India Strengthens Carbon Market With CCTS Implementation
India reaffirmed its commitment to combating climate change as it submitted the Third National Communication (TNC) to the United Nations Framework Convention for Climate Change (UNFCCC) in December 2023. The report highlights India’s success in decoupling its economic growth from greenhouse gas (GHG) emissions, which showed considerable reductions in emission intensity of its Gross Domestic Product (GDP) over the years. Between 2005 and 2019, India succeeded in a highly impressive cut of emission intensity by 33% compared to 2005 level, showing its commitment to sustainable development with very robust economic growth.
The TNC outlines incremental reductions in emission intensity, starting with a 12% reduction by 2010, increasing to 21% by 2014, 24% by 2016, and culminating in the 33% reduction by 2019. These milestones underscore India’s progress toward its climate goals and its contributions to global climate action under the Paris Agreement. To build on this success, further entice carbon reduction efforts by developing the robust regulatory framework of Indian Carbon Market (ICM) under the Energy Conservation Amendment Act, 2022.
Carbon credit trading was first proposed as part of amendments to the Energy Conservation Act, 2001, in 2022, setting the foundation. The clause of Section 14, as amended in w, allows the central government to determine and establish a carbon credit trading scheme in consultation with the Bureau of Energy Efficiency. The Carbon Credit Trading Scheme, in this context, was notified through government notifications issued on June 28, 2023, and amended on December 19, 2023. The scheme is developed to support the climate goals of India and assist it in achieving enhanced Nationally Determined Contributions (NDCs).
The CCTS consists of two mechanisms, namely, the compliance mechanism and the offset mechanism. The compliance mechanism requires obligated entities to follow the set reduction norms of GHG emissions intensity during each compliance cycle. Entities that surpass their reduction target are eligible for carbon credit certificates. On the other hand, the offset mechanism allows non-obligated entities to register projects that focus on reducing, removing, or avoiding GHG emissions, thereby earning carbon credit certificates. These certificates can then be traded in the CCTS, which allows for the development of a market-driven strategy for decarbonizing the Indian economy.
The start of India’s carbon trading journey was the 2012 introduction of the PAT Scheme. It was the first market-based mechanism that aimed at enhancing energy efficiency in energy-intensive industries by setting the reduction targets in specific energy consumption for DCs. The government has prepared a comprehensive transition plan for ensuring smooth transition from the PAT scheme to the CCTS. Nine key energy-intensive sectors namely, aluminium, cement, steel, paper, chlor-alkali, fertilizer, refinery, petrochemical, and textile, will now operate under the compliance mechanism of the CCTS. The approach would ensure continuity, avoid redundancy, and be aligned with India’s overarching climate objectives.
A critical piece of the implementation of the CCTS is the MRV framework developed by the Bureau of Energy Efficiency. The MRV framework focuses on key elements like target-setting, monitoring, reporting, and verification procedures; and the emission of carbon certificates alongside the trading thereof. These guidelines had been developed upon a consultative process with all stakeholders involved which finally culminated into publication by July 2024.
The annual verification of GHG emissions data is one of the crucial components of the MRV framework. The Bureau of Energy Efficiency will award accreditation to agencies for carbon verification based on specific eligibility criteria to ensure that the scheme becomes credible. The detailed procedure for the accreditation was also finalized and published after extensive stakeholder consultations in July 2024.
Union Minister of State for Environment, Forest, and Climate Change, Shri Kirti Vardhan Singh, provided these details in a written response to the Lok Sabha. With the establishment of the Carbon Credit Trading Scheme and the transition of energy-intensive sectors to its compliance mechanism, India is poised to take a leading role in global carbon markets. This initiative presents a strong showcase of the country’s resolve to sustainable growth and its obligations to the UNFCCC and the Paris Agreement.
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