The recent announcement by the power minister about the issuance of carbon market rules for India and the issuance of a draft carbon credit policy by the government in March this year, have brought back the carbon credits into the centre stage of discussions. The genesis of the Indian carbon market lies in India’s commitment at COP-26 (Conference of Parties) in Glasgow, 2021, to take steps to achieve the target of net zero emissions by 2070.
India’s existing schemes which resemble with the carbon market i.e. Perform Achieve Trade (PAT) and Renewable Energy Purchase Obligations (RPO) Scheme, despite being successful initially, have struggled with their own set of issues like oversupply, lack of fungibility with international markets, moderate targets and huge compliance cost etc.
These issues have led to an unstructured and unstable carbon market equivalent in India. In terms of the policy paper on Indian Carbon Market (ICM), approximately 56 lakhs of Renewable Energy Certificates (RECs) and 44 lakhs of Energy Saving Certificates (ESCerts) are currently unsold in the Indian market.
The draft carbon credit trading scheme has suggested structural changes to address these issues by Firstly, introducing a uniform metric for issuance of carbon credit certificates (CCCs) in terms of tonnes of CO2 equivalent, instead of tonnes of oil equivalent and megawatt-hours, to bring them at par with international market; Secondly, enabling voluntary participation by non-obligated entities to purchase CCCs, to deal with oversupply; and Thirdly, conversion of existing RECs and ESCs in to universally accepted CCCs over a period. In parallel, it also proposes implementation of an offset scheme applicable to all non-obligated entities, development of monitoring, reporting and verification guidelines, identifying a central registry and a central regulator, for smooth operationalization of the carbon market.
While these are laudable proposals, there are still a lot of wrinkles to be ironed out. Providing value to companies with an unsold inventory of ESCs and RECs is critical, but involving these in a carbon market by converting them in CCCs could be complex and may create confusion for the stakeholders. As an alternative, providing a greater share of free allowances