The challenges of climate change has prompted world’s economies to recognise the importance of limiting carbon emissions and managing them in such a way that ecologically friendly ways result in a balancing of overall emissions and the globe moves towards a net zero of carbon emissions.
The need for a new system of trading and managing emissions has resulted in the creation of a carbon credits market. A carbon credit is a permit allowing the emission of one ton of greenhouse gases per permit. They are periodically awarded to companies contributing to pollution in order to limit their emissions while allowing them to sell the extra credits to another company that needs them.
Indian Energy Scenario
Because of the shared responsibilities that India has agreed to and its own Nationally Determined Contribution (NDC) goals determined as per the Paris Agreement, India remains committed to reducing its GHG emissions by 45%, while aiming at generating 50% of its power from renewable energy sources and reaching net zero emissions by 2070.
The market for carbon credits in the recent times have increased by 164% globally according to 2021 estimates. It is also anticipated that the market valuation for carbon credits globally would reach $100 billion by the end of 2030.
The position that India is at right now, it stands to profit by the trade in carbon credits. But the government’s intention is to, for the time being restrict the international trade to an extent so as to meet the targets envisioned under the Paris Agreement. The government’s recent steps towards the promulgation of an indigenous carbon credits market and its focus on developing domestic trade on carbon offsets should be seen as a long term strategic advantage for the country.
Importance of a Domestic Carbon Credit market
Carbon markets are one of the most effective drivers of reducing emissions, offering the lowest-cost emission reductions and enabling India to avert a loss of $35 tn owing to unmitigated climate change over the next 50 years. In the past, the carbon credits produced by Indian organisations was available to be traded internationally. But as on 8th August 2022, India made revisions to its carbon credit policies to ban the export of carbon credits.
In the light of the development of climate related negotiations at COP27, it is a welcome development from the Government of India to push for the establishment of a national carbon credits market. India is at an advantageous position to nurture on the benefits arising out of a new economic space of generation of and trade in carbon credits/offsets. This is evident by the fact that India is already among the top producers and exporters of carbon credits in the world, with about 35.94 million carbon credits or nearly 17% of all voluntary carbon market credits issued globally.
The establishment of a new and regulated carbon credits market also opens the ground for India to experiment with it while the concept is in its nascent stage on a global scale. It opens great opportunities for the Indian organisations involved in the space of knowledge creation and providing consultation services to the global clients to learn and help create and implement such carbon markets globally which could even be decentralised to meet the specific needs of diverse economies.
Aligning MSME with the Nationally Determined Contribution Goals
According to estimates, currently, Indian MSMEs account for around 45% of India’s manufacturing output and 40% of its exports. However, due to their informal nature and the absence of reliable metrics to determine the levels of emissions by individual organisation and their units, the concept of creation of carbon credits and their offsets is not particularly well defined and traceable. This leaves a gap in the system where the quality of carbon credits becomes a major problem yet to be addressed adequately.
It is estimated according to a 2006 inventory that the informal and MSME sector is approximately responsible for 6% of total emissions, while it is also projected that this sector is expected to grow by 2.6 times by 2050, which presents itself as a major challenge. Thus, the establishment of such institutes that can provide reliable assessment and certification services and produces verifiable data on emissions would play a major role in the regulatory space of emissions and offsets.