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.

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