You may have heard about carbon credit trading in India or credit potential in carbon in India. Do you want to know how carbon credit trading in India works? Let’s have a look on ‘WHAT ARE THE CARBON CREDITS’ and all the details regarding carbon credit trading in india.
The emergence of Kyoto protocol on February 16th, 2005, has instigated a worldwide mindfulness. That aims to reduce Green House Gas emigration. This urges that all the industrially developed and developing countries throughout the world have started considering GHG emigration issues seriously and takes enterprise in formulating carbon emigration norms and guidelines for controlling similar dangerous gas emigration. So being a developing and responsible country India joined this action. Industrialization is veritably important for the development of the country, but it shouldn’t be done at the cost of Environment. So applicable measures have come necessary to control ill goods of industrialization and the Kyoto protocol is maybe a right step in this regard. The Kyoto protocol was espoused on 11th December 1997 in Kyoto, Japan and came into force on 16th February, 2005. Connect with our GHG Consultants for more information on how to mitigate greenhouse gas emissions.
Trading potential in carbon credits India
The conception of carbon trading in india has been introduced in performance of an international policy to control GHG emission in Environment. Carbon credit refers to the legal tradable instruments that permit the right to emit one ton of carbon or carbon dioxide .
Credits are given to the countries which have reduced this GHG emission. Carbon credits can be traded in the international market at the prevailing market price. It helps in forming a strategic mindset that can influence industrial and commercial houses towards low carbon emissions into the atmosphere and take advantage of carbon trading to sell their excess credits. Therefore, the GHG control mechanism gives birth to carbon trading that can successfully encourage carbon reduction schemes among different industries and thus the concept of emitting carbon below the emission quota certainly helps many companies who are willing to sell excess carbon credits to commercial and individual customers.
According to a recent study report, India and China seem to emerge as the biggest sellers and Europe as the biggest buyer of carbon credits in near Future.
So principally carbon trading is the means of generating income through sale of carbon credit. It generally helps the countries or industries which cross its maximum limits of carbon emission and need further carbon credits. Similar industry (s) or country (s) can take advantage of carbon trading to buy extra units of CERs or carbon credits from the countries or industries that have already saved carbon credits in their pocket by emitting carbon below their maximum quota of carbon emission. Therefore, carbon trading offers the facility of meeting the demand and supply force gap of carbon credits. In this way trading potential in carbon credits india will increase.
Now, the question is where to trade carbon credits? India being a developing country can benefit by carbon trading and it’s credit by following ways :-
- Money from carbon credits generated through carbon trading can profitably be used to create renewable energy projects
- Energy saving initiatives can also be taken by proper usages of carbon credits.
- The advantages of carbon credits can also be seen in terms of generating employment for the people by setting up industries which will engage in manufacturing of renewable energy products.
Types of carbon credit
A)Compliance carbon markets(regulatory carbon markets)-
They are government regulated. With the compliance carbon market,the government tells various industries how much carbon they emit.
B) Voluntary carbon Market-
No government regulation or government accreditation causes companies to buy credits on the VCM.
|Credit type||Permits to pollute||Project-Based Emission Reduction Credits.||Project-Based emission reduction credits.|
|Description||A certificate to pollute one tonne of co2. Number issued corresponds to the emission cap of the trading scheme||A Carbon credit of 1 tonne generated from an emission reduction project.||A Carbon credit of 1 tonne generated from an emission reduction project.|
|Issued by||National Government/Agencies||Certification body recognised by the compliance scheme.E.g. UN clean development Mechanism(CDM) california Climate Action Reserve||Independent certification bodiesE.g. Verified Carbon Standard (VCS), Gold Standard|
|Examples||European Union Allowance (EUA)||Certified Emission Reduction (CER)||Verified carbon unit (vcu), Gold Standard Verified Emission Reductions (GS VER)|
Present Scenario of Carbon Credit Market in India
Now let’s see the carbon credit market in India.Indian industries were able to cash in on the sudden smash in the carbon market making it a preferred position for carbon credit buyers. It is anticipated that India will gain at least $5 billion to $10 billion from carbon trading (Rs 22,500 crore to Rs 45,000 crore) over a period of time. Also India is one of the largest beneficiaries of the total world carbon trade through the Clean Development Mechanism claiming about 31 per cent (CDM).India’s carbon market is one of the fastest growing markets in the world and has formerly generated roughly 30 million carbon credits, the second highest transacted volumes in the world. The carbon trading market in India is growing faster than even information technology, bio technology and BPO sectors. Nearly 850 projects with an investment of Rs 650,000 million are in the channel. Carbon is also now being traded on India’s Multi Commodity Exchange. It is the first carbon credit trading exchange in Asia. After having an idea about india carbon credit market let’s move forward to process. Let’s learn how carbon credit trading works.
