India-Japan Joint Carbon Crediting Mechanism

India and Japan are set to sign a Memorandum of Cooperation (MoC) to establish a Joint Crediting Mechanism (JCM) under the framework of Article 6.2 of the Paris Agreement. This mechanism will facilitate the sharing of emission reduction credits between the two countries.

Key Features

• Formation and Framework:
• Article 6.2 of the Paris Agreement: The JCM will operate under this article, which allows for international carbon markets to support the fulfillment of nationally determined contributions (NDCs).
• Robust Accounting: Article 6.2 emphasizes the importance of accurate accounting to prevent double counting of emission reductions.
• Governance Structure:
• Joint Committee: A committee will be established to create rules and guidelines for the JCM. This includes:
• Project Cycle Procedures: Guidelines for developing and managing projects.
• Methodologies: Standards for calculating and verifying emission reductions.
• Project Design Documents: Requirements for project proposals.
• Monitoring: Systems to track progress and verify results.
• Third-Party Designation: Accreditation of entities that will validate and verify projects.
• Credit Allocation:
• Emission Reduction Credits: Credits from the JCM will contribute to the NDCs of both India and Japan. The mechanism will ensure no double counting of emission reductions.
• International Mitigation Purposes: A portion of JCM credits can be used for international mitigation efforts beyond the bilateral agreement.
• Project Registration: Projects will be registered and verified before credits are allocated. The joint committee will decide on the credit allocation percentage.
• Tracking and Reporting:
• Registry System: Credits will be tracked through a structured registry system, ensuring transparency and accountability.
• Credit Allocation: Credits will be allocated to the registries of India and Japan and applied toward their respective NDCs.
• Support from Japan:
• Technology Transfer: Japan will assist with the transfer of relevant technologies to support the JCM.
• Finance and Capacity Building: Japan will provide financial support and capacity-building measures to facilitate the implementation of the JCM.

Significance

• Climate Action:
• Enhanced NDCs: The JCM will help both countries meet their climate goals more effectively by leveraging joint efforts in emission reductions.
• International Cooperation: It exemplifies international collaboration in the fight against climate change, setting a precedent for future bilateral and multilateral mechanisms.
• Economic and Technological Benefits:
• Technology Transfer: Access to advanced Japanese technologies will aid India in scaling up its climate actions.
• Financial Support: The financial assistance from Japan will support the development and implementation of emission reduction projects.
• Global Leadership:
• Paris Agreement Compliance: By establishing the JCM, India and Japan demonstrate leadership in adhering to international climate agreements and contributing to global climate goals.
• Model for Others: The mechanism could serve as a model for other countries seeking to collaborate on carbon markets and emission reduction efforts.

Understanding Carbon Markets

Overview of Carbon Markets

Carbon markets are mechanisms designed to put a price on carbon emissions. They facilitate the buying and selling of carbon credits or allowances, providing a financial incentive for reducing greenhouse gas (GHG) emissions.

• Carbon Credit: A tradable permit representing the reduction or removal of one tonne of CO2 or equivalent greenhouse gases from the atmosphere.
• Carbon Allowance: A cap set by governments or authorities specifying the maximum amount of emissions that can be generated. Entities must acquire allowances to cover their emissions.

Types of Carbon Markets

• Compliance Market:
• Regulation: Governed by national, regional, or international policies.
• Mechanism: Entities receive annual allowances equivalent to their emission limits. If emissions exceed this limit, additional allowances must be purchased from other entities with surplus credits.
• Pricing: Market forces determine the price of carbon through trading of allowances.
• Examples: The European Union Emission Trading System (EU ETS), California Cap-and-Trade Program.
• Voluntary Market:
• Decentralized: Operates independently of regulatory frameworks.
• Mechanism: Individuals and organizations buy carbon credits to offset their own GHG emissions. Credits are generated by activities that reduce or remove emissions, such as reforestation projects.
• Participants: Corporations, private individuals, and entities looking to voluntarily compensate for their emissions.
• Examples: Projects verified by standards like the Verified Carbon Standard (VCS) or Gold Standard.

Carbon Market in India

• Historical Context: India has been a significant player in the voluntary carbon market, issuing 35.94 million carbon credits from 2010 to mid-2022, accounting for nearly 17% of global voluntary carbon market credits.
• Current Policy: India is shifting focus from exporting carbon credits to developing a domestic carbon market. The aim is to boost internal trading and enhance the domestic market's growth.

Legislative Developments

• Energy Conservation (Amendment) Act, 2022:
• Objective: To establish a carbon market within India and promote the adoption of clean energy technologies.
• Key Provisions:
• Carbon Credit Trading Scheme: The Act empowers the central government to create a trading scheme for carbon credits.
• Issuance and Trading: Carbon credit certificates can be issued to compliant entities, which can then buy or sell these certificates.
• Focus: Enhancing the use of clean energy sources and developing a robust domestic carbon market.

Significance and Future Prospects

• Climate Goals: Carbon markets play a critical role in helping countries meet their climate targets by incentivizing emission reductions.
• Economic Opportunities: They provide financial opportunities for entities involved in emission reduction projects and can drive innovation in clean technologies.
• Domestic Market Development: By focusing on developing a domestic carbon market, India aims to strengthen its position in global climate initiatives and enhance its capability to manage emissions internally.

Challenges

• Regulatory Challenges: Developing a domestic market involves establishing robust regulations and ensuring compliance.
• Market Volatility: Prices and demand for carbon credits can be volatile, affecting market stability.
• Integration: Balancing the expansion of the domestic market with international commitments and ensuring effective integration with global carbon markets.