India's Carbon Market On the Verge of Reality

In this article, Yukta Anand and Prof. Asheesh Pandey throw light on carbon market, which is soon going to be a reality for India.

- Yukta Anand

India is poised to pioneer its carbon market transformation! The rapidly increasing global warming around the world has become a cause of concern for every economy today. The Paris Agreement on Climate Change and the Kyoto Protocol serve as the major guiding lights for institutions and other bodies working towards climate change, former being a landmark document.

The Paris Agreement states that the global temperature should be increased to well below 2 degrees Celsius, while taking best efforts to keep it under 1.5 degrees. The major cause of global warming is the ever-increasing greenhouse gas (GHG) emissions. The United Nations Framework Convention on Climate Change (UNFCCC) believes that the GHG emissions should be at their peak latest by 2025 and then should decline by 43 per cent by the year 2030.

The Kyoto Protocol lays the foundation of Clean Development Mechanism (CDM). It is a mechanism that allows a nation having an emission reduction target to carry out an emission-reduction project in a developing country. This mechanism benefitted many developing nations such as India, Brazil, and China around the year 1997. The CDM mechanism allowed projects to earn Certified Emissions Reduction (CER), where again 1 CER was equivalent to 1 tonne of carbon dioxide. These CERs were also tradeable in the market.

Another way by which the countries can be encouraged to reduce their GHG emissions is by charging a price on their carbon emissions and incentivizing them for reductions in the emissions, thus, by treating carbon as a commodity. This is where the concept of carbon markets comes into picture. A carbon market is a tool or any market that helps to put a price on carbon, by enabling trade to be done as a carbon credit or as a carbon offset. Thus, a carbon credit acts as a trading unit for a carbon market.