What’s in Today’s Article?

• About Carbon Credit (Meaning, Mechanism, Types, Benefits, Challenges, etc.)
• News Summary

What is a Carbon Credit?

• A carbon credit represents a permit or certificate granting its holder the right to emit one tonne of carbon dioxide (CO2) or an equivalent amount of another GHG.
• These credits are generated through activities that reduce emissions or remove CO2 from the atmosphere, such as:
  • Renewable energy projects like wind or solar farms
  • Energy efficiency initiatives
  • Reforestation or afforestation projects
  • Methane capture at landfills or industrial sites

How the Carbon Credit Mechanism Works?

• Setting Emission Caps: Governments or regulatory bodies establish emission caps for industries or companies.
  • Organizations emitting less than their allowed quota can sell their surplus as carbon credits.
  • Those exceeding their limits must buy additional credits to comply with regulations.
• Generating Carbon Credits: Credits are issued to projects that demonstrate measurable and verifiable GHG reductions.
  • Certification is typically provided by international bodies such as the Verified Carbon Standard (VCS) or the Gold Standard.
• Trading Carbon Credits: Carbon credits are traded on platforms such as the European Union Emissions Trading System (EU ETS) or voluntary markets.
  • This trade creates a financial incentive for emission reduction.
• Offsetting Emissions: Organizations can purchase credits to offset their emissions and achieve carbon neutrality.

Types of Carbon Credit Markets:

• Compliance Market: Operates under legally binding frameworks, such as the Kyoto Protocol or the Paris Agreement. Companies are mandated to adhere to emission caps.
• Voluntary Market: Allows companies, individuals, or organizations to purchase credits voluntarily to meet corporate social responsibility (CSR) goals or personal commitments to sustainability.

Benefits of the Carbon Credit Mechanism:

• Environmental Impact: Encourages adoption of cleaner technologies and sustainable practices.
• Economic Incentives: Rewards projects that actively reduce emissions, fostering innovation.
• Flexibility: Provides industries with cost-effective options to comply with emission targets.
• Global Collaboration: Facilitates cooperation across countries, addressing climate change on a global scale.

Challenges and Criticisms:

• Verification and Accountability: Ensuring that carbon credits represent genuine and measurable emission reductions can be complex.
• Market Volatility: Prices for carbon credits can fluctuate, affecting market stability.
• Greenwashing: Companies may misuse credits to appear environmentally responsible without making substantive changes.
• Inequitable Access: Developing countries may face challenges in accessing the resources needed to generate credits.

Carbon Credits in the Indian Context:

• India, as a developing economy, has significant potential in the carbon credit market:
  • Renewable Energy: India’s focus on solar, wind, and hydropower projects aligns with carbon credit generation.
  • Afforestation: Programs like the National Afforestation Programme can contribute to offsetting emissions.
  • Export Potential: Indian companies can sell surplus carbon credits on international markets, generating revenue.
  • Government Initiatives: Policies such as the Perform, Achieve, and Trade (PAT) scheme encourage energy efficiency and the creation of carbon assets.

News Summary:

• A new study published in the journal Nature has highlighted the ineffectiveness of carbon trading mechanisms in achieving meaningful emission reductions.
• The study, conducted by researchers from European and American institutions, reviewed thousands of projects responsible for generating carbon credits equivalent to one billion tonnes of carbon dioxide.
• It found that only 16% of these credits corresponded to actual emission reductions.
• Key Findings:
  • Kyoto Protocol Mechanisms:
    • The majority of credits studied were created under the Kyoto Protocol, the predecessor to the Paris Agreement. These mechanisms, now defunct, have long faced criticism for their lack of integrity.
  • Effectiveness by Project Type:
    • Projects focused on the abatement of HFC-23 chemicals were found to be the most effective, with 68% of the credits leading to genuine reductions.
  • The study emphasized the importance of "additionality" in carbon crediting—ensuring that emission reductions would not have occurred without the revenue from carbon credits.
  • However, many existing approaches to assess additionality have led to non-additional projects being registered.
• Recommendations:
• Researchers suggest tightening eligibility for carbon credit projects to those with a high likelihood of additionality and robust financial reliance on carbon credit revenues.
• Standards and methodologies for quantifying emission reductions also need significant improvements to ensure credibility.
• Developments Under the Paris Agreement:
  • The carbon market mechanism remains the final element of the 2015 Paris Agreement yet to be fully operationalized.
  • New, more stringent frameworks for carbon trade are being designed to address the flaws of the Kyoto-era mechanisms.
• Two Mechanisms Under Development:
  • Bilateral Country-Level Trade: Countries exceeding their emission reduction targets can sell credits to others through negotiated agreements.
  • International Carbon Market: Open to multiple participants, with institutions being established to regulate, verify, and authenticate the trade of credits.
• Progress at COP29:
  • At the ongoing COP29 meeting in Baku, two key rules for carbon markets were approved on the opening day, but substantial work remains.
  • These new mechanisms aim to ensure the integrity of carbon credits and enhance their role in combating climate change.