The Aakhya Weekly #114 | Decoding Carbon Credits for India
In Focus: Journeying to a Greener Future with Carbon Credits
by Lovenish Kumar
Let’s start with the good news: Carbon credits might just save the world. The bad news? Well, we’re still figuring out how, exactly. While you enjoy this light-hearted piece, rest assured that the planet is warming up faster than your morning chai—and carbon credits, along with policy tweaks, might just be the ice cubes we need to cool things down.
By 2025, India has set an ambitious target: to reduce carbon emissions by 33-40%. The road to achieving this goal, however, is far from smooth. The question remains—are we ready to meet the challenge?
Understanding Carbon Credits: A Simple Guide
Before we dive into the world of carbon credits, let's take a moment to understand what they are all about in plain language. Think of ‘carbon credits’ as permission slips for companies to release a certain amount of pollution into the air. The idea is simple: if you pollute less, you get rewarded; if you pollute more, you pay up. This system has been designed to encourage everyone—from big businesses to small farmers—to find cleaner, greener ways of doing things.
India has been busy crafting policies and programmes to make this system work. From laws that require industries to cut down pollution, to schemes that let companies trade these carbon credits, the goal is to reduce the overall emissions contributing to climate change. But like any big plan, it's got its quirks and challenges. So, let's explore this topic with a bit of humour and see what is happening behind the scenes.
The answer lies at the crossroads of policy, innovation, and collaboration across every sector, from smallholder farmers to industrial giants. At the heart of India’s strategy is the Carbon Credit Trading Scheme (CCTS) introduced by the Government of India in June 2023, aimed at driving carbon reduction through compliance and offset mechanisms. Yet, despite its promise, a more inclusive and comprehensive approach is needed to ensure that every stakeholder—big and small—plays their part.
India's Carbon Credit Journey: From Kyoto Protocol to CCTS
India’s commitment to tackling climate change has been steady (though evolving) since it first entered the global carbon market conversations through the Clean Development Mechanism (CDM) under Article 12 of the Kyoto Protocol. CDM allows developing countries like India to generate carbon credits by implementing projects that reduce greenhouse gas emissions—think wind farms, solar panels, and biomass energy. These credits, known as Certified Emission Reductions (CERs), could then be sold to developed nations to help meet their emission reduction targets.
Over the years, India emerged as a major player in the CDM, registering the second-highest number of projects globally. However, CDM and voluntary offset markets while important, were not sufficient. A robust compliance framework that would mandate industries to reduce emissions, was absent. This is where the Energy Conservation Act, 2001, and its 2022 amendment come into play.
In June 2023, the Indian government notified the CCTS under the Energy Conservation Act. The CCTS promises to establish a formal carbon market, where industries are encouraged and mandated to lower emissions and trade credits. This scheme could potentially revolutionise India’s approach to carbon reduction—but the real test lies in its implementation and the role of key stakeholders.
Understanding the Indian Carbon Market Framework
The Indian carbon market operates on two critical pillars: the Compliance Mechanism, which requires energy-intensive industries like steel, cement, and chemicals to reduce emissions or buy carbon credits, and the Offset Mechanism, where companies voluntarily reduce emissions to earn and trade credits. However, this system isn't entirely fair—smallholder farmers, significant contributors to emissions, are often excluded, while larger corporations could easily purchase credits instead of making real changes.
Challenges in Implementing the CCTS: A Disconnect Between Policy and Practice
Although India’s carbon market framework lays a solid foundation, there are several critical challenges to address:
Awareness and Education: Many smallholder farmers and Farmer Producer Organizations (FPOs) are largely unaware of carbon markets and the benefits of sustainable agricultural practices. Without targeted education and support, their participation will remain minimal.
Technology and Access: Carbon capture and storage technology (CCTS), while effective for large industries, is neither accessible nor applicable to the rural farming sector. Implementing sustainable practices requires different tools and solutions, such as organic farming techniques, solar-powered irrigation systems, and zero-tillage farming.
Incentives for Smallholder Farmers: Farmers are more likely to adopt eco-friendly practices if there is a clear financial benefit. Yet, unlike larger corporations that can sell carbon credits, smallholder farmers often don’t have access to the resources or platforms to benefit from carbon trading. This is a critical gap that needs to be filled.
The Role of FPOs in the Carbon Market
FPOs have the potential to be game-changers in driving sustainable agriculture and reducing emissions at the grassroots level. With the right policies, FPOs could act as intermediaries, helping farmers access technology, funding, and knowledge to implement sustainable farming practices. By creating carbon-offset projects focused on rural areas, FPOs could allow farmers to earn carbon credits for initiatives like afforestation, renewable energy adoption, and soil carbon sequestration.
Government and corporate partnerships should focus on strengthening FPOs with access to finance, infrastructure, and technological training. Such collaborations could turn FPOs into powerful change agents, helping India meet its carbon reduction goals.
The Need for Stricter Accountability
While the compliance and offset mechanisms offer corporations a path to meet carbon reduction goals, relying too heavily on these mechanisms can create loopholes. Companies often buy carbon credits to offset their emissions rather than make structural changes to reduce them at the source. This practice, known as “carbon offsetting,” allows companies to continue polluting while complying with regulations on paper.
