Context: The Indian government recently notified greenhouse gas (GHG) emissions intensity targets for entities across key industrial sectors under the Carbon Credit Trading Scheme (CCTS).
Relevance of the Topic: Prelims: Key facts about India’s Carbon Credit Trading Scheme.
What is the Carbon Credit Trading Scheme (CCTS) ?
- Launched in 2023 under the Energy Conservation (Amendment) Act 2022.
- It is a market based mechanism designed to reduce greenhouse gas emissions by pricing carbon and facilitating trading of carbon credits.
- CCTS introduces carbon pricing through two key mechanisms to ensure comprehensive carbon reduction efforts.
- Compliance Mechanism: Mandates energy-intensive industries to meet sector-specific GHG reduction targets. Entities that emit below their set intensity targets earn Carbon Credit Certificates (CCC); while those exceeding targets must purchase credits or face penalties.
- Offset Mechanism: Allows voluntary participation from entities outside the compliance framework to earn carbon credits by reducing emissions.
- As of now, 8 heavy industrial sectors are included under the compliance mechanism of CCTS: Aluminium, Cement, Paper and Pulp, Chlor-Alkali, Iron and Steel, Textiles, Petrochemicals, Petroleum Refineries.
- Administered by: multiple bodies like the Bureau of Energy Efficiency (BEE) and the National Steering committee for the Indian carbon market.
- Trading of Carbon Credit is expected to begin by October 2026.
- The CCTS aims to help India achieve its Nationally Determined Contribution (NDC) target of reducing the emissions intensity of its GDP by 45% by 2030 from 2005 levels.
Assessment of India’s Carbon Credit Trading Scheme:
Lack of Ambitious Targets:
- India’s overall energy emissions intensity is projected to decline by 3.44% per year from 2025 to 2030. The manufacturing sector should ideally reduce its emissions intensity by 2.53% per year.
- But current CCTS targets for industries show only a 1.68% per year drop. This suggests the CCTS targets are not ambitious enough to achieve India's NDC targets and decarbonisation goals.
Limited Sectoral Coverage:
- CCTS currently covers only 8 of the 9 heavy industrial sectors.
- Several major emitters are excluded like- thermal power plants, transport, agriculture, and MSMEs, limiting the scope and impact of the scheme.
Sectoral vs. Economy-Wide Focus
- The scheme largely focuses on sectoral/entity-specific targets rather than an integrated, economy-wide reduction strategy. This narrow focus on select industrial players may risk intra-sector credit trading without meaningful reduction in national-level emissions.
A robust carbon market should drive aggregate decarbonisation with participation of major sectors, and not just trading between a few large players.