The Ministry of Power (MoP) has recently released the draft Carbon Credit Trading Scheme (CCTS), which aims to establish a framework for the Indian carbon market for both voluntary trading and compliance. As per the draft scheme, the Indian Carbon Market Governing Board (ICMGB) will be set up to oversee administrative and regulatory functioning of the carbon market. The Bureau of Energy Efficiency (BEE) will be the administrator, Grid Controller of India Limited will act as the registry and the Central Electricity Regulatory Commission (CERC) will be the regulator for trading activities in the Indian carbon market.
To recall, the Energy Conservation (Amendment) Act, 2022 notified in December 2022 empowered the central government to notify a CCTS for the reduction of carbon emissions and allowed it (or its authorised agency) to issue carbon credit certificates (CCCs) to registered entities. These entities will be allowed to purchase or sell CCCs to meet their energy conservation targets. Further, any other person may purchase energy savings certificates or CCCs on a voluntary basis. Importantly, these carbon credits will be used on priority within the country to meet the nationally determined contributions. Notably, India issued 278 million credits in the voluntary carbon market between 2010 and 2022, accounting for 17 per cent of the global supply, according to a special report on greenhouse gas emissions by S&P Global Commodity Insights.
Key highlights of the draft scheme
As per the draft CCTS, for the compliance mechanism, obligated entities, including designated consumers as notified by the central government from time to time, will register themselves for the scheme. The detailed procedure for operationalising the carbon market and various mechanisms will be developed, which will contain criteria for issuance of CCCs to those obligated entities that reduce their greenhouse gas emissions to meet the prescribed emission norms. It will also provide details regarding the validity of CCCs and the floor and forbearance prices of these certificates.
ICMGB: The ministry has, in the draft, proposed to set up the ICMGB, with the secretary of the Ministry of Environment, Forest and Climate Change (MoEFCC) as its chairperson, for direct oversight of the administrative and regulatory functioning of the Indian carbon market. The ICMGB members will include the secretary, Ministry of Power (MoP); the joint secretary or above official from the Ministry of Finance, NITI Aayog, MoP, MoEFCC, Ministry of New and Renewable Energy, Ministry of Steel, Ministry of Coal, Ministry of Petroleum and Natural Gas; the chairperson of the Central Electricity Authority; the chairman and managing director of Grid Controller of India Limited; and the director general of BEE.
The ICMGB will recommend procedures, rules and regulations for institutionalising and operating the Indian carbon market for approval of the central government. These will include rules and regulations for the functioning of the Indian carbon market; methodologies to be used under the voluntary mechanism; and guidelines regarding issuance and sale of CCCs outside India. ICMGB will approve projects under the voluntary mechanism; and the process/conditions for credit period/renewal/retirement of CCC. The ICMGB will meet at least once in a quarter every year.
Indian carbon market administrator: BEE has been proposed to be the administrator for the carbon market and it will also work as the secretariat for the ICMGB. As the administrator, BEE will develop standards, processes and methodologies for registering projects under the voluntary mechanism and develop the trajectory and targets for entities under the compliance mechanism. Further, it will issue CCCs as recommended by the ICMGB and also develop a market stability mechanism for carbon credits.
BEE will specify the procedure, including eligibility criteria for the accreditation of agencies to function as accredited carbon verifiers with the approval of the ICMGB. It will constitute one or more technical committees for different areas as required under either the compliance or voluntary mechanism to operationalise the CCTS. The technical committee will submit its recommendations to BEE. BEE will recommend the type and amount of fees and charges for meeting the cost towards the implementation of the scheme for approval by the ICMGB; and collect fees from the registered entity. Additionally, it will develop and maintain the IT infrastructure, along with the knowledge platform required for the Indian carbon market; and maintain a secure database with all security protocols as approved by the ICMGB.
Indian carbon market registry: Grid Controller of India Limited will act as the registry for the carbon market. It will undertake registration of obligated or non-obligated entities; maintain a secure database with all security protocols as approved by the ICMGB; maintain records of all transactions; and share transaction records with power exchange(s) and the Indian carbon market administrator. Further, it will provide assistance in the development of an IT platform for maintaining a database of CCCs and establish linkages with other national/international registries as approved by the ICMGB.
Indian carbon market trading regulator: The CERC will be the regulator for trading activities under the Indian carbon market. The commission will regulate matters relating to trading of CCCs; safeguard interests of both sellers and buyers; regulate frequency of CCCs trading; and provide market oversight and take necessary corrective actions to prevent fraud or mistrust. The CERC will also approve the participation of power exchanges in the Indian carbon market trading.
The way forward
With the framework for operationalising the CCTS in the country in the works, the market for voluntary carbon trading is expected to open up soon. Meanwhile, the compliance market is expected to be operationalised in two to three years’ time as targets and timelines need to be given to the industries. Besides, the current Perform, Achieve and Trade scheme is reportedly likely to be transitioned to the compliance market.
The power exchanges are also preparing to provide trading platforms for carbon credits. Last December, the Indian Energy Exchange incorporated a wholly owned subsidiary company, International Carbon Exchange Private Limited (ICX), a voluntary carbon exchange platform, to explore business opportunities in the voluntary carbon market. The ICX will enable participants to buy and sell voluntary carbon credits at competitive prices through its transparent and reliable platform and facilitate reduction of global greenhouse gas emissions.
Overall, the introduction of a carbon credit market in the country will be a big step towards achieving the country’s greenhouse gas reduction targets. As per industry estimates, the annual demand for voluntary carbon credits globally is expected to reach around 1.5 gigatonnes, with India contributing around 200 million tonnes by 2030. A carbon credit market will go a long way towards incentivising actions for emissions reduction, leading to increased investments in clean energy and energy efficiency. A robust and efficient market for carbon credits would help businesses find reliable suppliers of carbon credit, which would be advantageous to both buyers and sellers and eventually, advance the transition to a low-carbon future. A carbon market would help Indian corporates become carbon neutral and support the decarbonisation of hard-to-abate sectors.