Context

• The focus on climate finance at COP29 is intensifying and a central issue under discussion is the carbon credits framework, especially as it relates to the tensions between developed and developing countries.
• As India strengthens its climate strategies, it has placed a major emphasis on establishing a domestic carbon market, updated in its Nationally Determined Contributions (NDCs) in 2023.
• However, to genuinely align this market with its climate and economic goals, India must draw from global lessons to ensure the carbon market’s integrity, efficiency, and fairness.

Carbon Credit Mechanism and India’s Initiatives

• Carbon Credit Mechanism
  • Carbon credits represent a quantifiable reduction in greenhouse gas emissions, which can then be bought, sold, or traded.
  • For a carbon market to function effectively and genuinely contribute to emissions reductions, the credibility of its carbon credits is paramount.
  • However, if these credits lack integrity, meaning they do not accurately reflect real, additional emissions reductions, the carbon market risks becoming a tool for greenwashing.
• India’s Initiatives
  • India updated its NDCs in 2023 to underline, among other things, the establishment of a domestic carbon market as a part of its climate strategy.
  • The Energy Conservation (Amendment) Act of 2022 provided a statutory mandate for such a Carbon Credit Trading Scheme (CCTS).
  • Through this, India aims to align its climate commitments under the Paris Agreement with broader economic goals.
  • Yet, for the market to truly support these objectives, it must be meticulously designed to ensure credibility, efficiency, and fairness.
  • From global experiences, India must incorporate pivotal lessons in its carbon market framework for long-term success.

 The Problems Associated with Carbon Credit Mechanism and How to Ensure the Integrity

• The Problem of Greenwashing and Additionality
  • Greenwashing
    • Globally, many voluntary carbon markets (VCM) have been plagued by greenwashing due to lax standards in credit generation.
    • In the forestry sector, for instance, some projects have been accused of overstating the environmental benefits of tree planting or preservation efforts.
    • The credibility of these projects is often undermined by inadequate verification of how much carbon is sequestered.
    • In India, similar issues have been raised about its own Green Credit Programme (GCP).
    • The government’s guidelines on tree plantation projects, for instance, have come under criticism for promoting non-scientific methods, potentially allowing credits to be issued for practices that may not have meaningful or long-term environmental benefits.
  • Additionality
    • One of the critical standards in a credible carbon market is additionality.
    • For a project to generate carbon credits, it must prove that the emissions reductions would not have occurred without the project—i.e., they go beyond a business-as-usual scenario.
    • Without strict additionality criteria, carbon credits may be awarded for activities that would have taken place anyway, undermining the legitimacy of emissions reductions.
• Key Measures to Strengthen Integrity
  • Stringent Verification Protocols
    • To address these challenges, India’s carbon credit system must adopt stringent verification protocols.
    • A robust national registry could serve as a central repository to track carbon credits issued in the country.
    • This registry would help prevent issues such as double-counting, where a single reduction is claimed by more than one entity, thus distorting the actual environmental impact.
    • Ensuring accurate tracking of credits is essential to maintain transparency and integrity, giving investors and other stakeholders confidence in the market.
  • Learning from International Best Practices
    • To further enhance the integrity of its carbon market, India can look to international standards set by organisations such as the International Emissions Trading Association (IETA) and the Gold Standard.
    • The Gold Standard, for example, has stringent requirements for additionality, permanence, and sustainability, aiming to ensure that all credits generated are credible and contribute to real climate benefits.
    • Emulating such best practices would help India align its market with global expectations, which is crucial for integrating its carbon credits into the broader international trading framework.

Some Other Necessary Measures for India in its Carbon Market Framework for Long-Term Success and Integrity

• Alignment with Global Standards
  • Smooth Integration
    • India’s carbon market framework also needs to integrate smoothly with international standards, particularly under Article 6 of the Paris Agreement.
    • Article 6.2 of this agreement allows countries to reach climate targets through Internationally Transferred Mitigation Outcomes (ITMOs), making compliance essential for participating nations.
    • The rulebook for Article 6, finalised at COP26 in Glasgow, provides guidelines for carbon trading while maintaining environmental integrity.
  • Prevention of Double-Counting Mechanisms
    • For India, adopting mechanisms to prevent double-counting is essential to uphold the credibility of global emissions reduction efforts.
    • Incorporating transparent systems for tracking emissions reductions and carbon credit transfers can help India harmonise its market with international standards.
    • By doing so, India can not only contribute to global emissions reductions but also protect its national interests.
• Transparency and Disclosure
  • Transparency is vital for compliance with global standards and for instilling confidence in India’s carbon market.
  • Detailed disclosures about carbon reduction techniques, project benchmarks, and third-party verification reports should be readily accessible on a centralized platform.
  • This approach would ensure that projects meet stringent additionality criteria, reflecting genuine emissions reductions.
  • Regular audits and oversight by independent auditors, certified by India’s Bureau of Energy Efficiency (BEE), would further verify the sustainability of these projects.
• Real-Time Tracking of Credit Transactions
  • Additionally, real-time tracking of credit transactions could improve accountability and provide insights into the environmental impact of each project.
  • The Voluntary Carbon Markets Integrity Initiative (VCMI) framework offers a tiered system for companies to assess their carbon credit claims, aiming to boost transparency in the market.
  • However, implementing such a framework may pose challenges for India’s CCTS initiatives due to transparency concerns and the high costs of establishing monitoring, reporting, and verification systems, potentially discouraging smaller projects from participating initially.

Conclusion

• India’s carbon credit market is in its initial stage, and its success depends on stringent enforcement and alignment with both international and domestic realities.
• By prioritising transparency and maintaining rigorous standards of integrity, India can lay the foundation for a robust carbon market.
• Such a market would not only advance India’s climate finance goals but also support its broader sustainable development objectives.