Giving shape to India’s carbon credit mechanism

• As the Conference of Parties (COP29) convenes in Baku, Azerbaijan, from November 11-22, 2024, climate finance and carbon credit frameworks have become focal points of global discussion.
• India's domestic Carbon Credit Trading Scheme (CCTS), a key component of its climate strategy under the Energy Conservation (Amendment) Act, 2022, is at the forefront of these deliberations. With a renewed commitment to its Nationally Determined Contributions (NDCs) in 2023, India seeks to align its economic goals with climate obligations under the Paris Agreement.
• However, for the carbon market to achieve its objectives, it must overcome challenges related to integrity, transparency, and global alignment.

Key Challenges in India’s Carbon Market

1. Ensuring Integrity of Carbon Credits

• Issue of Greenwashing:
  • Global voluntary carbon markets (VCM) have faced criticism for overestimating project benefits, particularly in the forestry sector. India’s Green Credit Programme (GCP), which encourages non-scientific tree plantations, has been criticized for similar risks.
  • Concerns around “additionality”—ensuring that emission reductions exceed business-as-usual scenarios—are prevalent.
• Proposed Solutions:
  • Establish a national carbon credit registry to track credits and prevent double-counting.
  • Employ independent third-party verifiers to assess the additionality and permanence of projects.
  • Adopt global best practices from standards like IETA or Gold Standard to build investor confidence.

2. Alignment with Global Standards

• Article 6 of the Paris Agreement:
  • Article 6.2 enables nations to trade Internationally Transferred Mitigation Outcomes (ITMOs), making compliance critical for participation.
  • The COP26 rulebook mandates stringent safeguards to prevent double-counting and maintain credibility in global emission reduction efforts.
• India’s Approach:
  • Integrate mechanisms to account for emissions reductions and ensure credit transfers meet global standards.
  • Balance international cooperation with domestic priorities, emphasizing national sovereignty in carbon market operations.

3. Transparency and Disclosure

• Lack of Public Accountability:
  • Absence of clear and accessible project data can undermine market confidence.
  • High costs of Monitoring, Reporting, and Verification (MRV) systems may deter smaller projects.

Proposed Measures:

• Centralized platforms to disclose project details, methodologies, benchmarks, and verification reports.
• Regular audits by independent auditors, potentially overseen by the Bureau of Energy Efficiency (BEE).
• Real-time tracking of credit transactions to ensure credibility and transparency.

Learning from Global Practices:

• Voluntary Carbon Markets Integrity Initiative (VCMI):
• Introduced a tiered system for companies to assess carbon credit claims, aiming to increase transparency and credibility.

World Bank Guidelines:

• Emphasized the importance of maintaining environmental integrity to prevent “low-quality” credits from diluting the market.
• Highlighted the role of robust governance and verification systems under Article 6 mechanisms.

Opportunities for India

Climate Finance Aspiration:

• A credible carbon market can attract both domestic and international investments, boosting India’s climate finance pool.
• Aligning with global frameworks enhances India’s role in international climate negotiations.

Economic Growth:

• By integrating carbon markets into its broader economic strategy, India can simultaneously foster sustainable development and climate resilience.

Leadership in the Global South:

• As a leading voice among developing nations, India can advocate for equitable carbon credit frameworks that address the unique challenges of vulnerable countries.

Conclusion:

• India’s domestic carbon credit market holds significant promise but must be meticulously designed to address issues of integrity, transparency, and global alignment. By adopting stringent verification protocols, aligning with international standards, and fostering transparency, India can develop a robust carbon market.
• At COP29, India’s proactive engagement in the climate finance dialogue could shape its future trajectory in both domestic and international arenas.