Fair trade: On the 29th COP and India’s carbon market
India must develop a transparent carbon trade policy
Ahead of the 29th edition of the Conference of Parties in Baku, Azerbaijan, next month, there is renewed energy in government circles to accelerate Indian industry’s transition to carbon markets. While the broader theme of this edition of the COP is increasing ambition on climate finance, a key item on the agenda is clarity on carbon markets. A specific section under the Paris Climate Agreement of 2015, called Article 6, lays the contours under which carbon markets — or the enabling of trading of prevented greenhouse gas emissions among countries —can be operationalised. Carbon markets incentivise climate action by enabling parties to trade in carbon credits generated by the reduction or removal of greenhouse gases from the atmosphere, such as by switching from fossil fuels to renewable energy or enhancing or conserving carbon stocks in ecosystems such as forests. Subsections within Article 6 provide guidelines on what kinds of carbon-reduction activities and verification mechanisms are permissible, and how countries may enter into bilateral agreements so that emission reductions in one country may be legally claimed by another.While carbon markets came into existence nearly two decades ago, they have been plagued by opacity and criticism that they only created the illusion of emission reductions. Although such markets have revived, confusion remains about how credits may be verified. There is optimism that Baku may see a final resolution of this problem and that the first legal credits may begin to be claimed by countries next year. India, due to its voluntary commitment to generate half its electricity from non-fossil energy sources by 2030, stands to gain as a host of several carbon-reduction projects. Additionally, there are also mushrooming private sector enterprises in India setting up innovative forestry projects that reportedly lock carbon and can be claimed as credits by multinational companies, traded through so-called voluntary carbon markets. India’s iron and steel industries are among the nine types of industries expected to meet emission intensity standards by 2025. By restricting the amount of carbon per unit of production, this will, depending on regulatory enforcement, formally kick-start India’s carbon market. However, this will invite complex calculations and, given the experience of a related energy-efficiency trading scheme, run the risk of not exerting enough pressure on companies to comply. While calculating carbon saved is a fraught exercise, India must aim, through its research institutions and authorities, to evolve a transparent and fair policy that is on a par with the best internationally.