Carbon Market

Why in news?

• Parliament passed the Energy Conservation (Amendment) Bill, 2022.
• The Bill amends the Energy Conservation Act, 2001 to empower the Government to establish carbon markets in India and specify a carbon credit trading scheme.

About Carbon Market:

• Carbon Markets and Carbon Credits are components of emissions trading, a market-based approach to to reduce the concentration of Greenhouse gases (GHG) in the atmosphere.
• It works by providing economic incentives for reducing the emissions of the designated pollutants.
• A carbon market allows investors and corporations to trade both carbon credits and carbon offsets simultaneously.
• Carbon credits (or allowances) work like permission slips for emissions. When a company buys a carbon credit, they gain permission to generate more CO2 emissions.
• One tradable carbon credit equals one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas reduced, sequestered or avoided.
• Credits are measured against ‘benchmarks’ or allowed GHG emissions.
  • If emissions are below the allowed limit, the emitter earns carbon credits (reducing 1 tonne of CO2 earns 1 carbon credit).
  • If emissions are above the allowed limit, the emitter must buy carbon credits from those who have excess credits.
  • Thus, crossing the emissions limit imposes a cost (amount spent on purchase of carbon credits) on the emitter.
• The cost will force the emitters to be more efficient and reduce emission.

Types of carbon markets:

• Voluntary markets:
  • It is a decentralized market in which emitters— corporations, private individuals, and others— voluntarily buy and sell carbon credits that represent certified removals or reductions of greenhouse gases (GHGs) in the atmosphere.
  • For instance, in the aviation sector, airlines may purchase carbon credits to offset the carbon footprints of the flights they operate.
• Compliance Carbon Market:
  • It is used by companies and governments that by law have to account for their GHG emissions. It is regulated by mandatory national, regional or international carbon reduction regimes.
  • Today, compliance markets mostly operate under a principle called ‘cap-and-trade”, most popular in the European Union (EU).

Paris Agreement and carbon market:

• Article 6 of the Paris Agreement provides for the use of international carbon markets by countries to fulfil their NDCs.
• But this article is yet to kick off as multilateral discussions are still underway about how the inter-country carbon market will function.
• Under the proposed market, countries would be able to offset their emissions by buying credits generated by greenhouse gas-reducing projects in other countries.

Energy Conservation (Amendment) Bill, 2022 on carbon market:

• The Bill empowers the Centre to specify a carbon credits trading scheme.
• Under the Bill, the central government or an authorized agency will issue carbon credit certificates to companies or even individuals registered and compliant with the scheme.
• These carbon credit certificates will be tradeable in nature. Other persons would be able to buy carbon credit certificates on a voluntary basis.

PRACTICE QUESTION

With reference to ‘Energy Conservation (Amendment) Bill, 2022’, consider the following statements:

1. It empowers the State Governments to specify a carbon credits trading scheme

2. Carbon credit certificates under this bill will be tradeable in nature

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer