The Indian government has introduced a draft framework for the Indian Carbon Market (ICM), aimed at fostering a structured approach to carbon trading. This market, grounded in the Energy Conservation Act, will operate as a hybrid model encompassing both compliance and voluntary components.
The governance of the ICM will be overseen by the ICM Governing Board (ICMGB). This board will be co-chaired by the secretaries of the Ministry of Environment, Forests and Climate Change (MoEFCC) and the Ministry of Power (MoP). The ICMGB's responsibilities include providing strategic direction, establishing norms, and ensuring oversight of market operations.
The Bureau of Energy Efficiency (BEE) will serve as the administrator for the ICM, tasked with accrediting carbon verifiers (ACVs) who will measure, report, and verify emission reductions by various companies. Additionally, BEE will form technical committees to offer sector-specific guidance on abatement potentials and associated costs.
The registry for the ICM will be managed by the Grid Controller of India, which will coordinate with market participants and exchanges. The Central Electricity Regulatory Commission (CERC) will act as the regulator, responsible for maintaining market integrity and balancing market power.
Though still in developmental stages, the ICM holds significant potential for reducing greenhouse gas emissions across India. By facilitating carbon trading, it can contribute to India's commitment to climate action.
The ICM operates on a cap-and-trade principle, where the government establishes a cap on total emissions allowed. Companies that emit less than their allocated limits can sell excess carbon credits to those exceeding their limits.
There are two primary categories of carbon credits: compliance credits, issued under cap-and-trade systems for meeting emissions targets, and voluntary credits, which serve various purposes, including emissions offsetting and investment in clean energy projects.
The market price of carbon credits is dictated by supply and demand dynamics. Increased demand generally leads to higher prices. Factors influencing pricing include compliance costs, the availability of renewable energy, and the global climate policy landscape.
The Energy Conservation (Amendment) Act, 2022, provides the central government with the authority to establish a carbon credit trading scheme. This includes enabling companies to earn credits by reducing emissions and mandating a minimum share of non-fossil energy sources for designated consumers.
Furthermore, the government can implement energy conservation codes for large buildings, setting standards for energy efficiency. This act represents a significant legislative move towards reducing India's greenhouse gas emissions.
Q1. What is the Indian carbon trade market?
Answer: The Indian carbon market allows companies to trade carbon credits, representing the reduction of one metric ton of CO2 equivalent. Companies earn credits by reducing emissions or investing in emission-reducing projects.
Q2. What are the benefits of the Indian carbon market?
Answer: The ICM helps India meet climate targets, fosters low-carbon technology markets, reduces greenhouse gases, and creates jobs in clean energy sectors.
Q3. How does the Indian carbon market function?
Answer: The carbon market operates on a cap-and-trade system where the government sets emission caps, allowing companies to trade excess credits if they emit less than their limit.
Q4. Who participates in the Indian carbon market?
Answer: Participants include the government, companies, NGOs, and investors, all contributing to the market's functionality and objectives.
Q5. What challenges does the Indian carbon market face?
Answer: Key challenges include a lack of regulatory clarity, low awareness, high compliance costs, and risks of fraudulent activities.
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