NEW DELHI: A carbon market simulation study, implemented in 2020-21, included 21 large Indian businesses, representing about 10 per cent of India's industry emissions, and all elements of a carbon market demonstrated a 28 per cent reduction in the total cost of emissions reductions.
The findings from the report on the study were shared at the Business 20 (B20)-Think20 (T20) convening in Mumbai on Wednesday.
B20 and T20 are the official engagement groups of the G20. Led by the World Resources Institute (WRI) India, this study draws on 15 years of international experience with carbon markets and 10 years of domestic experience with MBMs; consultations with large Indian businesses to understand the needs, challenges, and perspectives of the Indian industry; and a first-of-its-kind simulation of a carbon market.
According to the World Bank (2021), carbon markets now cover 16 per cent of global emissions.
A carbon market that covers India's industrial sector and sets targets aligned with the average ambition level of the existing voluntary commitments by the Indian corporate sector has the potential to reduce the emissions intensity of GDP by an additional 5.6 per cent in 2030 compared to a current policy scenario, which is equivalent to a cumulative reduction of 1.3 billion metric tons of carbon dioxide equivalent (MMTCO2e) between 2022 and 2030.
At COP26, India announced its ambition of reducing the emission intensity per unit GDP by 45 per cent by 2030 and achieving net zero by 2070.
India also announced that it aims to reduce 1 billion metric tonnes of carbon emissions by 2030.
"With a carbon market, India has at its disposal an instrument that can provide the right policy and price signals to incentivise deep decarbonization from the industry sector while ensuring global competitiveness.
"Our analysis shows that a well-designed carbon market can potentially also reduce costs of emissions reductions and mobilize finance needed for decarbonization of MSME sector," said Ashwini Hingne, Senior Manager, WRI India, who led the research study.
The Bureau of Energy Efficiency will administer India's carbon trading framework, which is getting ready for its rollout.
Speaking at the event, Abhay Bakre, Director General, Bureau of Energy Efficiency, said, "As economies mature, if aggressive efforts to mitigate emissions are to be achieved, carbon markets are one of the most cost-effective tools to do that. To build a very robust framework for carbon market in India, some very effective amendments to the Energy Conservation Act were made and several stakeholder consultations were held in parallel.
"We will make sure the Indian market is on a par with the international standards. We are also building a pool of verifiers and a robust electronic platform to register projects, manage credits, etc., and this will build better confidence among industries. By 2030, the Indian carbon market will be the leading market in the world. It will ensure that this market assists the industry in driving decarbonisation effort while driving the cost of technologies down."
In December last, the Parliament passed the Energy Conservation (Amendment) Bill, 2022.
The Bill amended the Energy Conservation Act, 2001, to empower the government to establish carbon markets and specify a carbon credit trading scheme.
On February 17, the government announced a list of 13 activities that will be considered for trading of carbon credits under Article 6.2 mechanism to facilitate transfer of emerging technologies and mobilize international finance in India.
By implementing domestic market-based mechanisms to promote energy efficiency and renewable energy over the last decade, namely, the Perform, Achieve, Trade (PAT) and Renewable Energy Certificate (REC) schemes, respectively, India has been able to create some institutional capacity for operationalising MBMs.
This provides a good starting point for implementing a carbon market.
Ravi Pandit, Chairman and Co-founder, KPIT Technologies, said, "Industries are at the opportune time to lead the way to the decarbonisation efforts. Carbon trading is efficient and effective way of reducing emissions. Our study shows that the cost of mitigation comes down by approximately 28 per cent. It is important to focus on the design, management, and capacity building."
A national carbon market in India linked to well-established markets such as the European Union Emissions Trading Scheme (EU ETS), where marginal emissions abatement costs could be higher, can create international demand for emission reduction units from the Indian market.
"India's carbon market can give businesses a clear policy signal to shift investments toward low carbon technology. This should also be accompanied by an emissions reporting program and targeted capacity building to prepare Indian industry," said Ulka Kelkar, Director of the Climate Program at WRI India.
Reflecting on the need for international uniformity as countries announce their own carbon markets, Riza Suarga, Chairman, Indonesia Carbon Trade Association, said, "Indonesia is planning to release a carbon exchange by mid this year. Indonesia also plans to conduct cross-sectoral carbon trading. Going ahead, aligning with the philosophy of Mahatma Gandhi of One Earth, One Family, One Future, it's important to harmonise the procedures and standards and focus on implementing Article 6."
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