A similar market collapsed earlier for the lack of strict caps on emissions for companies. Despite that, the govt is starting off without any caps at all.
Reducing greenhouse gas emissions to arrest climate change costs upfront money - investments and capital. We, as citizens, bear this cost on our economy.
If the green investments are well used, we all gain.
But if select industries make money from it while we all pay...
But I am getting ahead of the story. Let's first understand what a carbon market is all about. And why is it needed? Here's a simplified explainer video:
And, if you prefer to understand the carbon market in written words, here goes. My best attempt to explain it without all the carbon jargon and technical terms.
India has committed to reduce its carbon emissions under the Paris Agreement. It would now have to set targets for industries to achieve these reductions. Say cement plant A is ordered to reduce its emissions by 100 tonnes over next year.
The cement plant A invests in green technology to do so. It ends up reducing its emissions by an impressive 150 tonnes instead. An extra 50.What if this could sell this excess savings to another cement plant B which could not achieve its target?
If we set up a market for such over-achievers and underachievers they could trade in 'carbon savings' and the overachievers would get to recoup some of their investment while the underachievers would get to pay for some of the savings.
If each tonne of saved emissions is turned into a carbon certificate then they could trade in these certificates like a commodity.
The demand by underachievers and supply by overachievers of 'carbon savings' in the market decides the price of carbon certificates at any given time.
The hope is, the government sets such high standards of emission reduction that the carbon price is high enough for industries get encouraged to invest in their own factories going green rather than endlessly buying the carbon certificates.
But that hope seems lost in Indian govt's plans. Let me explain why.
It is planning to start with a carbon market where no industry has any mandatory standards to achieve! A voluntary market, as it is called.
If there is no minimum emission reduction target to be achieved, why would industries invest in green tech or carbon certificates?
Where would the 'demand' for carbon savings arise? Experts told us they couldn't grasp the reason behind government choosing to set up a voluntary market. A domain of private trading with no government imposed mandate.
The government says it's doing this as the first step. In some years it would set standards too. But allow Indian industries to trade in carbon emission savings only within the country. Not internationally.
India's previous experiment with a proxy domestic carbon trade flopped. The standards were set so low that industries had walk in the park. Too many certificates (in energy savings) were generated and there were few buyers. The market collapsed. Repeatedly.
The new domestic trade in carbon certificates would be fraught with the same challenge - who would want to buy. Everyone would be a seller.
So what's wrong if the government allows Indian industries to sell their carbon credits in the international market?
A carbon credit sold outside India would mean- the emission reduction represented by it would not be counted towards India's climate action target. It will go in the buyer nation's kitty.
To achieve its target, India would have to achieve yet more emission reductions. And the more you reduce emissions the higher the cost to the country - you and I.
In other words, some Indian corporates would earn from selling their carbon certificates, but citizens would end up paying for the additional lifting the nation as a whole has to do to meet its targets.
This is the reason the government initially mulled banning export of carbon credits. And then soon made a U-turn. It cannot make up its mind and it has postponed deciding these crucial details for now.
It is fumbling its way to the market.
India could have directly started the compliance market whenever it was ready. But this hurried entry is for posturing, experts suggested. Especially after China started its emission trading system in 2021. India has to show it is in the game!
Many researchers and journalists have previously written analytical pieces on how India needs to measure its steps as it goes on its carbon market journey. They make for excellent reading.
Linking some in the next tweet.
Nishtha Singh and Vaibhav Chaturvedi from CEEW write about the lack of clarity around India's gov't-administered voluntary market . They also bring out key takeaways from discussion with stakeholders. Read the paper here.
An investigation by The Guardian, Die Zeit and SourceMaterial on "phantom credits" that do not represent any real reduction in carbon emissions. Read the story here.