Published on: December 20, 2022

Carbon markets

Carbon markets Why in news? The Energy Conservation (Amendment) Bill, 2022 was passed in Parliament, despite the Opposition’s demands for scrutiny to a parliamentary committee. The Bill empowers the government to establish carbon markets in India and specify a carbon credit trading scheme. Highlights:

What are carbon markets?

  • Paris Agreement provides for the use of international carbon markets by countries to fulfil their nationally determined contributions (NDC) to keep global warming within 2°C.
  • This markets are essentially a tool for putting a price on carbon emissions , they establish trading systems where carbon credits or allowances can be bought and sold.
  • A carbon credit is a kind of tradable permit that, as per UN standards, equals one tonne of carbon dioxide removed, reduced, or sequestered from the atmosphere.

What are the types of Carbon Markets?

  • There are broadly two types of carbon markets
  1. Compliance markets
  2. Voluntary markets.
  • Voluntary markets :
  • Emitters like corporations, private individuals, and others buy carbon credits to offset the emission of one tonne of CO2 or an equivalent greenhouse gas.
  • Carbon credits are created by activities which reduce CO2 from the air, such as afforestation.
  • In this market, a corporation looking to compensate for its unavoidable emissions, purchases carbon credits from an entity engaged in projects that reduce, remove, capture, or avoid emissions.
  • For instance, in the aviation sector, airlines may purchase carbon credits to offset the carbon footprint of the flights they operate.

Compliance markets:

  • They are the market that are set up by policies at the national, regional, and/or international level are officially regulated.
  • They need to comply with a regulatory act.

What is a Carbon Offset?

  • A carbon offset refers to the units earned by firms that have implemented a greenhouse gases reduction project.
  • It is issued by a board or government authority, and one offset credit is given for every ton of greenhouse gas that is reduced, stored, or avoided.
  • The offset is then sold to an investor, government, or NGO to offset their emissions or for investment purposes.
  • Carbon offsets are measured in tons of greenhouse gases, which comprises carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons, and perfluorocarbons.

Who regulates the mandatory carbon credit market?

  • This market is regulated through international, regional and sub-national carbon reduction schemes, such as the Clean Development Mechanism under the Kyoto Protocol, the European Union Emissions Trading Scheme (EU-ETS) and the California Carbon Market.

What are the challenges?

  • The UNDP points out serious concerns pertaining to carbon markets ranging from double counting of greenhouse gas reductions, quality and authenticity of climate projects that generate credits to poor market transparency.
  • There are also concerns about ‘greenwashing’ companies may buy credits, simply offsetting carbon footprints instead of reducing their overall emissions.
  • carbon credits and how will they help reduce the emission of greenhouse gases

What are features of the these certificates ?

  • The Bill empowers the Centre to specify a carbon credits trading scheme.
  • Central government or an authorised agency will be able to issue carbon credit
  • These certificates will be tradeable in nature.
  • It would be able to buy carbon credit certificates on a voluntary basis.

What are the Concerns regarding the bill?

  • Bill does not provide clarity on the mechanism to be used for the trading of carbon credit certificates and its regulation such trading.
  • carbon market schemes in other countries are framed by their environment ministries, the Indian Bill was tabled by the Power Ministry.
  • It does not specify whether certificates under already existing schemes would also be interchangeable and tradeable with carbon credit certificates.
  • Two types of tradeable certificates are already issued in India Renewable Energy Certificates (RECs) and Energy Savings Certificates (ESCs).