Does India need an Article 6 carbon market?, Energy News, ET EnergyWorld


New Delhi: India’s Bureau of Energy Efficiency (BEE) announced a national carbon market called the “India Carbon Market (ICM) to aid in decarbonizing the Indian economy recently. The ICM is envisaged to mobilize investments for low-carbon growth of the economy through the trading of Carbon Credit Certificates (CCCs).”

Reducing emissions as cheaply as feasible is one of the key goals of a market system. India has had a checkered history with market processes. The two primary market mechanisms that are currently in use in the sector are Perform, Achieve, and Trade (PAT) and Renewable Energy Certificates (REC). India has a strong RE portfolio and has been successful in lowering emissions intensity in the industrial sector. The first two cycles of PAT were effective, avoiding 92 million tonnes of CO2e (beeindia.gov.in). The scheme “Performed” and “Achieved”, but “Trading” was barely perceptible. Similar is the story for the renewable energy space, where REC trading has not seen much vigor. ICM (which will eventually subsume PAT and REC) thus shoulders the responsibility to enable a dynamic trading environment so that an effective carbon price can be discovered. On the international front, we participated in the Clean Development Mechanism (CDM) as part of the Kyoto Protocol. In CDM, India as a developing nation was mostly a seller. In fact, India was second-highest with more than 3000 projects registered. So, the challenge here in ICM will be to develop a market with suitable demand so that trading could happen.

PAT and REC have been active for almost a decade now. Since then, there has been great improvement in energy efficiency in the large-scale industry, and the cost of large-scale RE has stabilized. While we do not rule out the possibility of further development in this area, we do assert that businesses will need to work harder to go beyond what has previously been accomplished or what is the norm. ICM, thus, should provide appropriate policy signals for industries towards innovation and the introduction of new technologies. ICM comes at the right time given our tightening commitments and a net zero target.We also have the Article 6 carbon market on the global front. India has experience with the Clean Development Mechanism, but article 6 (specifically article 6.4) is different since we now have our own obligations to meet, including a net zero goal. It will be challenging for us to achieve our own goals if we use the “low-hanging fruits” and sell our credits carelessly. Over time, these commitments will get more stringent, so we must sell our credits carefully to avoid the chance of overselling. These commitments will get stringent over the years, and we have to be smart about selling our credits to avoid the risk of overselling. Given this risk of overselling and a national carbon market already in place, do we really need to participate (sell) in the Article 6 market?To gain from this market, one of the major requirements is clarity of thought. India should plan ahead in the game on what she wants from the market – how much are we willing to sell and where would it come from. The government (MoEFCC?) here is responsible for deciding the ‘where’ and ‘how much’ and giving appropriate policy signals to the stakeholders. Based on this plan, the capacities can be developed, and stakeholders can also plan for projects.

Given our own commitments and a domestic carbon market, for us to participate in this market, we have to go above and beyond everything that has been done. The private sector should take this market as a motivation for taking risks. Risks to getting involved in the non-conventional sectors, risks to investing in new technologies, and developing a robust research base. This will promote innovation in India, and this time innovation is of utmost importance as conventional is not going to cut it.

Since Indian commitment primarily focuses on the energy sectors, finding opportunities in the non-energy sectors can be the way to go further. Now that decarbonization and mitigation are mainstream, innovation is not just a choice but a necessity. These markets can act as motivators to change our ecosystem from focusing on just the low-hanging fruits to reaching for the proverbial “high-hanging fruits.”

[This piece was written by Trupti Mishra, Professor, IIT Bombay; and Mansi Goel, Ph.D. Scholar, Interdisciplinary Program in Climate Studies, IIT Bombay]

  • Published On Jun 27, 2023 at 05:08 PM IST

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