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15.01.24

Impact of Carbon Trading Framework

The impact of global warming makes it imperative to focus on adopting eco-friendly practices to mitigate greenhouse gas emissions

India is at an exciting juncture as it ramps up economic growth and development to accommodate its rapidly expanding populace. This accelerated development presents substantial environmental challenges, particularly related to carbon emissions. The impact of global warming makes it imperative to focus on adopting eco-friendly practices to mitigate greenhouse gas emissions. Introducing a robust carbon trading system is a flexible market-driven mechanism that can drive carbon management initiatives for economy-wide emissions abatement. Atanu Mukherjee opines about the carbon trading initiatives with EPR Magazine.

The Role of Carbon Credits

The concept of carbon credits is fundamental to a carbon trading system. Carbon credits represent temporary permissions granted to organisations, allowing them to release a specified amount of CO₂ each year. Carbon credits serve as tradable commodities. Organisations with lower emissions can trade their credits through a carbon market orexchange. This enables other entities striving to offset their emissions to purchase these credits.

Certain industries, such as cement, chemicals, and metal production, significantly contribute to global
emissions. They are faced with limited and often expensive options for reducing carbon emissions. In this context, carbon credits present a viable solution for companies in these sectors to meet sustainability objectives. They can either purchase credits or invest in projects that generate them.

The Indian government is currently establishing the Indian Carbon Market (ICM), a national initiative aimed at decarbonising the country’s economy by pricing greenhouse gas emissions by trading carbon credit certificates. The recently announced draft for the Indian Carbon Credit Scheme 2023 outlines the framework for this initiative. ICM is anticipated to drive investments toward a low-carbon economy and help India reduce its emissions intensity by 45 per cent by the end of 2030 compared to 2005. It would align with its Nationally Determined Contribution (NDC) target related to the UN Sustainable Development Goals (SDGs) if this is accomplished.

The introduction of carbon credit trading is expected to advance the country’s energy transition, covering a broad range of energy sectors. Emission intensity targets and benchmarks would need to be established by domestic emission trajectories, aligning carbon credit trades with sectoral performance.

THE IMPACT OF GLOBAL WARMING MAKES IT IMPERATIVE TO FOCUS ON ADOPTING ECO-FRIENDLY PRACTICES TO MITIGATE GREENHOUSE GAS EMISSIONS.

Net Zero target by 2070

It is important to note that the current draft notification by the Central Government needs more details on the procedures, regulations, or guidelines for the carbon market. These are expected to be defined by a ‘National Steering Committee’ led by the Secretary of the Ministry of Power.

As India strives for a net-zero target by 2070, the ICM could play a pivotal role in reducing carbon emissions in commercial and industrial sectors. Regulated yet flexible, the ICM would empower companies, especially those in challenging-to-decarbonise sectors, to invest in greenhouse
gas reduction efforts. This initiative holds the promise of fostering a competitive market that incentivises the channelling of funds into adopting existing cost-effective decarbonisation pathways and developing new technology solutions. This is expected to raise awareness and drive innovation to decarbonise difficult industries.

Assigning a monetary value to carbon emissions will directly impact these sectors and others, encouraging businesses to integrate environmental considerations into strategic planning. This, in turn, would stimulate substantial investments in transforming current business practices and manufacturing processes toward lower carbon emissions. As carbon-related tariffs like the Carbon Border Adjustment Mechanism (CBAM) begin directly influencing trade, businesses must consider national and international ramifications. The complexity and interconnectivity of global trade make it challenging to predict the precise impact of these tariffs. Hence, it is vital for regulatory bodies to closely monitor the carbon credit market and establish mechanisms for its efficient operation.

As India progresses steadily toward a net-zero future, the decarbonisation of industrial activities remains pivotal. Leaders in clean energy transition and carbon management solutions, particularly for the ‘hard-to-decarbonise’ industries, will be crucial in enabling this shift. A robust carbon trading system can accelerate this journey as India seeks to manage the delicate balance between economic growth and environmental preservation.