committee consists of members from different Ministries and relevant organizations under the Chairmanship of Secretary, Ministry of Power and Co-Chairmanship of Secretary, Ministry of Environment, Forest, and Climate Change.
The function of National Steering Committee for Indian Carbon Market is as follows:
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Recommend to Bureau of Energy Efficiency, Ministry of Power (Bureau) for the formulation and finalisation of procedures for institutionalizing the Indian carbon market.
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Recommend to Bureau for the formulation and finalisation of the rules and regulations for the functions of Indian carbon market.
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Recommend to Bureau for the formulation of specific greenhouse gases emission targets for the obligated entities.
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Recommend to Bureau for the formulation and finalisation of guidelines regarding trading of carbon credit certificates outside India.
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Recommend to Bureau to issue carbon credit certificate
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Recommend to Bureau for the development of the process or conditions for crediting period or renewal or expiry of carbon credit certificate
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To monitor the functions of Indian carbon market
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Recommend to Bureau to constitute any Committee or Working group as required in connection with Indian carbon market; and
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Any other functions assigned to it by the Central Government
The Bureau of Energy Efficiency is the administrator for the scheme and has following functions:
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To identify sectors and potential for reduction of greenhouse gases emissions in different sectors and recommend to the Ministry of Power to include such sectors in Indian carbon market.
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To develop trajectory and targets for the entities under compliance mechanism.
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To issue the carbon credits certificate based on the recommendation of the National Steering Committee for Indian carbon market and subsequent approval of the Central Government.
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To develop market stability mechanism for carbon credits.
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To develop the procedure for accreditation and functions of accredited carbon verification agency.
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to accredit the agencies in accordance with the approved procedure for Accredited Carbon Verification Agency (ACVA)
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To determine, the fees and charges payable by the registered entities with the approval of Central Government, for the purposes of meeting the cost and expense towards the implementation of this Scheme.
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To develop the process or conditions for crediting period or renewal or expiry of carbon credit certificates.
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To develop data submission formats, forms for effective functioning of Indian carbon market.
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To undertake capacity building activities for the stakeholders.
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To develop and maintain the information technology infrastructure including the user guidance platform required for Indian carbon market.
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To maintain secure database with all security protocols as approved by the Central Government.
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To constitute any Committee or working group as recommended by the National Steering Committee for Indian carbon market.
The Grid Controller of India (GCI) is the registry operator and is to manage and operate The ICM registry and it has following functions:
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To enable registration of entities
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To keep accounts of various types of carbon credits issued against each entities
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To facilitate transactions of credits on the trading platform
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To function as Meta registry for the country and maintain secure database with all security protocols as approved by NSC-ICM.
The Central Electricity Regulatory Commission (CERC) is the regulator for trading activities under the ICM and has following functions
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To approve business regulations of power exchanges for the trading purposes
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To provide market oversight and take necessary corrective actions to prevent fraud or mistrust.
The validation and/or verification activities is to be conducted by Accredited Carbon Verification Agency (ACVA). Bureau of Energy Efficiency shall publish a detailed eligibility criteria and procedure for accreditation of such agencies.
The Carbon Credit Certificates shall be issued on the ICM Registry and these certificates can be traded over an electronic trading platform.
The Carbon Credit Trading Scheme (CCTS) establishes two mechanisms as follows:
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A mandatory program for the energy intensive industries where the Government will set the GHG emission intensity targets (GHG emission per unit of output) for these entities and they will have to comply with these targets.
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Under the compliance mechanism, the Central Government shall specify the registered entities as obligated entities. For this purpose, the Bureau of Energy Efficiency will identify sectors and potential for reduction of greenhouse gas emissions and recommend including such sectors in the Indian carbon market.
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Bureau of Energy Efficiency shall recommend the targets in terms of ton of carbon dioxide equivalent (tCO2e) per unit of equivalent product after considering all relevant aspects including available technologies and likely cost of their implementation.
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The Ministry of Power, after duly considering the recommendations of Bureau of Energy Efficiency and NSCICM, shall recommend the greenhouse gases emission intensity targets to the Ministry of Environment, Forest, and Climate Change for notification under the Environment Protection Act, 1986.
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The obligated entities shall comply with the prescribed GHG emission intensity targets in each compliance year. The obligated entities who reduce their GHG emission intensity below the target GHG emission intensity shall be eligible for issuance of Carbon Credit Certificates and the entities who are not able to achieve the target will be required to surrender/purchase equivalent number of certificates based on shortfall.
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The current Perform Achieve and Trade (PAT) Scheme (an energy efficiency based market mechanism) will be transitioned gradually (for the relevant sectors and entities) to the compliance mechanism under CCTS, thereby providing more opportunities for decarbonization.
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The nine sectors – Aluminium, Chlor Alkali, Cement, Fertiliser, Iron & Steel, Pulp & Paper, Petrochemicals, Petroleum refinery, and textile are to be considered for gradual transition and more sectors would be included in future.
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A voluntary project-based baseline and credit mechanism for the non-obligated entities where the non-obligated entities can register their projects for GHG emission reduction, removal, or avoidance against the baseline for the issuance of Carbon Credit Certificates (CCC).
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This mechanism will enable country to tap mitigation from sectors not covered under the compliance mechanism and can incentivise actions in such sectors.
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Under the offset mechanism, the non-obligated entities can register their projects for GHG emission reduction or removal or avoidance for issuance of carbon credit certificates upon fulfilment of the eligibility requirements as per detailed procedure published by Bureau of Energy Efficiency based on recommendations of NSCICM.
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Every project under offset mechanism will be approved basis detailed procedure for the offset mechanism. The projects will undergo a project cycle that refers to the different stages a project shall undergo before it becomes eligible for issuance of CCCs. Following sectors are proposed to be included in offset mechanism under a phased manner:
Phase I Phase II
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Energy 7. Fugitive Emissions
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Industries 8. Construction
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Agriculture 9. Solvent use
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Waste handling and disposal 10. Carbon capture and storage of CO2 and other removal
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Forestry
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Transport DOCUMENTS:
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Accreditation Procedure and Eligibility Criteria for Accredited Carbon Verification Agency
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Approved Sectors in Offset Mechanism under CCTS by Central Government