Carbon Market

DEC 22

Preliminary   > Environment and Ecology   >   Global warming   >   Climate change

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.


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