Carbon Markets
Context:
Recently, in the COP29 conference held in Baku, new agreements were signed to combat climate change, which also underscored the importance of carbon markets.
- Meanwhile, India is preparing to create a carbon market through the Carbon Credit Trading Scheme (CCTS).
Relevance:
GS-03 (Environmental Pollution & Degradation, Conservation)
GS-02 (Government policies and interventions)
Dimensions of the Article:
- Key Highlights of the COP29
- What is a Carbon Market?
- Implications for India
- Way forward
Key Highlights of the COP29:
- New Collective Quantified Goal on Climate Finance (NCQG): It is a new climate finance goal that aims to increase the climate finance for developing countries from the previous goal of USD 100 to USD 300 billion per year by 2035.
- Carbon Market agreements: Final landmark agreement on setting carbon markets, including a centralised carbon market under the United Nations (UN) (Article 6.4 of the Paris Agreement).
- Reducing Methane: A Declaration to reduce methane from organic waste was signed by over 30 countries except India, and a Global Methane pledge was built to reduce global methane emissions by 30% by 2030. (India is not a part.)
- Local community participation: The conference highlighted the participation of the indigenous people and local communities in climate change and adopted the Baku workplan that prioritises bridging indigenous knowledge with modern science.
- It also renewed the Facilitative Working Group (FWG) mandate under the Local Communities and Indigenous Peoples Platform (LCIPP).
- Gender equality in climate action: LWPG was extended for another 10 years.
- LWPG stands for Lima Work Programme on Gender.
- The main aim of LWPG is to advance gender balance and integrate gender considerations to ensure gender-responsive climate policy and action under the Convention and the Paris Agreement.
What is a Carbon Market?
- A carbon market facilitates the trading of rights to emit carbon into the atmosphere.
- Governments issue carbon credits, allowing holders to emit specific amounts of carbon (1 carbon credit = 1,000 kg of CO2).
- The supply of credits is capped, enabling authorities to control emissions.
- Surplus credits can be sold by holders, with market forces (supply and demand) determining prices.
- Carbon Offsets: Businesses can purchase offsets from entities (e.g., NGOs) promising to remove an equivalent amount of carbon (e.g., through tree planting).
- Origin: Carbon credits were first introduced in the 1990s in the U.S. to control sulphur dioxide emissions through a cap-and-trade model.
Implications for India
- Economic Growth and Industrial Pushback:
- Corporations often resist strict government controls, citing higher production costs and operational challenges.
- India’s industries, particularly small businesses, may struggle to implement accurate carbon accounting due to complex supply chains.
- Environmental and Health Concerns:
- Effective carbon markets can help address externalities like pollution, which currently bear no financial penalty.
- Climate change impacts linked to emissions include higher risks of cancer, respiratory diseases, and damage to ecosystems.
- Efficiency Debate:
- Proponents argue that a market-driven system for trading carbon credits leads to optimal allocation of resources.
- Critics worry that loose regulations may enable cheating or oversupply of credits, undermining emission reduction goals.
- Challenges with Offsets and Governance:
- Offsets can lack accountability; firms may use them for greenwashing without ensuring tangible results.
- Governments must balance the supply of credits to avoid economic slowdowns while achieving climate targets.
Way Forward
Strong Governance Framework:
- Implement strict caps on credit issuance with transparent monitoring systems to prevent manipulation or fraud.
- Develop mechanisms to validate the effectiveness of carbon offsets, ensuring accountability for firms and NGOs.
Capacity Building:
- Support small and medium enterprises (SMEs) in setting up carbon accounting frameworks, particularly in supply chains.
- Encourage the adoption of real-time data-tracking technologies for better emission monitoring.
Integration of Carbon Markets:
- India should align its policies with international carbon markets, ensuring competitiveness and access to global resources.
- Promote regional collaborations to harmonise emission standards and trading practices.
Public Awareness and Incentives:
- Launch campaigns to educate businesses and individuals on the benefits of carbon markets.
- Provide subsidies or tax incentives for adopting cleaner technologies and participating in carbon markets.
Balancing Growth and Sustainability:
- Carefully manage the allocation of carbon credits to avoid stalling economic growth while prioritising long-term environmental goals.
- Foster innovation in green technologies to reduce emissions and enhance India’s global standing in climate leadership.