News Highlight
The World Bank estimates that carbon trading can reduce the global cost of implementing nationally determined climate goals by more than half.
Key Takeaway
- The Parliament passed the Energy Conservation (Amendment) Bill, 2022, on Monday, December 12.
- They declined the Opposition’s demands to send it for scrutiny to a parliamentary committee amid concerns expressed by members over carbon markets.
- The Bill amends the Energy Conservation Act 2001 to empower the Government to establish carbon markets in India and specify a carbon credit trading scheme.
Carbon Markets
- What are carbon markets?
- Firstly, carbon markets are trading platforms where carbon credits are bought and sold.
- Global greenhouse gas (GHG) emissions must be decreased by 25 to 50% during the next ten years to keep global warming to 2°C, ideally no more than 1.5°C.
- As part of the 2015 Paris Agreement, which they pledged to renew every five years.
- In addition, nearly 170 nations submitted their nationally determined contributions (NDCs).
- In addition, NDCs are climate pledges made by nations that set goals to attain net-zero emissions.
- For instance, India is developing a long-term strategy to meet its goal of net zero emissions by 2070.
- Furthermore, the Paris Agreement’s Article 6 allows countries to use the global carbon markets to meet their NDCs.
How do they work?
- Firstly, there are two ways of implementing carbon pricing: the emissions trading system, also known as the ‘cap and trade‘ scheme, and carbon tax.
- In a “cap and trade” system, a regulator, typically the government, sets an upper limit on the emissions produced by a particular polluting industry.
- In addition, to cap the amount of carbon these industries are allowed to emit over a certain length of time, the government then grants them a certain number of permits.
- Either a certain amount of carbon dioxide can be emitted by each company, or emission rights must be purchased through an auction.
- Furthermore, for each tonne of CO2 they produce, polluting companies that use coal, oil, and natural gas are subject to a carbon tax.
- According to the CEEW researcher, they are forced to cut their pollution output and seek less harmful replacements by imposing greater taxes on polluting sectors.
- Moreover, these taxes serve as revenue for the government to pay for numerous other sustainable development initiatives because they are levied directly and do not need trading.
Types of Carbon Markets
- Voluntary Carbon Market
- Private investors, governmental entities, non-governmental organisations, and companies can buy carbon offsets involuntarily to offset their emissions thanks to the voluntary carbon market.
- Private companies that acquire carbon offsets for resale or investment make up the majority of buyers.
- Businesses unable to reduce their emissions might offset them by buying carbon offsets from reputable suppliers.
- The effort to reduce carbon emissions is financed using the money raised.
- The motivations behind voluntary offset buyers frequently include protecting their reputation, ethics, and corporate social responsibility (CSR).
- Compliance Market
- In addition, it is established by laws formally regulated at the national, regional, and/or international levels.
- Today’s compliance markets primarily operate under the “cap-and-trade” approach, which is most common in the European Union (EU).
- Under the EU’s emissions trading system (ETS), which went into effect in 2005, member nations set a quota or limit on emissions in various industries, including waste management, manufacturing, oil, and power.
- Furthermore, this cap is adjusted progressively to cut emissions under national climate goals.
How Effective is Carbon Pricing?
- Environmentalists claim that although carbon pricing has been lauded as a successful technique for cutting carbon emissions, there are still difficulties in implementing the policy.
- The Stockholm Environment Institute found that the carbon trading scheme in both nations:
- It had roughly 80% of low-quality environmental projects, and the system had increased 600 million metric tonnes of emissions.
- The only issue that unites all parties is the potential for double counting, which occurs when two parties assert the same reduction in emissions or carbon removal.
- Every nation has set emission goals.
- For instance, double counting would result if a developing country used an energy-efficient programme;
- It is to decrease its carbon emissions by 1 metric tonne, sell the reduction to a developed country, and then use it to meet its et.
- Carbon Market Watch claims that doing so is the same as “cheating” the environment.
- Firstly, political and corporate corruption could lead to a carbon market collapse.
Where Does India Stand in Carbon Trading?
- While India lacks a formal framework or strategy for carbon markets.
- According to the Bureau of Energy Efficiency, a statutory entity under the Ministry of Power, it has four programmes that somehow put a price on carbon.
- Coal Cess
- In 2010, the government of India imposed a levy on coal.
- According to this plan, taxes were to be imposed in the form of excise duties on goods like coal, lignite, and peat.
- The cess rate continuously grew from Rs 50 in 2010 to Rs 400 in 2016.
- Perform Achieve and Trade Scheme
- Major polluting industrial sectors are given particular energy reduction targets under this programme, which was introduced in 2008.
- Those who surpass the targets are given Energy Saving Certificates (ESCerts) through a centralised online trading system run by the Indian Energy Exchange.
- Renewable Energy Certificates
- Firstly, the Renewable Energy Certificate (REC) was launched in 2010.
- This scheme requires power distribution companies to purchase or generate a certain amount of renewable energy.
- According to this plan, one REC is produced each time 1 MWh of renewable energy is produced.
- Internal Carbon Pricing (ICP) Scheme
- ICP is a framework for private enterprises to voluntarily reduce emissions, redirect investments into clean and energy-efficient technology, and satisfy corporate sustainability goals.
What are the challenges?
- First, there are questions about how well carbon markets work to reduce emissions.
- Some businesses merely purchase credits, not attempt to lower their emissions.
- In addition, they can purchase carbon credits for less money than they can spend on technologies that reduce emissions.
- Second, proponents of the environment assert that only excellent carbon offsets can significantly reduce emissions.
- Some characteristics of high-quality carbon offsets include;
- Additionality
- Verifiable
- Permeance
- Some characteristics of high-quality carbon offsets include;
- Third, purchasing carbon credits may cause wealthy countries to deviate from the path of lowering emissions.
- They can keep emitting and purchasing affordable carbon credits from underdeveloped nations.
- Fourth, the voluntary markets have a big glut of carbon credits.
- A billion tonnes of CO2 worth of credits have reportedly been listed for sale on the voluntary market.
- Nevertheless, there have been more buyers than sellers.
Conclusion
- The creation of a national carbon market is a development.
- The success of the market will ultimately determine the benefit.
- The Government must see that the appropriate rules are implemented for this.
- Additionally, a regular evaluation of how well it works and any necessary remedial actions must be conducted.
- The government must take all reasonable measures to lessen the hurdles since change is imminent and genuine.
Pic Courtesy: The Hindu
Content Source: The Hindu