ESTABLISHING A CARBON MARKET

THE CONTEXT: India’s Finance Minister has signaled a significant shift in climate policy, moving polluting industries from energy efficiency targets to emission targets. This transition marks a crucial step in India’s journey towards decarbonization and the development of a domestic carbon market.

IMPORTANT ENVIRONMENTAL TERMINOLOGIES USED IN THE ARTICLE:

• Carbon Market: A trading system where carbon credits can be bought and sold to help reduce greenhouse gas emissions. Introduced in the late 1990s and early 2000s, the European Union Emissions Trading System launched in 2005 as the first primary carbon market.
• Nationally Determined Contributions (NDCs): Country-specific climate action plans submitted as part of the Paris Agreement and introduced in 2015 as a key component of the Paris Agreement on climate change.
• Emissions Trading System (ETS): This is a market-based approach to controlling pollution by providing economic incentives for reducing emissions. The concept was first proposed in the 1960s and implemented on a large scale in the 1990s and 2000s.
• Clean Development Mechanism (CDM): A flexibility mechanism under the Kyoto Protocol allowing emission reduction projects in developing countries to earn tradeable credits. It was established as part of the Kyoto Protocol in 1997.
• Perform, Achieve, and Trade (PAT): An Indian regulatory instrument to reduce energy consumption in energy-intensive industries. It was introduced in India in 2012 as part of the National Mission for Enhanced Energy Efficiency.
• Carbon Offset Mechanism: A carbon offset mechanism is a system that allows individuals, companies, or organizations to compensate for their greenhouse gas emissions by investing in projects that reduce, avoid, or remove emissions elsewhere. This mechanism enables entities to offset their carbon footprint by supporting environmental initiatives that counterbalance their emissions.
• Carbon Credits Trading Mechanism: A carbon credits trading mechanism is a market-based system that facilitates the buying and selling of carbon credits or emission permits. This mechanism allows entities to trade credits representing the right to emit a specific amount of greenhouse gases, typically one metric ton of carbon dioxide equivalent (CO2e).

THE AGENDA:

• Transition to emission targets for polluting industries: The finance minister announced a roadmap for moving “hard to abate” industries like iron, steel, and aluminum from energy efficiency targets to emission targets.
• Shift from PAT to Indian Carbon Market: The government plans to transition these industries from the current “Perform, Achieve, and Trade” (PAT) mode to an “Indian Carbon Market” mode.
• Decarbonization for development: India is pursuing decarbonization across various sectors to meet multiple development goals, including poverty alleviation and providing affordable, reliable energy.
• Alignment with international climate mechanisms: India has participated in global initiatives like the Clean Development Mechanism. It is now working to align its efforts with Nationally Determined Contributions (NDCs) under the Paris Agreement.
• Customized carbon market approach: India will likely develop its version of a carbon market, distinct from the European Union Emissions Trading System (ETS), to better suit its development priorities.
• Phased implementation of carbon market mechanisms: The Bureau of Energy Efficiency’s 2021 draft blueprint proposes a two-phase approach, starting with a voluntary market supported by a domestic project-based offset scheme, followed by a compliance market with mandatory participation for regulated entities.

THE ISSUES:

• Balancing energy security and climate action: India must manage its reliance on fossil fuels, particularly coal, while transitioning to cleaner energy sources without compromising energy security.
• Financial implications of the low-carbon transition: India may need substantial green investments (estimated at $7.2 trillion until 2050) to achieve its decarbonization goals in the line-of-sight scenario.
• Sector-specific decarbonization strategies: The article highlights the need for targeted approaches in critical sectors, such as power, steel, automotive, aviation, cement, and agriculture, which contribute significantly to India’s emissions.
• International support and climate finance: India’s ability to meet its climate targets and transition to a low-carbon economy partly depends on international support and climate finance.

THE WAY FORWARD:

• Sector-specific financial institutions: Leverage sector-specific financial institutions like REC Limited and Power Finance Corporation to catalyze green finance. These institutions can provide technical assistance, training, and capacity-building support to project developers, enhancing the feasibility and execution of low-carbon transition initiatives.
• Meeting NDC targets: Implement programs and schemes across relevant ministries and departments, with support from states and union territories. India has committed to reducing the Emissions Intensity of its GDP by 45% by 2030 from 2005 levels and achieving about 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.
• Customized carbon market approach: Build on domestic experience with Perform, Achieve, and Trade (PAT) schemes and Renewable Energy Certificates (REC) to create a carbon trading system with GHG-emission-denominated units that are fungible, tradeable, and aligned with global standards.
• Transition to emission targets for polluting industries: Implement sector-specific decarbonization strategies, focusing on key sectors like power, steel, automotive, aviation, cement, and agriculture, contributing to roughly 70% of India’s overall emissions.

THE CONCLUSION:

India’s evolving approach to climate change mitigation reflects a balance between development priorities and environmental concerns. The proposed transition to an Indian Carbon Market demonstrates India’s commitment to finding innovative, market-based solutions to address climate change while pursuing its socioeconomic goals.

UPSC PAST YEAR QUESTIONS:

Q.1 Do you think India will meet 50 percent of its energy needs from renewable energy by 2030? Justify your answer. How will shifting subsidies from fossil fuels to renewables help achieve the above objective? Explain. 2022

Q.2 Discuss global warming and mention its effects on the global climate. Explain the control measures to reduce greenhouse gases that cause global warming in light of the Kyoto Protocol, 1997. 2022

MAINS PRACTICE QUESTION:

Q.1 “India’s transition from energy efficiency targets to emission targets for polluting industries marks a significant shift in its climate policy approach.” Discuss the implications of this transition.

SOURCE:

https://www.thehindu.com/opinion/op-ed/establishing-a-carbon-market/article68577126.ece