Daily News Analysis

India-Japan Joint Carbon Crediting Mechanism

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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.

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