PROCESS OF CARBON TRADE
You wanna know about how does carbon credit trading in india works? Let’s understand carbon trading in india.
The process or mechanism of Carbon credit Trading in india was homogenised in the Kyoto Protocol, an international agreement between more than 170 countries. The stages of this mechanism includes –
- Assigned Amounts (AA): Under the Kyoto Protocol, the ‘caps’ or proportions for Greenhouse gases for the developed Annex 1 countries are known as Assigned Amounts and are listed in Annex B.
- Assigned Amount Units (AAUS): The volume of the initial assigned amount is denominated in individual units, called Assigned amount units (AAUs), each of which represents an allowance to emit one metric tonne of carbon dioxide equivalent, and these are entered into the country’s national registry.
- Operators: In turn, these countries set quotas on the emissions of installations run by local business and other organizations, generically termed ‘operators’.
- Clearing House (Trade): Each operator has an allowance of credits, where each unit gives the owner the right to emit one metric tonne of carbon dioxide or other equivalent greenhouse gas. Operators that have not used up their quotas can sell their unused allowances as carbon credits, while businesses that are about to exceed their quotas can buy the extra allowances as credits, privately or on the open market.
- Clean Development Mechanism (CDM): The companies reduce their emissions and borrow cleaner ways of doing business. For that purpose the system inspires companies and governments to promote environment friendly procedures that lessen greenhouse gas emission is known as Clean Development Mechanism (CDM). Carbon trading is a part of CDM.
Here , process of carbon credits trading is explained. Now lets see India’s carbon credit market.
Carbon credit market in India
Why Carbon Market?
Let’s know about how to trade carbon credits in india and how to sell carbon credits in india? As we aim to move towards a low-carbon future and achieve the goal of holding the increase in the global average temperature to well below 2 degrees above pre-industrial situations, there is a clear need for enterprises that bring about a shift in investment patterns and behaviours and incentivize invention in technology and financing. Policies will be demanded that achieve this change in ways that reflect original circumstances and produced new profitable openings as well as manage competitiveness and and compensate for injuries.
Putting a price on carbon emissions makes emitting costlier, therefore making clean energy cheaper and more profitable, allows energy efficiency to earn a greater return and makes low-carbon products more competitive. A growing number of firms and investors are advocating carbon pricing policies from the government, and applying an internal carbon price to guide investment in advance of government policy to that effect (CPLC 2018). Carbon pricing, as part of a comprehensive policy package including capacity building, a robust regulatory framework and the alignment of right impulses can harness markets to lead a low carbon growth pathway. Two kinds of carbon pricing policy instruments live to drive emission/emigration reductions : carbon markets (or emissions trading) and carbon taxes.
The core principle of these economic instruments lies in internalising the cost of carbon externalities as follows:-
- Use the ‘Polluter Pays’ principle – Put a cost on emitting greenhouse gases, thus penalising emitters.
- Produce Least Cost Reductions – By allowing the market to determine where emission reductions occur, and how, carbon pricing instruments ensure that emission reductions occur at the least cost .
- Produce Dynamic Efficiency – Encourage progressive mitigation action by emitters to reduce their costs thus stimulating innovation in technology.
- Induce a Double Dividend– Generate revenues that may be utilised to invest in climate action, support competitiveness, incentivize low carbon technologies, or reduce cost inequities.
Still, with a carbon tax the government sets the price and allows the market to determine the quantity of emissions, whereas with emissions trading the government sets the quantity of emissions and allows the market to determine the price.
India Carbon trading market
Considering India’s overall objectives as well as climate vulnerability, a carbon market could play a key role in setting the country on a path of low carbon investments, green jobs, bettered air quality and reduced climate vulnerability, while accommodating for local economic realities.
Between 2010 and June 2022, India issued 35.94 million carbon credits or nearly 17% of all voluntary carbon market credits issued globally. The market for carbon credits increased by 164% globally in 2021. It is anticipated to reach $100 billion by 2030.
Grounded on the office exploration, we find that a potential carbon market can help facilitate cost-efficiency by encouraging reductions from sectors with low marginal costs enhance political feasibility for climate change mitigation through development of a market acclimatizer to accommodate multiple priorities and through active engagement with various stakeholder groups.
What is carbon credit in India?
Now let’s have a look on india carbon credit. In 2002, India signed and ratified the Kyoto Protocol. India has surfaced as a great player in the carbon market. As per the data of the Federation of India Chamber of Commerce and Industry the number of approved projects in India was 2123, out of these projects 738 projects were registered with UNFCCC .
Some highlighted points of carbon Trading and India
- The carbon credit or trading market is one of the swift-growing markets in India and it is expected that India will gain roughly 22500 to 45000 crores through carbon trading.
