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Indian voluntary carbon Credit (VCC) market is growing exponentially

  • Published
    6th Oct, 2023

India’s lucrative carbon market is worth over 1.2 billion dollars. It will only grow as the crisis of climate change becomes more urgent and companies strive to attain net-zero emission goals.

  • In August last year, during a debate in the Parliament on the Amendments to the Energy Conservation Act, which proposed the creation of a domestic carbon market, has agreed that India would not allow any export of carbon credits until the nation meets its climate goals.
  • Under the Paris Agreement of 2015, India has pledged to reduce the emissions intensity of its GDP by 45 per cent by 2030, from the 2005 level.
  • These credits will have to be generated and bought by domestic industries.
  • However, recently, India’s power minister has announced at an event that the country was open to the export of carbon credits.

What are Carbon Credits?

  • Carbon credits were devised as a mechanism to reduce greenhouse gas emissions by creating a market in which companies can trade in emissions permits.
  • Under the system, companies get a set number of carbon credits, which decline over time.
  • They can sell any excess to another company.

India’s Carbon Market:

  • India has 1,451 projects registered or under various stages of consideration at the world’s two leading carbon registries.
  • Carbon credits issued to Indian entities are worth 11% of India’s annual greenhouse gas emissions in 2021.
  • Indian entities have already earned about 652 million dollars from carbon credits used to offset emissions.

What is Voluntary Carbon Market (VCM)?

  • The VCM gives companies, non-profit organizations, governments, and individuals the opportunity to buy and sell carbon offset credits.
  • A carbon offset is an instrument that represents the reduction of one metric tonne of carbon dioxide or GHG emissions.
  • Companies that are unable to reach their greenhouse gas (GHG) emission targets can purchase carbon offset credits by investing in environmental projects that can avoid, reduce, or remove carbon emissions.

Currently no centralized voluntary carbon credit market. Project developers can sell credits directly to buyers, through a broker or an exchange, or sell to a retailer who then resells to a buyer.=

Potential of VCC Derivatives in India:

  • The National Stock Exchange (NSE) of India, in its quest to become a multi-asset stock exchange, is actively exploring opportunities in the voluntary carbon credit (VCC) market.
  • The introduction of VCC derivatives can serve as a catalyst for sustainable investments by providing investors with a new avenue to participate in the carbon credit market.

How they can offset the Carbon Footprint?

  • Carbon credits create a monetary incentive for companies to reduce their carbon emissions.
  • Those that cannot easily reduce emissions can still operate, but at a higher financial cost.
  • Proponents of the carbon credit system say that it leads to measurable, verifiable emission reductions.

Global Guidelines:

  • The United Nations’ Intergovernmental Panel on Climate Change (IPCC) developed a carbon credit proposal to reduce worldwide carbon emissions in a 1997 agreement known as the Kyoto Protocol.
  • The agreement set binding emission reduction targets for the countries that signed it.
  • Another agreement, known as the Marrakesh Accords, spelled out the rules for how the system would work.
  • The Kyoto Protocol divided countries into industrialized and developing economies.
    • Industrialized countries, collectively called Annex 1, operated in their own emissions trading market.
    • If a country emitted less than its target amount of hydrocarbons, it could sell its surplus credits to countries that did not achieve its Kyoto level goals, through an Emissions Reduction Purchase Agreement (ERPA).
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