Establishing a Carbon Market

In her recent Budget speech, the Finance Minister of India announced a shift for polluting industries such as iron, steel, and aluminium from energy efficiency targets to emissions targets. This change aims to address climate change more effectively by introducing a carbon market system. The shift reflects India's commitment to reducing carbon emissions while balancing development priorities.

PAT vs. Emissions Trading

• PAT Scheme Overview: The Perform, Achieve, and Trade (PAT) scheme focuses on reducing specific energy consumption in energy-intensive industries, where firms can trade energy efficiency credits. It sets standards based on relative energy efficiency, not absolute emissions.
• Emissions Trading Explanation: Emissions trading, or cap and trade, sets absolute emission caps for industries, providing economic incentives for reducing emissions. Unlike PAT, it does not focus on energy efficiency but on meeting specific emission ceilings.
• India’s Transition Plan: India plans to transition from the PAT scheme to an emissions trading system as part of its climate strategy. This shift aims to establish stricter emission controls and align with international climate commitments.

Historical Context and International Commitments

• India’s Decarbonisation Efforts: India has actively worked on decarbonising its sectors through mechanisms like the Clean Development Mechanism and the PAT scheme. These efforts include substantial contributions to the global carbon market.
• Net Zero Emissions Goal: India aims for net zero emissions by 2050, with significant contributions from iron and steel industries, which are major climate change contributors. However, the current progress towards this target remains insufficient.
• Nationally Determined Contributions (NDCs): India’s NDCs include targets to reduce emission intensity and increase non-fossil fuel energy capacity. These targets guide the country's climate actions and the development of its carbon market.

Carbon Market Implementation

• Proposed Carbon Market Mechanisms: The Bureau of Energy Efficiency’s draft blueprint outlines two phases: a voluntary market with a carbon offset mechanism, followed by a mandatory compliance market with carbon credits trading from 2026.
• Sector Inclusion: The domestic carbon market will include major sectors like iron and steel, petrochemicals, chemicals, and aluminium. This inclusion aims to cover significant sources of emissions.
• Balancing Climate and Development: India’s carbon market strategy reflects a balance between addressing climate change and meeting development needs. It aims to integrate climate goals within the broader socioeconomic context of the country.

Practice Question

Analyze the implications of India’s transition from the Perform, Achieve, and Trade (PAT) scheme to a carbon market system for managing emissions in energy-intensive industries. How does this transition align with India’s Nationally Determined Contributions (NDCs) and broader climate goals?"