Expanding the Indian Economy, The Green Way

Why in News?

• As India develops its economy to meet the growing needs of its people, the country will confront serious challenges due to climate change consequences and the allied necessity to curb carbon emissions.
• With the impact of global warming becoming more severe, there is immense urgency to embrace practices that mitigate greenhouse gas (GHG) emissions to decarbonise economy.

Challenges of Decarbonisation Mechanism

• Extremely Limited for Industries
  • With global temperatures and GHG emissions rising annually, not only governments but investors, consumers and other stakeholders have become conscious of their overall carbon footprint, and the need to control it.
  • However, decarbonisation avenues are extremely limited for some industrial companies and hard-to-abate segments such as cement, chemicals, iron and steel production and non-ferrous metals.
• A Costly Proposition
  • They are also a costly proposition for them (hard-to-abate segments) compared to transport, power generation and some other industries.
  • Nevertheless, as some of the biggest contributors to universal GHG emissions, these industrial firms are mandated to meet emission reduction goals, either because of local laws or their in-house policies.
• Industry Development Linked Challenges
  • The challenges of decarbonisation for manufacturers are technical, economic, financial, and social.
  • The strategy that results from this must go hand in hand with the company's development, in addition to its digital transition, and be part of the decarbonised trajectory of its territory.
• The Dual Challenge
  • There can be no doubt that the cycle of significant climate events is increasing and that emissions of CO2 or GHGs are rising at alarming rates.
  • However, there are millions of people who still lack access to simple electricity and many more still live in poverty.
  • The dual challenge of providing affordable clean energy and tackling the impacts of climate change remains complex.

Carbon Trading Mechanism: A Possible Solution Towards Decarbonisation

• A vibrant carbon trading network is among the numerous solutions that are being adopted or considered to tackle the emergency.
• Carbon credits may be considered as a temporary “licence” for an organisation to emit a specific quantity of CO2 that year.
• This mechanism allows a company with low or no emissions to sell credits in the market via a carbon trading framework or carbon exchange. This balances the emissions of another entity willing to pay for the credits.
• Carbon credits can assist companies in meeting sustainability targets. These outfits can purchase credits or fund programmes that create carbon credits.

GoI’s Plan to Decarbonise Domestic Economy: Indian Carbon Market (ICM)

• The central government is planning to set up the Indian Carbon Market (ICM) by establishing a national framework.
• It will help in decarbonising the domestic economy by pricing GHG emissions via trading in carbon credit certificates.
• The draft framework for the Indian Carbon Credit Scheme 2023 was recently notified by the Union government.
• The Bureau of Energy Efficiency functioning under the Ministry of Power has been tasked to develop the Carbon Trading Scheme in tandem with the Ministry of Environment, Forest & Climate Change.

How Indian Carbon Market (ICM) Will Help in Decarbonisation?

• Mobilisation of Investment and Lowering the Emissions
  • The Centre is confident that the ICM will help mobilise investments for the transition to a low-carbon ecosystem.
  • It will also help India lower the emissions intensity of its GDP by 45 per cent by 2030 compared to the 2005 levels, thereby meeting its NDC (Nationally Determined Contribution) target related to its global climate commitments.
  • Will Boost the Energy Transition
  • India does have an energy savings-linked market mechanism. However, carbon credit trading will give a boost to energy transition due to its greater scope for covering the country’s potential energy segments.
  • GHG emissions intensity targets and benchmarks would then be developed in sync with the domestic emissions trajectory, according to the climate goals.
  • Consequently, carbon credit trades will be aligned as per the performance regarding the sectoral trajectories.
• Will Aid in Decarbonisation of Commercial and Industrial Segments
  • Since the Centre has outlined an ambitious target of turning net zero by 2070, the ICM would help in decarbonising the commercial and industrial segments.
  • Although the ICM would be regulated, it will offer flexibility to companies in hard-to-abate segmentsto augment their GHG emission efforts through carbon market credits.
• Will Attract Finance and Technology
  • The mechanism of ICM could help attract finance and technology for sustainable projects that can generate carbon credits.
  • The ICM can be an effective channel in mobilising a major proportion of funds required for the low-carbon transition.
• Will Raise Awareness
  • The decision will also create more awareness, change and innovation across hard-to-abate industries.
  • Enterprises driven by incentives and penalties would begin incorporating the environmental impact as a key parameter in their strategic decisions.
  • This, in turn, will encourage investments allowing the shifting of business and manufacturing towards practices with low carbon footprints.

International Efforts Towards Decarbonisation: CBAM (Carbon Border Adjustment Mechanism)

• CBAM is aimed at levelling the playing field for the EU industries.
• Under the CBAM, imports of certain carbon-intensive products, namely cement, iron and steel, electricity, fertilisers, aluminium, and hydrogen, will have to bear the same economic costs borne by EU producers under the Emissions Trading System (ETS).
• The price to be paid will be linked to the weekly average of the emissions priced under the ETS.
• However, where a carbon price has been explicitly paid for the imported products in their country of origin, a reduction can be claimed.

Way Forward

• Study Carbon Trading Market Closely
  • As carbon-related tariffs such as CBAM begin influencing trade directly, businesses would need to factor in both national and international implications.
  • Given the interdependencies and complexity of the trade, it is challenging to accurately predict and model the impact.
  • Therefore, it is important that regulatory authorities closely oversee the dynamics of the carbon credit market and devise systems to ascertain its smooth functioning.
• Decarbonisation of Industry is Critical
  • As the country moves steadily towards a net-zero world, decarbonising industrial activity will be critical.
  • It is here that industry leaders can play a pivotal role in facilitating the transition towards a net-zero future by helping the nations switch from fossil fuel or legacy technologies to clean energy systems.

Conclusion

• As India tries to strike a delicate balance between economic needs and environmental concerns, a vibrant carbon trading mechanism can be crucial in creating a more sustainable future.
• The Carbon trade mechanism will help India balance economic needs with lowering GHG footprint.

Q1) What are Carbon credits?

Carbon credits, also known as carbon offsets, are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of one ton of carbon dioxide or the equivalent in other greenhouse gases. The carbon credit is half of a so-called cap-and-trade program. Companies that pollute are awarded credits that allow them to continue to pollute up to a certain limit, which is reduced periodically.

Q2) Why is the energy transition very challenging? 

On the surface, shifting from fossil fuels to renewable generation appears relatively simple: simply build more renewable generation, such as solar and wind farms. However, even setting aside the costs involved, renewable generation brings its challenges to contend with. Unlike fossil fuel generation, which can be turned up, down, or off as required, most renewable generation is at the mercy of weather conditions. When it is windy or sunny, generation is plentiful, but when it is calm or dark that generation slumps. 

Source: The Indian Express