India Inc should prepare for a national carbon market
As a national carbon market takes shape, India Inc should prepare to gain from the carbon-reduction opportunities this will open up and adjust to carbon pricing rules as they evolve.
The recently passed Energy Conservation (Amendment) Bill, 2022, lays the foundation for India’s national carbon market. Currently, the Bureau of Energy Efficiency (BEE) is developing a framework to roll out Perform Achieve and Trade (PAT) and Renewable Energy Certificates (REC) schemes into such a market, while creating avenues for voluntary participation. According to the BEE’s proposal, “designated consumers" under PAT will transition from energy-efficiency to emission-reduction targets from 2024. This implies that businesses will have more options to meet their mandated targets beyond energy efficiency. A market can provide regulated entities with clear price signals that would help them plan carbon-lowering investments and make better decisions. The BEE’s proposal to include additional sectors in a voluntary offset market could further reduce the overall cost of compliance by potentially including cost-effective reduction options. Meanwhile, carbon pricing regulations are being implemented in jurisdictions like the US and EU. The EU’s carbon border adjustment mechanism (CBAM) will impose import duties on emission-intensive industries at the EU’s ETS carbon price. This could impact India’s iron and steel and aluminium industries, which along with other base metals and minerals, accounted for 10.4% of exports in 2020. What does this mean for Indian businesses and how can they prepare for a domestic and global carbon-pricing regime?