ANALYSIS: India releases more details of carbon trading scheme plans
Quantum Commodity Intelligence – India's government is unlikely to allow domestic voluntary carbon market (VCM) credits in its Carbon Credit Trading Scheme (CCTS). While government sources had earlier indicated that VCM credits would be allowed to add liquidity, it is now being reconsidered, Quantum understands.
"To allow GS [Gold Standard] and Verra credits to be used, one would need a registry between Verra/GS and the ICM [Indian carbon market], [or] else it will be hard to keep a track to prevent double counting," said a source working closely with the government on a model for the CCTS.
"In the last stakeholder consultation as well, when they talked about their own methodologies, and a parallel domestic scheme, I felt they won't allow Verra and GS credits for sure," said a developer who has been following the discussions closely.
Targets for compliance sectors are likely to be set before April 2025, the start of the next financial year, while the carbon market will kickstart in 2025 or 2026.
There are two separate market mechanisms being developed – one for compliance and another voluntary.
The issuance process of carbon credit certificates (CCCs) will differ for the compliance and voluntary mechanisms. While compliance entities that exceed their targets will be issued CCCs based on the excess emissions reduced, voluntary entities will be issued credits based on their projects similar to the format in the global VCM. However, CCCs will be issued to voluntary entities against set baselines for projects.
Nine sectors will be included in the initial compliance phase – including aluminium, chlor alkali, cement, fertiliser, iron and steel, pulp and paper, petrochemicals, petroleum refinery, and textiles.
The government outlined further details on the CCTS last week, but with no provisions for an over-the-counter (OTC) traded market. The Bureau of Energy Efficiency (BEE) – the government body tasked with conceptualising the CCTS – has released the guidelines for after consulting stakeholders, with the market to be fully exchange-traded.
A market source to Quantum was disappointed about the lack of a provision for OTC trades, with trading only to be allowed on power exchanges. "I think intermediaries provide much-needed liquidity to the market; and should be encouraged," said the source, an India-based VCM trader
"The recent guidelines mostly seem to be in line with the draft that was shared during consultations," added the source. "However, the BEE hasn't disclosed any numbers yet (targets or penalties). It will be interesting when they're released."
The guidelines include the planned compliance mechanism; establishment of the greenhouse gas (GHG) emissions intensity trajectory and targets; monitoring, reporting and verification process; and the protocol for the issuance, surrender and banking of carbon credit certificates.
"The market-based mechanism incentivises emission reductions and provides flexibility through banking carbon credit certificates (CCCs) for future compliance," said a second source, an Indian VCM broker.
"Additionally, the CCTS governance structure, involving various ministries and experts, ensures comprehensive oversight and alignment with national climate goals by the current government," the broker said.
Covered entities will receive annual GHG emission intensity targets for each compliance year within a defined trajectory period. Entities that exceed their GHG reduction targets receive CCCs, while those that fail must surrender or purchase additional CCCs to cover the shortfall.
The CCTS includes provisions for the trading and banking of CCCs to help ensure entities meet their targets. The central government will determine which entities are obligated under the scheme's compliance mechanism, while a technical committee will evaluate each entity's baseline GHG emissions intensity and set targets for the trajectory period of 30 years.
Obligated entities will need to register on the designated registry. Non-obligated entities that want to trade on a voluntary basis can also register. Banked CCCs may either be sold in the market or used to meet future compliance needs.
The BEE will provide a standardised GHG emissions calculation template for monitoring and reporting.
