The Energy Conservation (Amendments) Bill, 2022, passed by the Rajya Sabha recently, has several significant features. It will foster a carbon market in India, through the creation of a National emissions trading system (National ETS).
- Article 6 of the Paris Agreement provides for the use of international carbon markets by countries to fulfil their nationally determined contributions (NDCs).
- Carbon markets are essentially a tool for putting a price on carbon emissions— they establish trading systems where carbon credits or allowances can be bought and sold.
- A carbon credit is a kind of tradable permit that, per United Nations standards, equals one tonne of carbon dioxide removed, reduced, or sequestered from the atmosphere.
- Carbon allowances or caps, meanwhile, are determined by countries or governments according to their emission reduction targets.
- A United Nations Development Program released recently noted that interest in carbon markets is growing globally, i.e, 83% of NDCs submitted by countries mention their intent to make use of international market mechanisms to reduce greenhouse gas emissions.
There are broadly two types of carbon markets:
- compliance markets : set up by policies at the national, regional, and/or international level— are officially regulated
- voluntary markets : Voluntary markets are those in which emitters— corporations, private individuals, and others— buy carbon credits to offset the emission of one tonne of CO 2 or equivalent greenhouse gases.