Carbon Credit Trading Scheme

Carbon Credit Trading Scheme

For Prelims: Perform, Achieve, and Trade (PAT) Scheme, Carbon Credit Certificate, Bureau of Energy Efficiency, Carbon Market
For Mains: Carbon Credit Trading Scheme, Strengthening CCTS in India, Carbon Pricing
Why in the News?

The Carbon Credit Trading Scheme (CCTS), 2023, introduced under the Energy Conservation (Amendment) Act, 2022, replaces the Perform, Achieve, and Trade (PAT) scheme and aims to establish the Indian Carbon Market (ICM), aligning with India’s climate commitments under the Paris Agreement.

What is the Carbon Credit Trading Scheme (CCTS)?
CCTS is a market-driven initiative designed to regulate and trade carbon credits within the Indian Carbon Market (ICM). The goal is to decarbonize India’s economy by pricing greenhouse gas (GHG) emissions and facilitating carbon trading.

Transition from PAT to CCTS:
While the PAT scheme focused on energy efficiency in energy-intensive industries using Energy Saving Certificates (ESCerts), CCTS shifts the focus towards reducing GHG emissions. It tracks emissions per tonne of CO2 equivalent (tCO2e) and issues Carbon Credit Certificates (CCC), with each certificate representing a one-tonne reduction in CO2 equivalent.

Mechanisms of CCTS:

• Compliance Mechanism: Energy-intensive sectors, such as Aluminium, Cement, Fertilizers, and Iron & Steel, are mandated to meet GHG reduction targets. Entities exceeding targets earn CCCs, while those falling short must purchase credits.
• Offset Mechanism: Allows voluntary participation from entities outside the compliance framework to earn carbon credits by reducing emissions.

Key Sectors Included:
CCTS targets energy-intensive industries responsible for 16% of India’s emissions, such as Iron & Steel, Aluminium, Cement, Fertilizers, Petroleum Refineries, Pulp & Paper, and Textiles. The power sector, which contributes 40% of India's GHG emissions, may be included in the future.

Regulatory Oversight:
The Bureau of Energy Efficiency (BEE) and the National Steering Committee for Indian Carbon Market (NSCICM) are responsible for the regulation of CCTS.

Significance of CCTS in India’s Climate Goals:
India aims to reduce emission intensity by 45% by 2030. CCTS encourages private sector participation, promoting clean technologies, renewable energy, and carbon capture.

What is Carbon Pricing?
Carbon pricing is an economic tool that assigns a cost to carbon emissions, reflecting the external costs associated with their impact, such as crop damage, healthcare costs, and property losses due to extreme weather. It shifts the financial responsibility to the polluters, incentivizing them to either reduce emissions, pay the penalty, or invest in cleaner technologies.

Current Global Carbon Pricing:
Carbon pricing mechanisms are operational in 89 countries, covering 25% of global emissions (12.8 gigatonnes of CO₂). The primary mechanisms used are:

1. Emissions Trading System (ETS): Includes Cap-and-Trade and Baseline-and-Credit approaches for trading emission units.
2. Carbon Tax: Imposes a fixed tax per tonne of CO₂, without guaranteeing specific reductions.
3. Crediting Mechanism: Generates carbon credits from GHG reductions, which can be traded for compliance or voluntary mitigation.

Challenges in Implementing CCTS:

1. Target Setting and Carbon Pricing: Striking a balance between emission reduction targets is crucial. Lenient targets may lead to oversupply of credits and lower prices, while stringent targets could increase compliance costs.
2. Compliance and Enforcement: Under the PAT scheme, 50% of required ESCerts were left unpurchased with no penalties, highlighting the need for stronger enforcement.
3. Delays in Credit Issuance: Delays in credit issuance under the PAT scheme have undermined market confidence, and similar delays in the CCTS could hinder clean energy investment.
4. Transparency Issues: A lack of publicly available data on emissions and compliance might reduce trust in the market.

How Can India Strengthen CCTS?

1. Align with International Best Practices: Learn from the EU ETS by tightening emission caps, ensuring carbon price stability, and establishing strong compliance frameworks.
2. Capacity Building: Enhance Monitoring, Reporting, and Verification (MRV) to ensure credibility.
3. Robust Trading Platform: Implement digital registries to track credits and prevent fraud.
4. Cross-Border Compatibility: Ensure compatibility with international systems, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), to avoid trade restrictions.
5. Encourage Industry Participation: Provide incentives, such as tax benefits, for companies that reduce emissions beyond their compliance obligations and promote investment in green technologies.

Drishti Mains Question:

Discuss the Carbon Credit Trading Scheme and the challenges involved in its implementation. How can these challenges be addressed?

UPSC Civil Services Examination, Previous Year Question (PYQ)
Prelims
Q. Consider the following statements (2023):
Statement—I: Carbon markets are likely to be one of the most widespread tools in the fight against climate change.
Statement—II: Carbon markets transfer resources from the private sector to the State.

Which one of the following is correct in respect of the above statements?
(a) Both Statement—I and Statement—II are correct, and Statement—II is the correct explanation for Statement—I
(b) Both Statement—I and Statement—II are correct, but Statement—II is not the correct explanation for Statement—I
(c) Statement—I is correct, but Statement—II is incorrect
(d) Statement—I is incorrect, but Statement—II is correct

Ans: (b)

Q. The concept of carbon credit originated from which one of the following? (2009)
(a) Earth Summit, Rio de Janeiro
(b) Kyoto Protocol
(c) Montreal Protocol
(d) G-8 Summit, Heiligendamm

Ans: (b)

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