India’s Carbon Emissions Trading System

The Ministry of Environment, Forest and Climate Change (MoEFCC) has made a significant stride in India’s climate strategy by setting up the National Designated Authority (NDA) to implement a carbon emissions trading system under Article 6 of the Paris Agreement (2015). This marks a key step in India’s efforts to meet its Nationally Determined Contributions (NDCs).

Article 6 of the Paris Agreement (2015)

Article 6 provides a framework for international carbon markets and non-market approaches to promote global cooperation in addressing climate change. It allows countries to trade carbon credits, facilitating the transfer of finance and technology to developing nations.

• It was finalized at COP29 in Baku (2024), making international carbon markets a key tool for reducing emissions and funding climate action in developing countries.

India’s Nationally Determined Contributions (NDCs)

Under the Paris Agreement, India has committed to the following ambitious goals by 2030:

1. Reduce carbon intensity of GDP by 45% from 2005 levels.

2. Achieve 50% of cumulative electricity capacity from non-fossil sources.

3. Create an additional carbon sink of 2.5-3 billion tonnes of CO₂ equivalent through afforestation and reforestation.

What is the National Designated Authority (NDA)?

The National Designated Authority (NDA) is a pivotal body responsible for implementing carbon markets and helping India meet its climate targets.

Role & Composition:

• Headed by the Secretary of the Ministry of Environment, the NDA is a 21-member committee.

• It includes representatives from key ministries like External Affairs, Renewable Energy, NITI Aayog, and the Steel Ministry.

Key Functions of the NDA:

1. Project Approval: The NDA will recommend and approve projects eligible for carbon credit trading under Article 6.4 of the Paris Agreement.

2. Carbon Credit Authorization: It will authorize the issuance of emission reduction units (ERUs) and ensure projects align with India’s Sustainable Development Goals (SDGs).

3. Climate Goal Alignment: The NDA will ensure that these projects contribute to India’s NDCs, particularly the goal to reduce carbon emissions intensity by 45% by 2030.

What are Carbon Markets?

Carbon markets facilitate trading of carbon credits where each credit represents the reduction, avoidance, or sequestration of one ton of CO₂ or greenhouse gas (GHG) emissions.

How do they work?

• Participants: Countries, businesses, and industries buy carbon credits to offset their emissions.

• Incentives: The market incentivizes companies and governments to invest in sustainable projects and reduce emissions, fostering international cooperation.

Types of Carbon Markets:

1. Compliance Markets:

   • Legally binding markets created under frameworks like Emissions Trading Schemes (ETS).

   • Penalties for non-compliance.

   • Examples: EU ETS (2005), China ETS (2021).

2. Voluntary Carbon Markets (VCMs):

   • Operate outside mandatory regulations, driven by voluntary demand.

   • Participants include companies pursuing ESG goals, individuals offsetting their carbon footprints, and traders for resale profit.

India’s Carbon Market:

India is transitioning to a market-based carbon trading system to reduce its carbon emissions. Here's how the process is evolving:

Transition to Market-Based Mechanisms:

• In July 2024, India adopted a Carbon Credit Trading Scheme (CCTS) that emphasizes emission intensity rather than setting absolute emission caps.

• Credit certificates will be issued to facilities that outperform benchmark emission intensity levels.

Institutional & Policy Support:

• National Steering Committee for the Indian Carbon Market (NSCICM): This committee will guide the design and implementation of the carbon market.

• Mission LiFE (Lifestyle for Environment): Promotes sustainable lifestyles to reduce carbon footprints.

• Green Credit Program: Encourages participation from individuals and the private sector in emission-reduction projects.

Incentives for Industries:

• The government is incentivizing industries to adopt low-carbon technologies, making it easier for them to participate in the carbon market and reduce emissions.

Significance of India’s Carbon Market

1. Alignment with Paris Agreement: The carbon trading system positions India to meet its NDC commitments under the Paris Agreement, supporting its goal to reduce emissions intensity by 45% by 2030.

2. Economic Incentives: By adopting market-based mechanisms, the carbon market will encourage private sector innovation while enabling industries to manage compliance costs.

3. Support for Net Zero: The carbon market will play a key role in helping India achieve its Net Zero 2070 commitment by scaling up market-driven climate action.

Conclusion

India’s establishment of the National Designated Authority (NDA) for implementing a carbon emissions trading system is a crucial step in meeting its Paris Agreement commitments. The move toward a carbon credit trading system aligns with India’s climate goals, including the reduction of carbon emissions intensity and the expansion of renewable energy. With the NDA overseeing projects, India is positioning itself to leverage carbon markets as both a tool for sustainable development and a driver of economic growth in a low-carbon future