By Sandeep Agrawal, Director and Founder, Teamlease Regtech
As India embarks on its journey to become the third-largest economy by 2030, it is important to decouple this progress from harmful carbon emissions. India is the world’s third largest emitter of greenhouse gases after China and the US. In this context, the Prime Minister has taken the Panchamrit Pledge, comprising multiple targets to be achieved by 2030, with the aim of making India carbon-neutral by 2070.
A well-regulated carbon credit market is key to driving meaningful progress towards carbon neutrality. The Central Electricity Regulatory Commission’s (CERC) proposed regulations for Carbon Credit Certificates represent a critical step in formalising this market and ensuring transparency, accountability and consistency in India’s fight against climate change. The objective of CERC’s draft Terms and Conditions for Purchase and Sale of Carbon Credit Certificates Regulations, 2024 is to create a framework for the exchange of carbon credit certificates (CCCs) for obligated and the non-obligated entities on power exchanges.
As per the regulations, the Grid Controller of India shall work as a registry for the exchange of CCCs, and shall establish the necessary framework for this in accordance with Section 6 of the Carbon Credits Trading Scheme, 2023, with amendments as required. The functions of the Registry are to comply with the occasional directions issued by the Bureau, undertake registration of obligated or non-obligated entities, maintain a database protected with all security protocols, and function as a meta-registry for India, among others.
The Bureau of Energy Efficiency (BEE) will act as an administrator for CCCs. The Bureau, after the required consultations and approvals, shall formulate procedures for interface activities between power exchanges and the registry, the administrator and the registry, and the registry and entities; for registration of entities with the registry; and for dealing, transfer and other residual matters in relation to CCCs.
BEE shall assist CERC in matters related to transaction of CCCs on power exchanges, while also disseminating relevant information to all stakeholders. BEE is also responsible for providing relevant information about entities to the registry, and for checking adherence to compliance requirements under the Environment Protection Act, 1986 and the Energy Conservation Act, 2001. Additionally, it must notify the registry of any CCC expirations and coordinate with power exchanges and the registry to maintain a smooth interface for trading. BEE may also be assigned other responsibilities under the regulations to further streamline the CCC trading framework.
A CCC can only be dealt with through power exchanges, unless CERC permits otherwise. There will be two market segments in the power exchange: a compliance market for obligated entities, and an offset market for non-obligated entities.
To trade in CCCs, both entities must register themselves with a power exchange, and their CCCs can then be placed for trading in accordance with the power exchange’s rules. Transactions on power exchanges will take place either on a monthly basis or as per the approved periodicity, while also complying with the Energy Conservation Act, 2001; the Environment Protection Act, 1986; and relevant regulations.
Power exchanges will need prior approval from CERC with respect to their rules, including eligibility criteria, price discovery mechanism, and process interactions between the power exchange and registry. The registry must ensure that the total sales bids placed by an entity across all power exchanges does not exceed the available CCCs in the entity’s account. If an entity places sale bids in excess of the CCCs held in their registry account, it will be marked as a defaulter, making the bids invalid. Power exchanges will send reports on executed transactions, financial obligations and other relevant data to the relevant entities after every transaction.
CERC, along with BEE, oversees the power exchanges to ensure compliance with the Power Market Regulations. CERC also has the power to relax any of these regulations on its own or based on an application made by an affected party, with the reasons being recorded in writing and an opportunity for a hearing given to parties likely to be affected by the relaxation.
The price of the certificates will be determined as per the bidding process at each power exchange. CCCs will be exchanged between a set minimum and maximum price range, as approved by CERC based on a BEE proposal.
These regulations will help standardise the generation and approval of CCCs, provide price stability, promote investment in clean energy and drive India closer to its climate goals. This regulatory framework will be a pivotal tool in India’s fight against climate change and its transition towards a greener economy by incentivising the reduction of
GHG emissions.