As the impacts of climate change become increasingly evident globally, nations worldwide are exploring innovative solutions to combat the escalating threat of greenhouse gas emissions. In India, carbon trading has emerged as a promising mechanism to address the challenges of climate change and promote sustainable development. ES Ranganathan, former Marketing Director of GAIL, emphasizes the significant potential impact of carbon trading in the fight against environmental degradation.
Carbon trading, also known as emissions trading or cap-and-trade, operates on the fundamental principle of assigning a monetary value to carbon emissions. The system imposes a cap on the total amount of greenhouse gases (GHGs) businesses and industries can emit. In accordance with their allowable amount of emissions, participants—usually businesses or organizations—are given permits, often referred to as carbon credits or allowances. If a company exceeds its allocated limit, it must purchase additional credits from those with surplus allowances. Conversely, entities that have successfully reduced their emissions below their cap can sell surplus credits, creating a market for carbon credits. This market-driven approach encourages companies to reduce emissions, as those with extra credits can capitalize on their reduction efforts.
According to Mr. ES Ranganathan, the key objective of carbon trading is to incentivize emission reductions by establishing a financial value for lowering carbon footprints. Companies investing in cleaner technologies or adopting sustainable practices are rewarded, while those struggling to meet emission targets can offset excess emissions by purchasing credits. This combination fosters a market-driven, competitive strategy for reducing carbon emissions.
India, as a prominent member of international treaties, is committed to making significant contributions to promote sustainable development and combat climate change, aligning with principles outlined in the Paris Agreement. The Ministry of Environment, Forest and Climate Change, in a press release on February 3, 2022, outlined ambitious goals to fulfill its COP-26 commitment, including reaching a non-fossil energy capacity of 500GW by 2030, meeting 50% of energy requirements from renewable sources by 2030, reducing total projected carbon emissions by one billion tonnes by 2030, decreasing carbon intensity by 45% by 2030, and achieving net-zero emissions by 2070.
India, with its active participation in the international carbon market, holds a significant market share of approximately 21% of all globally registered projects under the Clean Development Mechanism (CDM). ES Ranganathan highlights that India has attracted over $10 billion in foreign direct investment through CDM until the end of 2020. The government’s announcement on May 11, 2023, to establish the Indian Carbon Market (ICM) further solidifies India’s commitment to decarbonizing its economy. The Bureau of Energy Efficiency, in collaboration with the Ministry of Environment, Forest & Climate Change, is working on developing the Carbon Credit Trading Scheme to achieve this objective.
India, as one of the world’s fastest-growing economies, faces challenges in balancing industrial growth with environmental sustainability. Carbon trading emerges as a progressive mechanism aligning economic growth with environmental protection amid a growing population and increasing energy demands. ES Ranganathan acknowledges challenges, including lack of awareness, limited market liquidity, and regulatory frameworks, which need addressing. To fully leverage carbon trading’s potential in India, concerted efforts from policymakers, businesses, and civil society are crucial. Public-private partnerships, innovative financing, and capacity-building initiatives can play a pivotal role in overcoming these challenges.
Implementing carbon trading in India signifies a significant stride toward achieving sustainable development goals and mitigating climate change risks. Recent progress indicates India’s readiness to embrace the potential of carbon trading, leading the way to a cleaner, greener, and more prosperous future. In the complex task of balancing economic growth with environmental preservation, carbon trading stands out as a beacon of hope, paving the way for a sustainable and resilient India for generations to come.