Proposed Indian Carbon Market Framework: Buy and Sell Carbon Credits

India, as a developing nation, has been at the forefront of climate action and has set an ambitious Nationally Determined Contribution (NDC) goal of reducing the emissions intensity of the GDP by 45% by 2030 against 2005 levels. In its endeavor towards a greener and more sustainable future, the government of India is planning to develop the Indian Carbon Market (ICM) to decarbonize the Indian economy through the trading of carbon credit certificates.

Carbon markets are trading systems in which carbon credits are bought and sold. Entities may compensate for their green-house gas (GHG) emissions by purchasing carbon credits from entities that remove or reduce GHG emissions. Carbon finance is expected to be the key for the implementation of NDCs and the Paris Agreement enables the use of such market mechanisms to aid countries in achieving their NDC goals.

India currently has an energy savings-based market mechanism wherein energy savings certificates are issued to designated consumers whose energy consumption is less than the prescribed norms, and designated consumers whose energy consumption is more than the prescribed norms and standards shall be entitled to purchase the energy savings certificate to comply with the prescribed norms and standards. With the enactment of the Energy Conservation (Amendment) Act, 2022 the government has been empowered to specify a carbon trading scheme.

As per the Energy Conservation (Amendment) Act, 2022 the Central Government, or any agency authorized by it, may issue carbon credit certificate to the registered entity which complies with the requirements of the carbon credit trading scheme and such entity is entitled to purchase or sell the carbon credit certificate in accordance such scheme. The Bureau of Energy Efficiency, Ministry of Power along with the Ministry of Environment, Forest and Climate Change are developing and finalizing the Carbon Credit Trading Scheme. Recently, a draft of the Carbon Credit Trading Scheme was circulated by the Ministry of Power to various industry bodies for comments and stakeholder consultation was organized.

The scheme envisages the development of a compliance mechanism under which obligated entities shall comply with the prescribed GHG emission norms which will be developed and aligned with India’s emissions trajectory as per climate goals, and a voluntary mechanism where non-obligated entities can register their projects for GHG emission reduction or removal for issuance of carbon credit certificates. It is proposed that each carbon certificate issued will represent reduction or removal of one ton of CO2 equivalent (tCO2e). Projects that may be eligible to earn carbon credits include waste handling and disposal, afforestation and reforestation, cattle management, transportation, renewable energy, energy efficiency projects and industrial energy efficiency and emission reduction projects.

The draft Carbon Credit Trading Scheme proposes to set up a comprehensive institutional and governance structure for the execution of the ICM, which includes the following:

• The Indian Carbon Market Governing Board (ICMGB): The governance of the ICM and direct oversight of its administrative and regulatory functioning will vest in the ICMGB.
• The Bureau of Energy Efficiency will be the ICM Administrator for the ICM and shall also work as the secretariat for the ICMGB. The Bureau will also have the power to constitute technical committees.
• The Grid Controller of India Limited will be the ICM Registry.
• The Central Electricity Regulatory Commission (CERC) shall be the Regulator for the trading activities under the ICM. As per the Carbon Credit Trading Scheme the Commission shall approve the participation of power exchanges for the purpose of ICM trading, from time to time and that power exchanges will perform functions regarding trading of carbon credit certificates, in accordance with regulations notified by the Commission.

These institutions will develop detailed procedures for operationalizing ICM including the following:

• Criteria for issuance of carbon credit certificates to those obligated entitles who reduce their GHG emissions below the prescribed limit;
• Validity of carbon credit certificates;
• Floor and forbearance price of carbon credit certificates;
• Requirement, format and timeline for submissions;
• Monitoring, reporting and verification;

According to the draft Carbon Credit Trading Scheme, agencies accredited by the Bureau of Energy Efficiency as Accredited Carbon Verifiers will carry out validation or verification activities under the Carbon Credit Trading Scheme.

It is envisioned that the ICM will usher in new emission mitigation opportunities through demand for emission credits by private and public entities. A well designed, competitive carbon market mechanism would enable the reduction of GHG emissions at the level of the entity as well as the overall sector and drive faster adoption of cleaner technologies in a burgeoning economy like India. ICM will accelerate the transition to a low carbon economy and facilitate in meeting India’s NDC goal.

The establishment of the ICM and the development of the Carbon Credit Trading Scheme heralds new opportunities for stakeholders at various levels of the carbon trading ecosystem including developing methodologies for the estimation of carbon emissions, reductions and removals from registered projects, stipulating the required validation, verification and issuance processes for operationalizing the scheme, carrying out validation or verification activities,  capacity building of entities for up-skilling in the subject matter etc. It is believed that carbon markets may be a panacea for the current climate crisis and can help accelerate the transformation to a more sustainable future by creating an economic incentive for reducing emissions.

It would be beneficial for stakeholders and sector experts to closely observe the establishment of ICM and engage with it first-hand in order to contribute towards moving to a more sustainable economy.

(This Article is solely for information purposes, does not constitute legal or professional advisory and should not be relied upon or used as a substitute for legal advice from attorney.)

 About the Authors:

Jayshree Navin Chandra, Senior Partner at ZEUS Law, has been a practicing lawyer since 2001 with extensive corporate and transactional advisory experience. She advises and represents clients ranging from Fortune 500 companies to start-ups as well as Central and State Government departments and public bodies in a wide range of domestic and cross border transactions, across industries in practice areas including Corporate and Company Law, M&A and Joint Venture, Private Equity, FDI & FII, Real Estate and Infrastructure, Data privacy and protection, Intellectual Property, Technology & Commercial Law Advisory.

Nitika Bakshi, is an Associate at ZEUS Law and works in the Corporate, Technology & Commercial Law practice vertical.

 ZEUS Law Associates is an ISO certified full service corporate commercial law firm with a team of dedicated and experienced lawyers well versed in handling domestic and cross border transactions across sectors, jurisdictions and regulatory landscapes. The firm’s practice areas include Corporate and Company Law, M&A and Joint Venture, Private Equity, FDI & FII, Real Estate and Infrastructure, Intellectual Property & Commercial Law, Litigation, Alternate Dispute Resolution, Indirect Tax and NRI Services.