The Emergence of the Indian Carbon Market
India is embarking on a transformative journey to combat climate change through the establishment of the Indian Carbon Market (ICM). This initiative is a strategic response to the urgent need for decarbonization and aligns with global efforts to price and trade carbon emissions. The ICM draws inspiration from established carbon markets, such as those in Europe, China, Japan, and South Korea, adapting their best practices to the Indian context.
Overview of the Indian Carbon Market
The Indian Carbon Market is conceptualized to operate through two main segments: the compliance market, which leverages the existing Perform, Achieve and Trade (PAT) framework, and the offset market for project-based carbon credits. The Ministry of Power and the Bureau of Energy Efficiency have laid down the regulatory framework through the Carbon Credit and Trading Scheme (CCTS), with a focus on CO2 and PFC emissions.
The ICM aims to set yearly targets with a three-year trajectory, a shift from the PAT scheme’s three-year target period. This approach is designed to streamline the reduction of GHG emissions in tonnes of CO2 equivalent (tCO2e/tonne), fostering a more dynamic and responsive carbon trading environment.
Comparative Analysis with Global Carbon Markets
The ICM is set against the backdrop of several international carbon markets, each with its unique structure and approach to emissions trading:
- Europe’s Emissions Trading System (ETS) is the world’s first major carbon market and remains the largest one, covering multiple sectors and gases.
- China’s National Carbon Market, launched in 2021, has quickly become the world’s largest carbon market in terms of the volume of emissions covered, focusing initially on the power sector.
- Japan’s Emissions Trading System is set to launch, aiming to reduce emissions through a cap-and-trade system that encourages low-carbon investment.
- South Korea’s Emissions Trading Scheme (ETS), established in 2015, covers a broad range of sectors and is the first of its kind in East Asia.
Comparative Table Summary
|Feature||Indian Carbon Market (ICM)||Europe ETS||China ETS||Japan ETS||Korea ETS|
|Launch Year||2023 (CCTS Notification)||2005||2021||2023 (Planned)||2015|
|Coverage||CO2, PFCs initially||Multiple sectors and gases||Power sector initially||Multiple sectors (Planned)||Multiple sectors|
|Target Setting||Yearly targets with a 3-year trajectory||Multi-year compliance periods||Annual compliance cycle||To be determined||Multi-year compliance periods|
|Trading Mechanism||Compliance and offset markets||Cap-and-trade||Cap-and-trade||Cap-and-trade (Planned)||Cap-and-trade|
|Regulatory Framework||CCTS under MoP and BEE||EU-wide legislation||Managed by the Ministry of Ecology and Environment||To be established||Managed by the Ministry of Environment|
|Benchmarking||Based on GHG emissions intensity||Based on historical emissions||Based on historical emissions||To be determined||Based on historical emissions|
|Verification Process||Accredited carbon verifiers||Third-party verification||Third-party verification||To be determined||Third-party verification|
Significance and Future Prospects
The ICM is poised to play a pivotal role in India’s climate strategy, offering a platform for the trading of carbon credits that incentivizes emission reductions. It is expected to mobilize investments towards sustainable projects and technologies, contributing to the achievement of India’s NDC goals.
Comparatively, while the ICM is in its nascent stages, it can learn from the maturity and evolution of the European market, the scale of China’s market, the anticipated innovation in Japan’s system, and the comprehensive coverage of South Korea’s ETS. The ICM’s unique yearly target setting and trajectory approach offer a tailored solution that reflects India’s specific economic and environmental contexts.
The Indian Carbon Market represents a significant step forward in the global effort to mitigate climate change through market-based mechanisms. By examining and integrating lessons from established carbon markets, India is positioning itself as a leader in the development of innovative and effective climate solutions. The ICM’s evolution will be a testament to India’s commitment to a sustainable and low-carbon future.