Carbon Credit Trading Scheme 2023: An opportunity for ESG compliant Companies and Consultants

[Vivek Jalan]

India, in its commitment to NetZero Carbon Remission goal, in consultation with the Bureau has released the Carbon Credit Trading Scheme 2023 for the institutionalisation and functioning of the Indian Carbon Market. The Carbon Credit Trading Scheme is a market-based strategy to control pollution, which allows corporations to earn credits by reducing their carbon emissions. These credits can then be traded on a marketplace.

The National Steering Committee managed by the Ministry of Power (MoP) along with the Ministry of Environment Forest and Climate Change (MoEFCC) along with representation of other ministries, will be responsible for providing recommendations for the formulation and finalising of procedures for institutionalising the Indian carbon market, specific greenhouse gas emission targets for the obligated entities, guidelines regarding the trading of carbon credit certificates outside India, to issue carbon credit certificate. It will also be involved in developing the process or conditions for crediting period or renewal or expiry of a carbon credit certificate, to monitor the functions of the Indian carbon market, constitute any committee or working group as required in connection with Indian carbon market; and, any other functions assigned to it by the central government.

The Bureau as administrator will identify sectors and potential for reduction of greenhouse gases emissions; develop trajectory and targets for the entities under compliance mechanism; issue the carbon credits certificate based on the recommendation; develop market stability mechanism for carbon credits; develop the procedure for accreditation and functions of accredited carbon verification agency; accredit the agencies in accordance with the approved procedure for accredited carbon verification agency; develop data submission formats, forms for effective functioning of Indian carbon market; undertake capacity building activities for the stakeholders.

The Central Electricity Regulatory Committee as Regulator will regulate matters relating to trading of carbon credit certificates; safeguard interest of both sellers and buyers; regulate frequency of carbon credit certificates trading; provide market oversight and take necessary preventive and corrective actions to prevent fraud or mistrust.

The compliance mechanism will be decided by the Ministry of Power. The scheme operates on the principle of ‘cap and trade’. The ‘cap’ sets a limit on the total amount of certain greenhouse gases that can be emitted by factories, power plants, and other installations. The cap is reduced over time so that total emissions fall.

Companies receive emission allowances within the cap, which they can sell to or buy from one another as needed. The trade brings flexibility that ensures emissions are cut where it costs least to do so.