Voluntary carbon trades to start in 2023

India’s carbon trading framework is getting ready for its rollout, with the Bureau of Energy Efficiency (BEE) picked to administer the market. The framework may be released this year and the market for voluntary carbon trading too will open during the year.

“BEE will be the administrator. It will formulate the complete framework, set the systems, along with the methodologies for both voluntary market and the compliance market for certain sectors, which will come later,” BEE director general Abhay Bakre said in an interview.

BEE will assist the ministries of power and environment, which will separately come up with notifications on the carbon market, he said, adding an inter-ministerial body will take the final decision on the framework.

“We expect that within this year 2023, the framework will be rolled out and the voluntary market will be there. The compliance market will take time because targets and timelines need to be given to the industries. It would take about 2-3 years,” he said, adding that the current Perform, Achieve and Trade (PAT) scheme would be transitioned into the compliance market.

PAT is a flagship BEE programme under the National Mission for Enhanced Energy Efficiency, and is a regulatory instrument to reduce the specific energy consumption in energy-intensive industries.

“We are doing compliance-backed trading in PAT; so, we have to transit it to the compliance carbon market. We have to give the industry time to gear up for that.”

Power exchanges which enable the trading of the energy saving certificates (ESCerts) converted from the excess energy savings, are likely to be the trading platform for carbon credits too, under the carbon market framework, Bakre said.

Last month, the Indian Energy Exchange announced the setting up of a wholly-owned subsidiary, International Carbon Exchange Pvt. Ltd, to explore business opportunities in the voluntary carbon market.

Parliament passed the Energy Conservation (Amendment) Bill, 2022 on 12 December 2022, setting the stage for a carbon market in the country.

The draft blueprint of the national carbon market was released for stakeholder consultations in 2021. It proposed to initiate the development of a voluntary carbon market in India to overcome the barriers of ‘ESCerts’ market and to encourage voluntary entities to participate in meeting Nationally Determined Contributions commitments of India.

As per the draft, developing a voluntary carbon market from the existing PAT scheme will be spread over three phases, increasing the demand in the existing ESCerts market in the first phase, by focusing on making the instrument more fungible, adding more participant into the pool, and linking other markets in India with the proposed voluntary market, increasing the supply in the voluntary carbon market in the second and moving to a cap-and-trade system in the third phase. Under the cap-and-trade system, sectors and sectors-specific companies are earmarked for only a specific amount of emissions.

According to a report by Intellecap, a carbon market would help as many leading Indian corporates have made commitments to become carbon-neutral and the market will provide flexibility to entities in hard-to-abate sectors and with high reduction costs to supplement their own reduction efforts with credits from the carbon market.

The market would incentivize entities with low reduction costs to reduce emissions beyond their mandate. Trading in the carbon market could reduce the overall cost of emission reductions in India, it said.