- It can also be seen that India is one of the largest beneficiaries of the clean development mechanism, comprising 31% of the total portion.
- India’s market generated around 30% of carbon credit and made it to the second-highest carbon credit generator.
- The Indian carbon trading market is growing faster so carbon credit trading jobs also increasing than the IT, BPO sector, and Biotechnology.
- In India carbon is traded in a multi-commodity exchange that is the first exchange in Asia to trade carbon credit.
- Delhi metro corporation reduces 30% electricity by using a regenerative banking system and came the first metro station in the world to earn carbon credit .
Some Carbon credit trading listed companies in india –
Following are list of carbon credit trading companies in india –
|1)||Jindlal Vijaynagar Steel||$225 Million worth|
|2)||Powerguda in Andhra Pradesh||Saved 147 tonnes of carbon|
|3)||Handi Forest in Madhya Pradesh||Restored 10,000 hectares of degraded forest|
|4)||Torrent Power AEC||Estimated to received 199.9 crore from energy efficient projects|
|5)||Indian Aluminium||Estimated to received 42.9 crore from Gas capture Projects|
|6)||Kalpataru Power Transmission||5.3 crore estimated to received by energy efficient projects.|
|7)||Grasim Industry||Estimated to received 4.1 crore from energy efficient projects|
|8)||Balrampur Chini||Estimated to receive 15.7 crore from renewable projects.|
Source: Ashim Paul 2011 and Legal service .com
So, as mentioned before, the carbon market is one of the fastest growing market in the country. And as a developing country India’s major target is to maintain the development process without compromising with the environment. For controlling climatic mitigation The Indian government introduced many measures and carbon trading is one of them.
Carbon trading can flourish the Indian government efforts towards climate mitigation in the following manners
- Helpful in the accomplishment of current and unborn environmental intentions
Since India is a non-annexure country under the Kyoto Protocol. However, it experienced the global carbon market through a clean development mechanism. India can use these experiences for developing a similar structure with the country. Such a carbon market can be proven more effective for utilising the potential of waste reduction, it can improve the efficiency of the industry by synthesising different markets into a single common commodity.
- Helpful in achieving the development goal
The co-benefit of carbon trading is that it can gain the progress of India on sustainable development goal(SDG):-
- SDG 3- Good Health and Wellbeing – by confining emission and the air quality of the country will get bettered as a result of which there would be declining health-related issues can be seen.
- SDG 7- Affordable and Clean Energy- with the preface of a clean development mechanism the developed country may set up renewable energy projects meeting the emission targets. Due to these projects India can mileage the clean energy at affordable prices.
- SDG 9- Innovation and Infrastructure- being part of CDM the developed country may choose India for establishing the environmental projects that will lead to perfecting the invention and infrastructure in the country.
- SDG 12- Responsible Consumption and Production- For serving the carbon credit the Indian industry may try to produce low carbon commodities as a result of which responsible consumption and production spirit may increase.
- Carbon Trading pushes the emission at the lowest cost :-
One of the features of the carbon market is to give the incentive to the operators who reduced the emission beyond the accreditation position. This is also a point of the carbon market where an operator with a high emission reduction coat can condense with low emission reduction cost. Hence through carbon trading flexibility, the emission reduction cost can be minimal.
4.Carbon Trading can enable low Carbon Industry
Carbon trading gives many signals to companies and investors about the cost of emission. These suggestions give predictability and clarity for the working area to formulate progressive mitigation measures, develop sustainable products, minimize emission throughout the force chain and invest in low carbon technology. These technologies can help the Indian industry to shift towards sustainable development.
5. Carbon Trading can enable low Carbon Industry:-
Carbon trading gives numerous signals to companies and investors about the cost of emission. These suggestions give predictability and clarity for the working area to formulate progressive mitigation measures, develop sustainable products, minimize emission throughout the force chain and invest in low carbon technology. These technologies help the Indian industry to shift towards sustainable development.
Pros and cons of carbon credit trading
Pros of carbon credit trading
- Reduction in greenhouse gas emigration.
- Source of earning for numerous developing countries.
- Supports a free request system.
- Motivation for alternative sources of energy or green technology.
- Pivotal for sustainable development.
- Puts pressure on diligence to bear eco friendlier.
- Companies can ameliorate their public image.
- Can change countries fiscal situation
Cons of carbon credit trading
- Diligence in the ratified nations are coping with legal rights to contaminate the atmosphere.
- Buy more allowance than enforcing greener technologies.
- Lack of a centralised system or global framework.
- No effective carbon reduction in the atmosphere.
- High executive costs.
- Expert knowledge is needed.
- Plenitude of controls necessary.
- Effectiveness of carbon negativing varies across diligence.
