India plans domestic carbon market by October to regulate high-emission industries.
First phase targets steel, cement, aluminium, and pulp & paper sectors.
Cap-and-trade system encourages clean tech adoption and penalizes non-compliant firms.
India is planning to finish setting up its own domestic carbon market by the end of October and it plans to join an inter-governmental market for trade in emissions supervised by the United Nations, which will start by January. The initiative has been taken to put to rest the concerns that India’s rapidly growing economy is taking active steps to control its rising emissions.
According to the Global Carbon Budget 2022, India was the third-largest emitter of CO2 globally in 2022, contributing approximately 8% of global emissions.
India’s Carbon Credit Trading Scheme (CCTS) and Article 6, the United Nations supervised voluntary carbon trading system, are crucial for India to secure technologies available only with the developed countries and funds for ambitious emission reduction programmes, which a recent study by Centre for Social and Economic Progress pegged at $467 billion by 2030 to put four carbon-intensive sectors—power, steel, cement and transport—on a low carbon pathway.
The first phase of India’s compliance regime under CCTS targeting four of India’s high emissions sectors—aluminium, cement, chlor alkali and pulp & paper—and covering 282 units belonging to some of India’s leading conglomerates like Vedanta, Hindalco, UltraTech and JSW Cement will be officially gazette by the end of this month, two top government officials told Business Standard. The second phase covering 253 steel plants, 21 refineries, 11 petchem units and 173 textile units, including companies like Tata Steel, Reliance Industries and Indian Oil among others, will be notified by the end of October, the officials confirmed to Business Standard.
In addition, emissions targets have been announced till 2027 and a new set of targets and sectors will be finalised in FY27 for the FY28-30 period, an official said. But the challenge lies in creating an efficient market for exchange of credits, he added.
What this Means for Polluting Industries
According to The Yale Review of International Studies report, the first phase will cover industries such as steel, power, aluminium and cement. These industries are also crucial to the country’s export strategy and will help it meet its goal of reducing emissions intensity of GDP by 45% by 2030 compared to 2005 levels, as outlined in its Nationally Determined Contribution (NDC) to the Paris Agreement.
The CCTS aims to establish a cap-and-trade system, which is used to reduce emissions by limiting the total allowable emissions or emission concentration for firms and then allowing them to buy or sell these emission credits or allowances.
This approach creates a financial incentive for firms with low abatement costs to adopt cleaner technologies and practices. This helps industries exceeding emission targets to generate revenue by selling surplus credits, while penalising industries that fail to comply to emission targets.
