Carbon Credits: The Backbone of Sustainable Development and Business Potential

Countries are beginning to take bold steps to mitigate carbon emissions as part of their overall lever’s effort to fight climate change and other environmental hazards using various methods like carbon credits or allowances. These are incentives offered to individuals and organizations to limit their emissions of greenhouse gasses (GHG). With respect to this, the credit trading carbon system works as an important market system where companies can make profits from becoming more environmentally responsible. Today, we are going to discuss carbon credits with a special focus on carbon credits in India, the changing carbon credit price, and the consequences of carbon trading. We will also overview the carbon credit market in India and how it works.

What are Carbon Credits ?

A carbon credit permits its bearer to emit a certain quantity of Greenhouse gases (GHG), primarily carbon dioxide. One metric ton of carbon dioxide emissions corresponds to one carbon credit. A firm is given a carbon allowance by the government, and if the firm is able to operate at a lesser capacity than its CO2 budget, the company can sell its unused credits through the system. If a company goes over its credits, he/she must purchase some excess carbon credits from allowed traders.

Carbon credits are designed to create a financial incentive for businesses to lower their emissions in order to transition to renewable energy sources converting to green energy. Authorities create emission limits and specify that businesses that exceed them must either use cleaner energy sources or reduce their energy usage.

 

The Rise of Carbon Credits in India

1. The Kyoto Protocol and India’s participation

India has been an active participant in the international carbon credit exchange market since the Clean Development Mechanism was implemented with the Kyoto Protocol. Under CDM policy, developing nations like India were permitted to generate carbon credits through emission reduction projects from which developed nations were interested in buying to meet their Kyoto targets. This caused an increase in the carbon credit market in India, leading to the development of new renewable energy projects, such as solar and wind, along with afforestation and cleaner production methods.

 

2. The Paris Agreement and India’s Pledge

Following the Paris Agreement, India has pledged to reduce its carbon intensity by 33 to 35 percent by the year 2030 in relation to 2005 levels.

To lead this effort, the Indian Government implemented a series of policies and incentives focused on widening the scope of trade dealings and inflating the value of carbon credit prices.

 

3. Indian Carbon Market: A Summarized View

A growing number of organizations achieving a higher degree of sustainability, coupled with the government’s policy framework, has led to the rapid growth of the carbon credit market in India. In 2022, India commenced its domestic carbon trading program through the Bureau of Energy Efficiency (BEE). The goal of the carbon trading program is to self-manage the carbon trade domestically while also enabling the country to participate in global carbon trading markets.

 

4. Key Sectors Driving Carbon Credits in India

• Renewable Energy – A substantial number of carbon credits are generated from solar, wind, and hydro projects.
• Agriculture, Forestry and Other Land Use – Reduction of emissions through tree planting and good agricultural practices.
• Industrial Energy Efficiency – Earning of carbon credits for the adoption of energy saving procedures by firms.

Waste Management – Carbon credit programs accept Biowaste, compost, and other waste-to-energy programs responsible for transforming garbage into energy.

 

How Carbon Credit Trading Scheme Works

There are two basic components of the carbon credit trading scheme. These are:

1. Compliance Market

A certain level of emissions are set by the government for industries to achieve. Either the company reduces their emissions or they buy carbon credits. In India, the Perform, Achieve and Trade (PAT) system serves as a law for emissions for highly intensive energy industries.

2. Voluntary Market

Businesses and private organizations that willingly take a step towards sustainability are permitted to trade carbon credits. An increasing number of multinational companies in India are participating in voluntary carbon trading for purposes of meeting their ESG (Environmental, Social, and Governance) obligation targets.

 

Carbon Credit Price: Tendencies and Issues

As with any commodity, carbon credit price changes with supply and demand, government spending, and global economy indicators or conditions. In India, the carbon credit price has traditionally been lower when compared to developed countries because of oversupply. But as controls tighten, carbon credit prices will increase making investment into sustainability more appealing.

1. Causes for Variation in Carbon Credit Price

• Regulatory Policies: Increased carbon emission targets boost the price of available carbon credits.
• Market Demand: Increased consumption from the industries leads to increased carbon credit prices.
• Project Type: Higher carbon credit prices are mostly associated with renewable energy projects.

 

2. Issues in The Carbon Credit Trading System

• Lack of Understanding: There are industries that still have not harnessed the positive effects of the carbon credits scheme.
• Market Instability: Changes in carbon credit values create uncertainty about investments.
• Policy Instability: Constant changes in policies reduce the global competitiveness of the region.

 

The Carbon Credit System in India

Carbon credit trading system in India will get an impetus because of the country’s goal of achieving net-zero emission by 2070. The market of carbon credits in India is expected to get better with support from the government, participation from corporates, and assistance from other nations.

1. Broadening the Indian Carbon Market

With steps like the Green Credit Program and increased participation in international carbon credit trading schemes, tremendous investment is expected in this country’s market.

2. Increasing Prices of Carbon Credit

The price of carbon credit is expected to rise as demand goes up, which will enable industries to invest in cleaner technologies.

3. Linking with International Markets

Linking the market of carbon credits in India with international systems of carbon trading will boost its credibility while providing economic benefits.

 

Conclusion 

The carbon credits in India scenario is still nascent and is fraught with opportunities for industries, investors and even the government. The carbon credit trading scheme has a dual benefit. While it aims to assist in lowering the excess emission of carbon gases, it also helps develop a sustainable economy. With the rise in price for carbon credit and tightening regulations, it is now or never when adapting to trading carbon credits to create a positive impact on the environment.

India is poised between economic development and ecological sustainability. Thus, the carbon credit market in India is evolving and needs more focus and acceptance because using carbon credits can help usher in a clean, sustainable, and prosperous future.