India is planning a stabilisation fund to keep prices of credits in its planned carbon market above a certain threshold, ensuring that they remain attractive for investors and that the market succeeds in cutting emissions.

 

Details

  • India is planning a stabilisation fund to keep prices of credits in its planned carbon market above a certain threshold.
  • This is intended to ensure that the prices for carbon credits remain attractive for investors and that the market succeeds in cutting emissions.
    • Beginning in 2008, prices of carbon credits in other countries slumped heavily, because of that year’s economic crisis and because governments had issued too many of them.
  • Money in the stabilisation fund would be used by a market regulator to buy carbon credits if prices fell too low.
    • Exactly how it would work and where the money would come from is still under discussion.
  • The World Bank has already said it will provide $8 million to help India prepare carbon-pricing instruments.
  • India’s carbon market is being set up in two phases, according to the government’s presentation slides.
    • In the first phase, between 2023 and 2025, the existing energy-savings certificates will be converted to carbon credits.
  • The Central government is expected to publish the carbon market’s rules soon.

 

Background

  • In order to keep global warming within 2°C, ideally no more than 1.5°C, global greenhouse gas (GHG) emissions need to be reduced by 25 to 50% over this decade.
  • Nearly 170 countries have submitted their nationally determined contributions (NDCs) so far as part of the 2015 Paris Agreement, which they have agreed to update every five years.
      • NDCs are climate commitments by countries setting targets to achieve net-zero emissions.
      • India, for instance, is working on a long-term roadmap to achieve its target of net zero emissions by 2070.
      • In order to meet their NDCs, one mitigation strategy is becoming popular with several countries— carbon markets.
  • Article 6 of the Paris Agreement provides for the use of international carbon markets by countries to fulfil their NDCs.

 

What are Carbon Markets?

  • Carbon markets are essentially a tool for putting a price on carbon emissions— they establish trading systems where carbon credits or allowances can be bought and sold.
  • A carbon credit is a kind of tradable permit that, per United Nations standards, equals one tonne of carbon dioxide removed, reduced, or sequestered from the atmosphere.
  • Carbon allowances or caps, meanwhile, are determined by countries or governments according to their emission reduction targets.
  • A United Nations Development Program release this year noted that interest in carbon markets is growing globally, i.e., 83% of NDCs submitted by countries mention their intent to make use of international market mechanisms to reduce greenhouse gas emissions.

 

Carbon Market in India

  • In the past, India has made investments in producing carbon credits and exporting them to international enterprises.
  • Between 2010 and June 2022, India issued 35.94 million carbon credits or nearly 17% of all voluntary carbon market credits issued globally.
  • However, the government now intends to forbid its exports, guarantee the expansion of a local domestic market for carbon credits, and increase its internal trade.
  • Currently, India’s carbon market is a voluntary carbon market where private parties voluntarily exchange certified reductions of GHGs from the atmosphere for carbon credits.