Carbon Credit Market:
The Ministry for Power, New & Renewable Energy is taking steps to establish a Carbon Credit Market to help the country meet its Nationally Determined Contributions (NDC).
- A carbon credit (also known as carbon offset) is a credit for greenhouse emissions reduced or removed from the atmosphere by an emission reduction project, which can be used by governments, industry, or private individuals to compensate for the emissions they generate elsewhere.
- Those that cannot easily reduce emissions can still operate, at a higher financial cost.
- Carbon credits are based on the “cap-and-trade” model that was used to reduce sulfur pollution in the 1990s.
- One carbon credit is equal to one metric ton of carbon dioxide, or in some markets, carbon dioxide equivalent gases (CO2-eq).
- Negotiators at the Glasgow COP26 climate change summit in November 2021 agreed to create a global carbon credit offset trading market.
- The Kyoto Protocol provides for three mechanisms that enable countries, or operators in developed countries, to acquire greenhouse gas reduction credits:
- Under Joint Implementation (JI), a developed country with relatively high costs of domestic greenhouse reduction would set up a project in another developed country.
- Under the Clean Development Mechanism (CDM), a developed country can “sponsor” a greenhouse gas reduction project in a developing country where the cost of greenhouse gas reduction project activities is usually much lower, but the atmospheric effect is globally equivalent.
- The developed country would be given credits for meeting its emission reduction targets, while the developing country would receive the capital investment and clean technology or beneficial change in land use.
- Under International Emissions Trading (IET), countries can trade in the international carbon credit market to cover their shortfall in Assigned Amount Units (AAUs).
- Countries with surplus units can sell them to countries that are exceeding their emission targets under Annex B of the Kyoto Protocol.
- A carbon market turns emission reductions and removals into tradeable assets, thus creating incentives to reduce emissions or improve energy efficiency. The carbon markets can be compliance and voluntary.
- Parties with commitments under the agreement agreed to limit or reduce their greenhouse gas emissions between 2008 – 2012 to 5.4% which were well below the levels of 1990.
- Emissions trading, as set out in the Kyoto Protocol, allowed countries to sell the excess capacity of emission units to countries that had levels well over their targets.