India’s Carbon Credit Trading Scheme 2023 – How is the industry reacting to it

The government has taken a step towards reducing greenhouse gas emissions and promoting sustainability by launching the Carbon Credit Trading Scheme 2023. This scheme assigns a value, known as a carbon credit, to every ton of carbon dioxide equivalent (tCO2e) reduced or avoided, providing a structured framework for the country’s carbon market.

Under the new scheme, industries will play a major role in contributing to India’s emission reduction goals. The Ministry of Power will establish designated consumers, including numerous energy-intensive industries, and assign them carbon emissions targets to meet. Previously, these targets were in the form of energy efficiency goals.

To ensure seamless market functioning, a National Steering Committee will recommend procedures, rules, and emission targets. The Bureau of Energy Efficiency, as the Administrator, will identify sectors for emission reduction and issue carbon credit certificates based on recommendations from accredited verification agencies.

Transparent trading will be facilitated through a secure registry operated by the Grid Controller of India Ltd. The Central Electricity Regulatory Commission will regulate trading activities, safeguarding interests and overseeing market operations.

The Bureau will recommend greenhouse gas emission targets for obligated entities, while the Ministry of Power will notify the targets. Obligated entities exceeding their targets will receive carbon credit certificates, whereas entities failing to meet their targets will be required to purchase carbon credit certificates to cover their deficit or pay a defined penalty.

“This scheme will compel businesses to consider environmental impact as a critical parameter in strategic decision-making. Companies will vigorously invest in areas that facilitate transitioning from current practices to a future state aligned with a lower carbon footprint. Penalties and incentives will drive this transformation,” Atanu Mukherjee, CEO of Dastur Energy, a company in decarbonization space, told ETEnergyworld.

Commenting on the scheme, Manish Dabkara, Chairman and MD of EKI Energy Services, likened it to the present energy efficiency-related Perform, Achieve, and Trade (PAT) regulation, expecting significant changes in compliance requirements and market dynamics.

Dabkara raised concerns regarding optimal pricing for offsets in the compliance market, a critical factor for supporting long-term investments in energy-efficient processes and technologies. Also, aligning the Indian registry’s verification and certification modalities with international standards is crucial for international recognition and compliance with Carbon Border Adjustment Mechanism (CBAM) regulations.

Pratap Choudhury, GM (Production) – Carbon Management and Sustainability Group at oil and gas explorer ONGC, supported these concerns about the lack of standardization, integrity, and transparency in the voluntary carbon market. He said: “Without clear and consistent standards for carbon credits, companies struggle to ascertain if they are genuinely reducing their emissions.”

ONGC, recording emissions totaling 8.9 MMTCO2e in 2022-23, has set a Net Zero roadmap with the aim of achieving net-zero carbon emissions by 2038. The company plans to invest INR 1 lakh crore by 2030 to support these efforts. Despite the challenges, Choudhury noted that the voluntary carbon offset market is projected to grow from $2 billion in 2020 to an estimated $250 billion by 2050.