Carbon Credits Could Boom In The Age of Net Zero (UPSC Current Affairs)

Relevance: GS3 - Conservation, environmental pollution and degradation, Environmental Impact Assessment.

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Why in the news?

• The carbon credit market in India is expected to expand rapidly, according to the commitment made at the COP 26 climate action conference to attain "net zero" emissions by 2070.
• Through policy reforms and legislation, the government is working towards a standardized carbon trading system.

What is Carbon Credit?

• Carbon credits were created as a way to minimise greenhouse gas emissions. Companies are assigned a specific quantity of credits, which diminish with time. Any surplus might be sold to another enterprise.
• Carbon credits provide a financial incentive for businesses to minimise their carbon emissions. Those that are unable to easily cut emissions can continue to operate, but at a greater financial expense.
• Carbon credits are based on the "cap-and-trade" mechanism that was employed in the 1990s to decrease Sulphur Emissions.
• At the COP26 climate change meeting in Glasgow in November 2021, negotiators decided to establish a worldwide carbon credit offset trading system.

Fragmented market

• There is currently no single market for carbon credits. In addition to sovereign markets, there is the voluntary market.
  • Private enterprises prefer the voluntary market, where costs range from as little as 10 cents to $80.
• The Paris Agreement's Article 6 — establishes a framework for international collaboration on emission reductions.
  • This is intended to unlock the potential of international emissions trading and add to the $1 billion market of voluntary carbon credits, which is rapidly developing.
• The Renewable Energy Certificate (REC) mechanism, a market-based instrument adopted in November 2010, provides a framework to address India's distributed availability of renewable energy sources.
  • One REC equals one MWh of renewable energy generated. After a decade, 59.5 million RECs have been traded on power markets for a total of Rs 9,266 crore ($1.24 billion).

Domestic demand

• As the government pushes for a standardized carbon trading market, India has the potential to be one of the world's largest carbon credit markets.
• The Ministry of Environment, Forestry, and Climate Change (MOEFCC) directed the Bureau of Energy Efficiency (BEE) in March 2022 to design a carbon trading program for the energy sector by expanding the scope of the existing energy-saving trading mechanism.
• With the carbon market under BEE, most energy-intensive businesses will be part of the domestic carbon market, where a higher emphasis will be placed on harmonising with PAT (perform, achieve, and trade) characteristics.
  • It will jump-start the voluntary and compliance sectors.
  • PAT and REC will be connected with the projected carbon market under BEE.

Way Forward

• Carbon credit demand might grow by a factor of 15 or more by 2030, and by a factor of up to 100 by 2050.
• Given the potential demand for carbon credits from worldwide initiatives to decrease greenhouse gas emissions, the world will require a big, open, verifiable, and ecologically robust voluntary carbon market.
• The market today is fragmented and complicated.