To counter this, India must introduce stricter policies for large corporations, beyond mere compliance. Some recommendations include:
Sector-Specific Carbon Reduction Targets: Policies should set stricter emission reduction targets tailored for different industries. For instance, energy companies should focus on transitioning to renewable energy, while manufacturing industries must adopt cleaner technologies.
Mandatory Sustainability Reporting: Companies must be held accountable for their carbon emissions through mandatory sustainability reports. Public transparency would drive greater corporate responsibility.
Corporate Carbon Ratings: A public rating system that ranks companies based on their sustainability efforts could create positive competition and encourage further innovation in reducing emissions.
Innovative Solutions and Tailored Policies for Carbon Reduction
For India to meet its emission reduction targets, one-size-fits-all policies will likely not work. The solution lies in tailoring initiatives to suit the capabilities and needs of different stakeholders:
Smallholder Farmers and Rural Communities: Initiatives such as promoting biogas plants, solar microgrids, and sustainable farming methods can provide low-cost, effective solutions to reduce emissions in rural areas.
Technological Innovation for Large Corporates: Carbon capture technology can play a significant role for large industries, however, it should be paired with investments in green technologies, like hydrogen fuel and electric mobility, to ensure long-term sustainability.
A Balancing Act for Carbon Reduction: What Needs to Change?
India’s success in reducing carbon emissions hinges on addressing the gaps in policy and execution. The CCTS and carbon markets provide a powerful framework, but they must be complemented by awareness, education, and a fair playing field for both smallholder farmers and large corporations. If the Indian government can bridge these gaps and encourage all stakeholders to take action, the country will have a strong chance of meeting its carbon emission targets.
The clock is ticking. The road ahead may be difficult but with the right policies and participation from every sector, India’s carbon reduction dream could become a reality. The question is—will we seize the opportunity in time?
Top Stories of the Week
Union Cabinet Approves PM E-DRIVE Scheme to Boost EV Adoption
The Union Cabinet has approved the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) Scheme, a major incentive planned to boost electric vehicle (EV) adoption in India. With a budget of ₹10,900 crore over two years, this scheme replaces the nine-year-old Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) program.
Launched in 2015 with an initial budget of ₹895 crore, the FAME scheme’s second phase was expanded to ₹10,000 crore in 2019. This phase supported the adoption of 10 lakh electric two-wheelers, 5 lakh electric three-wheelers, 55,000 electric four-wheelers, and 7,000 electric buses. The new PM E-DRIVE Scheme is more ambitious, targeting 24.79 lakh electric two-wheelers, 3.16 lakh electric three-wheelers, and 14,028 electric buses, including electric trucks and ambulances. Under the new scheme, ₹500 crore is earmarked for electric ambulances, ₹4,391 crore for electric buses, and ₹500 crore for electric trucks. Notably, it excludes passenger four-wheelers and hybrids, reflecting a strategic shift from the previous FAME-II framework.
An allocation of ₹2,000 crore is also set aside to expand fast-charging infrastructure, critical for developing the EV ecosystem. To streamline incentives, the Ministry of Heavy Industries (MHI) will issue Aadhaar-authenticated e-vouchers for EV buyers, which can be processed via the PM E-DRIVE portal. Additionally, ₹780 crore is allocated to upgrade MHI's testing agencies to support technological advancements in green mobility. The auto industry views the PM E-DRIVE Scheme as vital for accelerating EV adoption and enhancing infrastructure, playing a key role in helping India reach its target of 30 percent electric vehicle sales by 2030.
MoD Finalizes ₹26,000 Crore Contract with HAL for Su-30MKI Engines
The Ministry of Defence has finalised a ₹26,000-crore contract with Hindustan Aeronautics Limited (HAL) for the supply of 240 AL-31FP aero engines to power the Su-30MKI aircraft of the Indian Air Force. These engines, originally of Russian design, will be assembled under licence by HAL in India, playing a critical role in sustaining the operational readiness of the Su-30 fleet. The contract, which spans eight years will ensure the delivery of 30 engines annually.
HAL’s Koraput Division will oversee production, with substantial involvement from India's defence manufacturing sector, including MSMEs and public and private industries. HAL is focused on increasing the indigenisation of the engine components, aiming for 63% indigenous content by the end of the delivery program, with an average of over 54% throughout. Approximately 1,000 engine parts are set to be indigenised, contributing to the development of the domestic engine manufacturing ecosystem.
The engines will help sustain the Su-30MKI fleet, which currently stands at 259 aircraft, out of 272 originally contracted. To replace losses, 12 additional aircraft will be added to the fleet. Meanwhile, an upgrade program is underway, with HAL set to modernise 84 aircraft over the next 15 years. However, this engine order is focused solely on maintaining the existing fleet and is not part of the upgrade process.
On September 2, 2024, the Cabinet Committee on Security (CCS) approved the acquisition of the engines. This contract is part of a broader strategy to foster self-reliance in defence production and support India’s aerospace industry, strengthening national security through improved domestic manufacturing capabilities.
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Michael Rubin argues that India must bolster its Indian Ocean strategy to counter the growing influence of China and Turkey in Africa.
Nathalie Tocci writes that the EU's push for enlargement following the Ukraine conflict, faces internal resistance and political blockages.
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