Syllabus
GS Paper 3 – Conservation, environmental pollution and degradation, environmental impact assessment.
Context
A well-designed carbon market could play a significant role in India’s journey towards a low-carbon economy.
Source
The Hindu| Editorial dated 29th August 2024
Establishing a carbon market
India’s efforts to mitigate climate change and reduce greenhouse gas emissions are evolving to include more market-based mechanisms like a carbon market. A carbon market can provide economic incentives for reducing emissions by allowing industries to trade emission credits, aligning with global climate goals while addressing domestic development needs.
India’s Climate Change Commitments
- Nationally Determined Contributions (NDCs): As part of the Paris Agreement , India has committed to reducing the emissions intensity of its GDP by 45% below 2005 levels by 2030 and to achieving about 50% of its cumulative electric power installed capacity from non-fossil fuel-based energy sources by 2030, subject to international support.
- Decarbonisation Efforts: India’s climate strategy includes a comprehensive set of policies aimed at decarbonising its economy while addressing its developmental needs.
- This includes enhancing energy efficiency, increasing renewable energy capacity, and participating in international climate mechanisms like the Clean Development Mechanism (CDM).
- Net Zero Target: India has set a target to achieve net zero emissions by 2070. This involves substantial efforts to reduce emissions across all sectors, including energy, industry, agriculture, and transportation
Perform, Achieve, and Trade (PAT) Scheme
- Overview of PAT Scheme: Launched in 2012 under the National Mission for Enhanced Energy Efficiency (NMEEE), the PAT scheme is a market-based mechanism that aims to improve energy efficiency in energy-intensive industries.
- Industries that exceed their energy efficiency targets can trade their surplus credits with other companies.
- Focus on Energy Efficiency: The PAT scheme targets specific sectors, such as iron and steel, cement, and power generation, to reduce their energy consumption relative to production output.
- It does not impose absolute emission reduction targets but promotes relative energy efficiency improvements.
- Achievements and Limitations: While the PAT scheme has successfully incentivised energy efficiency improvements, it has limitations. It does not directly address carbon emissions and focuses only on energy intensity, which may not fully capture the broader objectives of climate mitigation.
Challenges in Establishing a Carbon Market
- Diverse Industrial Landscape: India’s industrial sector is highly diverse, with varying levels of technological advancement and energy efficiency.
- This makes it challenging to design a uniform carbon market that accounts for the different capabilities and baselines of industries.
- Regulatory and Compliance Issues: Establishing a carbon market requires a robust regulatory framework and enforcement mechanisms.
- Ensuring compliance and preventing market manipulation or fraud is a significant challenge, especially in a developing economy like India.
- Lack of Data and Monitoring: Accurate data on emissions and energy use is critical for the effective functioning of a carbon market.
- India currently faces challenges in data collection, monitoring, and reporting, which can hinder the implementation of a transparent and reliable carbon market.
- Balancing Economic Growth and Emission Reductions: India must balance its economic growth aspirations with the need to reduce carbon emissions.
- A stringent carbon market could potentially impact industrial growth and employment, making it essential to design a system that supports both environmental and economic goals.
Blueprint for India’s Carbon Market
- Phased Approach: India plans to implement a carbon market in phases, starting with a voluntary market supported by a domestic project-based offset scheme. This will be followed by a compliance market with mandatory participation for regulated entities.
- Focus on High-Emission Sectors: The initial phase will target high-emission sectors like iron and steel, cement, and aluminium, gradually expanding to include other sectors. This phased approach allows for a gradual transition and provides industries with time to adapt.
- Integration with Existing Mechanisms: The carbon market will integrate with existing mechanisms like the PAT scheme and renewable energy certificates. This will help create a more comprehensive and cohesive climate policy framework, leveraging existing strengths while addressing current gaps.
- Regulatory Framework: Developing a robust regulatory framework is essential for the success of India’s carbon market. This includes setting clear rules for emissions measurement, verification, reporting, and trading, as well as ensuring transparency and accountability.
Way Forward
- Strengthening Institutional Capacity: Building the capacity of regulatory bodies, industry stakeholders, and other relevant institutions is crucial for the effective implementation and management of the carbon market. This includes training, technical support, and enhancing data management systems.
- Public-Private Partnerships: Encouraging collaboration between the government, private sector, and non-governmental organisations can facilitate the development and implementation of innovative solutions for emission reductions and carbon trading.
- Ensuring Inclusivity and Equity: The carbon market should be designed to ensure inclusivity and equity, considering the needs and capabilities of small and medium enterprises (SMEs) and vulnerable communities. This includes providing support for capacity building and access to financing for cleaner technologies.
- International Collaboration: India should engage in international cooperation to learn from global best practices and access financial and technological support. This will help enhance the effectiveness of its carbon market and align it with global climate objectives.
- Continuous Review and Adaptation: The carbon market should be continuously reviewed and adapted based on emerging challenges, technological advancements, and market dynamics. This will ensure that the market remains effective, efficient, and aligned with India’s long-term climate and development goals.
Conclusion
India’s move towards establishing a carbon market is a significant step in its climate change mitigation strategy. By transitioning from energy efficiency to absolute emission reduction targets, India aims to create a more robust and comprehensive approach to achieving its climate commitments. However, this requires careful planning, strong regulatory frameworks, and the active participation of all stakeholders to ensure that the carbon market contributes effectively to India’s sustainable development objectives.
Related PYQ
Should the pursuit of carbon credit and the clean development mechanism set up under UNFCCC be maintained even though there has been a massive slide in the value of carbon credit? Discuss with respect to India’s energy needs for economic growth. [ UPSC Civil Services Exam – Mains 2014]
Practice Question
India’s transition towards a carbon market represents a crucial step in addressing climate change. Discuss the potential challenges and strategies needed for the successful implementation of such a market in the context of India’s development priorities? [150 words]
Guidelines to Answer
- Introduction:
- Briefly explain what a carbon market is and its purpose.
- Mention India’s climate change commitments, including its Nationally Determined Contributions (NDCs) under the Paris Agreement.
- Significance of Establishing a Carbon Market:
- Highlight how a carbon market can help India achieve its emission reduction targets.
- Discuss the potential for stimulating innovation and investment in low-carbon technologies.
- Explain how it can align with India’s economic growth by promoting sustainable industrial practices.
- Challenges in Implementing a Carbon Market in India:
- Discuss the diverse industrial landscape and the difficulty in setting uniform standards.
- Mention regulatory and compliance issues, including the need for robust monitoring and enforcement mechanisms.
- Highlight the lack of data and monitoring infrastructure, which is crucial for accurate emissions tracking.
- Discuss the need to balance economic growth and emission reductions, considering India’s development priorities.
- Measures to Address Challenges:
- Propose a phased approach to implementation, starting with voluntary participation.
- Emphasize the importance of strengthening institutional capacity and regulatory frameworks.
- Suggest public-private partnerships to facilitate technological and financial support.
- Recommend ensuring inclusivity and equity by supporting small and medium enterprises (SMEs) and vulnerable communities.
- Highlight the need for international collaboration to learn from global best practices and enhance capacity.
- Conclusion:
- Summarize the importance of a carbon market for India’s climate and economic objectives.
- Reinforce the need for a balanced approach that addresses challenges while leveraging opportunities for sustainable growth.