Carbon credit sees a promising future

The future of carbon credits is promising, thanks to advanced digital technologies, international collaborations, and government policies. Transparency and wider adoption of environmental sustainability will promote economic growth in sectors like industrial manufacturing, energy production, and agriculture.

Carbon credits are innovative financial instruments designed to reduce global greenhouse gas emissions. They grant the holder the right to emit a specific amount of carbon dioxide or other greenhouse gases; one credit typically permits one ton of CO2 emissions.

Carbon credits are crucial for mitigating climate change. They allow entities that exceed their emission caps to purchase the right to emit from others’ surplus credits. This market-driven approach incentivises companies to reduce emissions because they can sell unused credits for profit.

It is vital to enhance the impact of these programs by identifying sectors that can effectively use carbon credit schemes. Sectors with high emissions potential, like industrial manufacturing, energy production, and agriculture, can benefit from integrating carbon credit systems into their operations. Doing so, they comply with global emission standards and contribute to a more sustainable business model and environmental conservation.

Understanding carbon credits

In India, the revamped Carbon Credit Trading Scheme (CCTS) allows companies and individuals to participate in voluntary carbon trading, promoting emissions reduction by enabling the purchase or sale of these credits. This initiative is aligned with India’s climate goals under the Paris Agreement, aiming to reduce emissions and foster a transition to a low-carbon economy.

India is emerging as a significant player in the global carbon credit market, having issued 278 million credits between 2010 and 2022, constituting 17 per cent of the Global supply during that period. The nation’s carbon market is supported by regulatory frameworks and voluntary markets, where businesses can trade carbon credits to meet or exceed their carbon reduction targets. As outlined in India’s national commitments, this market mechanism is a crucial driver for achieving net-zero emissions by 2070.

Certification and oversight of these carbon credit projects are managed by various bodies, including the India Carbon Market Governing Board (ICMGB), which plays a critical role in administering and regulating the market. These bodies ensure the integrity and efficacy of the carbon trading system, making it the key element of India’s strategy to combat climate change.

Eligible sectors for carbon credits in India

India’s efforts to leverage carbon credits across various sectors are pivotal for its climate action strategies.

Renewable energy sources like solar, wind, and biomass significantly contribute to India’s carbon credit market. Over 32 per cent of all carbon credits in the voluntary market come from renewable energy projects, mainly from grid-connected electricity generation through wind, hydropower, and centralised solar facilities. The government aims to increase the share of renewable energy in its total electricity consumption, targeting 40 per cent by 2030.

Forest conservation projects, particularly under frameworks like REDD+ (Reducing Emissions from Deforestation and Forest Degradation), are required in India. These projects focus on ecosystem-based approaches to reduce emissions or enhance GHG removals, involving community-led afforestation efforts that attract substantial carbon credits.

Sustainable agricultural practices, such as improved irrigation and manure management, play a significant role in sequestering carbon. Initiatives promoting organic farming and effective crop residue management help reduce emissions and enable farmers to earn carbon credits, providing them additional income and incentivising sustainable practices.

Waste management, particularly through methane capture at landfills and waste-to-energy technologies, offers significant opportunities for carbon credit generation. The government supports such projects by providing financial incentives for waste-to-energy projects to ensure their feasibility and sustainability.

Opportunities and challenges associated with carbon capture and storage exist in industries like steel, cement, and chemicals. These processes are critical for reducing industrial carbon footprints and enhancing eligibility for carbon credits.

Electrification of public transport and railways represents a growing sector for carbon credit generation. India’s focus on electrifying its transport systems is part of a broader strategy to reduce urban carbon emissions and develop sustainable urban transport solutions.

The distribution of improved cookstoves and clean water initiatives in rural and tribal areas. They focus on collaborating with local communities to advance sustainability by empowering individuals and improving overall quality of life.

Challenges

In India, the complexities of implementing and monitoring carbon credit projects intertwine with regulatory oversight challenges and concerns about the reliability and integrity of carbon credits. The country is advancing its domestic emissions trading scheme, known as the Carbon Credit Trading Scheme (CCTS), under the amended Energy Conservation Act, which targets carbon dioxide emissions directly. This move toward carbon pricing through cap-and-trade mechanisms aims to meet stringent emission targets by 2026, reflecting a significant step in establishing a more structured carbon market in India.

However, the carbon market in India faces significant hurdles. These include a robust and reliable system for measuring, reporting, and verifying environmental impacts, which can involve high costs and technical challenges. Additionally, setting emission baselines can be contentious due to variations in technology and resources across companies, leading to disputes over uniform emission limits.

The carbon market’s success hinges on the alignment of supply and demand. There are concerns that if the supply of carbon credits exceeds demand, prices could collapse,  discouraging companies from engaging in emission reduction activities. Establishing a transparent and effective regulatory framework is crucial to ensure the integrity and accountability of the carbon trading system.

Addressing these challenges will be essential for the credibility and effectiveness of India’s carbon credit initiatives, ultimately contributing to its net zero goals by 2070).

The future of carbon credits in India

The future of carbon credits in India looks promising, driven by emerging trends such as advanced digital technologies that enhance tracking and verification processes. These technologies ensure transparency and reliability in carbon credit transactions, bolstering market confidence. Moreover, international collaborations and investments are crucial in scaling carbon credit projects across India. They bring essential funding and global expertise, fostering innovative approaches to carbon management.

The Indian government plays a key role by implementing policies and incentives to promote the wider adoption of carbon credits in various sectors. These initiatives support environmental sustainability and promote economic growth by aligning with global climate goals.

Leveraging carbon credits can contribute to sustainable growth in different sectors that require a concerted effort from multiple stakeholders, including businesses, communities, and government bodies. Their active participation is essential for enhancing the effectiveness and reach of carbon credit initiatives. Encouraging widespread engagement in India’s carbon credit markets will foster a more sustainable and economically vibrant future.

Authored by Rutvi Sheth, Chief Marketing Officer, Advait Infratech Limited