August 1 , 2022– Prime Minister Narendra Modi may launch a national carbon trading platform on 15 August asIndia presses ahead with its climate commitments, two people aware of the development said. The government may also come up with guidelines where carbon trading would be obligatory for some sectors.

Carbon markets are trading systems where credits are bought and sold, permitting an entity to emit a certain amount of greenhouse gases.

There are generally two types of carbon market—compliance and voluntary. The Centre’s move would make it a compliance market for some sectors, the people cited above said on the condition of anonymity.

The push for carbon markets comes when India aims to turn carbon-neutral by 2070. Several companies have announced energy transition and net-zero targets in line with the government’s plan. A formal carbon market will provide flexibility to businesses in hard-to-abate sectors to supplement their efforts with credits from the carbon market.

Queries sent to the Prime Minister’s Office, and the ministries of power and new and renewable energy remained unanswered till press time.

This comes against the backdrop of planned amendments to the Energy Conservation Act to mandate the use of clean energy, including green hydrogen, and to institute a regulatory framework for carbon trading.

After the bill provides a regulatory framework for carbon trading in India, the government will develop guidelines.

Santosh Singh, partner and managing director, climate and agri solutions at Intellecap, an advisory firm, said: “The PAT (perform, achieve and trade) scheme of the Bureau of Energy Efficiency (BEE) and the Renewable Energy Certificates (REC) mechanisms provide a good experience and basis for building the carbon market trading platform.”

 Sectors such as cement, steel, thermal power plants and fertilizers may be mandated for carbon trading on the platform, Singh added.

 PAT is a market-based mechanism to minimize specific energy consumption in energy-intensive industries. BEE provides specific energy consumption targets to energy-intensive industries (known as designated consumers) depending on their operational parameters.

Carbon markets have proven to be one of the most effective drivers of reducing emissions, offering the lowest-cost emission reductions. Incentives in the form of carbon credits against the deployment of clean technologies will lead to the private sector’s involvement in climate actions.

A recent Intellecap report said carbon credits would incentivize entities with low reduction costs to reduce emissions beyond their mandate.Trading in the carbon market could reduce the overall cost of emission reductions at the societal level in India, it said. A carbon market can enable India to participate effectively in an interlinked global carbon market.

It can spur innovation and finance clean projects from Indian MSMEs, which have huge scope for emission reduction. They can also provide greater liquidity to reduction certificates from India, encouraging greater reductions globally.

The Renewable Energy Certificate (REC) mechanism is a market-based instrument to promote renewable energy and facilitate compliance with renewable purchase obligations.

 RECs are traded in the Indian Energy Exchange and Power Exchange India Ltd at a price within the forbearance and floor price determined by the Central Electricity Regulatory Commission.