Challenges and concerns
While feting the case for a carbon market in India, it is also vital to consider the costs and walls to such a policy. The overall feasibility of a carbon market would then depend on a careful analysis of the relative costs and benefits from the program, thus ensuring overall benefits to the society. Below, we elaborate some of the key challenges grounded on India’s current economic realities as well as its past experience with market mechanisms:
1. Loss of competitiveness and carbon leakage –
One of the key concerns in implementing an emission reduction policy such as a carbon market is the added cost and hence the losses in competitiveness for the industry sector.
2. Inequities –
While the marginal costs of emission reduction might be same for two entities, resource constraints may unfairly impact smaller sized firms. Additionally, resource constraints could also limit the capacity or skills required to meet compliance targets by disproportionately impacting profitability and business sustainability.
3. Implementation costs –
Compared to a tax, a carbon market entails higher costs associated with market oversight, administration, monitoring and ensuring compliance and maintaining the registry and trading infrastructure and security. Costs related to data collection, quality and coordination across stakeholders are especially higher in India with the lack of mandatory reporting requirement or platform and the sheer number of entities.
4. Double counting –
One of the key challenges that would threaten the environmental integrity of emission reductions in a potential carbon market is the risk of double counting. Double counting is essentially the use of an emission reduction unit used more than once, either to demonstrate compliance or sell units to a buyer.
5. Ensuring compliance –
Caps in emissions, facilitated by a carbon market, are only effective if they ensure compliance across regulated entities. A weak compliance could threaten market stability by lowering the value of emission reductions and further discouraging entities to take concrete steps to reduce emissions below the limit.
6. Market Security and Fraud –
Ensuring security of allowances,especially from cyber-attacks, breaches and online fraud is a key concern for a carbon market. As with financial markets, a carbon market is vulnerable to manipulation, 26 fraud, collusion by players and insider trading. This is a significant challenge as markets grow bigger and get connected internationally. Market security and integrity would largely determine the value and integrity of reductions achieved.
It is important to consider the relevance and significance of these challenges as well as the cost associated with overcoming or mitigating them prior to setting up a carbon market.
It is clear from the above section that without being part of the emission trading system Indian took many advantages like helpful in accomplishment of current and future Environmental ambitions, measure for mitigating the effect of climate change,helpful in achieving the development goal,and pushing emission at the lowest cost introduced by the Kyoto protocol. The most benefited sector by this flexibility mechanism is the renewable energy sector in India, where the most benefited state under this mechanism is Madhya Pradesh. In Madhya Pradesh, almost 21 certified emission reduction projects are running. Overall it can be concluded that the emission trading market is one of the fastest-growing markets in India and it plays a significant role in achieving sustainable development goals and enhancing environmental sustainability by reducing the emission of greenhouse gases. To achieve sustainable development goals efficiently, connect with the best sustainability consultants here.
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Ques 1) What approaches are there for entering a carbon business?
Ans: Farmers considering dealing carbon credits are advised to consider carefully all the terms and conditions of participating which are typically two.
a)Aggregator-Farmer sells the entire project, control, and credits to the aggregator in terms and conditions set up in a contract. The aggregator also has to complete control over carbon credits, when to vend, data participated and price.
b)Data Manager- Data manager is paid by farmers to help them to enter the marketplace. The farmer has not vended real interests in the project or carbon credits.
Ques 2) Which companies buy carbon credit in India?
Ans : Companies like amazon,reliance, Tata and Adani declared their net zero pretentions, so they are buying carbon credits. Principally large companies which declared their net zero goal buy carbon credits.
Ques 3) Carbon credit represents how many tons of co2 traded?
Ans : Ownership of the equivalent to one metric ton of co2 that can be traded,sold or retired represented by carbon credit.
Ques 4) How Farmers benefited from the carbon market?
Ans : Farmers who withdraw one carbon credit can earn roughly INR 780 at current market price. The direct benefit is that farmers receive cash based incentives for carbon they have withdrawn.
Ques 5)What is the carbon credit price today in India (2023)( carbon credit price per ton)?
Ans : The price fluctuates depending upon demand and supply for carbon credits but generally it ranges from $40 to $80 per metric ton.
Ques 6) Can I sell my own carbon credits? or Can individuals trade carbon credit?
Ans : Yes, Carbon credits buying and selling carbon credits is a simple process and it is conducted individually or by companies.
Ques 7) What is Carbon Credit?
Ans : Carbon credit refers to the legal tradable instruments that permit the right to emit one ton of carbon or carbon dioxid
Ques 8) Which are Top carbon Credit companies and startups in India?
Ans : 1) carbonfixers
3) Greenleaf Green Solutions
6) Green Pool
7) Farmex Agritech Private Limited