Assessing India’s Carbon Credit Trading Scheme Targets

Syllabus:

• GS2: Government policies and interventions for development in various sectors.
• GS3: Conservation, environmental pollution and degradation, environmental impact assessment; Indian Economy (Inclusive Growth).

Introduction: The Shift from Energy Efficiency to Emissions

India’s Carbon Credit Trading Scheme (CCTS), established under the Energy Conservation (Amendment) Act, 2022, marks a significant evolution in the country’s climate policy. It supersedes the earlier Perform, Achieve, and Trade (PAT) scheme, shifting the focus from energy efficiency to direct Greenhouse Gas (GHG) emission intensity reductions. The CCTS is a market-based mechanism designed to help India achieve its ambitious Nationally Determined Contributions (NDCs), specifically the target of reducing the emission intensity of its GDP by 45% by 2030 (from 2005 levels).

Key Targets and Mechanisms of the Scheme

The CCTS operates through a “baseline-and-credit” system and has two main components:

1. Compliance Mechanism: This is the core of the scheme. It mandates specific emission intensity targets for “obligated entities” in energy-intensive sectors.
   • Targeted Sectors: In its initial phase, the scheme covers eight major industrial sectors, including iron & steel, cement, aluminium, textiles, and petroleum refineries. These sectors collectively account for approximately 16% of India’s total GHG emissions.
   • Intensity-Based Targets: The targets are set in terms of tonnes of CO₂ equivalent (tCO2​e) per unit of product, with specific reduction trajectories for each sector. For instance, initial targets range from modest cuts of around 2-3% in the first year to more ambitious cuts of 3.3-7.5% in the second year for some sectors.
   • Trading System: Entities that exceed their reduction targets earn tradable Carbon Credit Certificates (CCCs). Entities that fail to meet their targets must purchase CCCs from the market or face penalties.
2. Offset Mechanism: This allows entities not covered under the compliance mechanism (e.g., in renewable energy, forestry, or agriculture) to voluntarily reduce emissions and earn credits, thereby creating a broader market and increasing liquidity.

Assessing the Targets: A Mixed Picture

The effectiveness and ambition of the CCTS targets are subject to both praise and criticism from experts.

Strengths:

• Aligning with National Commitments: The CCTS is a crucial policy tool to operationalize India’s NDCs at the sectoral level. By putting a price on carbon, it incentivizes industries to innovate and decarbonize.
• Flexible Approach: The intensity-based targets offer flexibility for India’s growing economy. As the economy expands, a company can increase its absolute emissions as long as it improves its efficiency (emissions per unit of output), balancing economic growth with climate action.
• Phased Implementation: The initial targets are designed to be modest and gradually become more stringent. This phased approach allows industries to adapt to the new framework without facing sudden, prohibitive costs, thereby ensuring political and economic feasibility.
• Preparing for Global Regulations: The CCTS prepares Indian industries for international regulations like the European Union’s Carbon Border Adjustment Mechanism (CBAM), which will impose a carbon tariff on high-carbon imports. A domestic carbon price helps Indian exporters remain competitive.

Weaknesses and Challenges:

• Lack of Aggressiveness: According to analyses by think tanks like the Council on Energy, Environment and Water (CEEW), the current targets appear less ambitious than required to meet India’s 2030 NDC goals. The combined average annual reduction rate for the eight targeted sectors is roughly 1.68%, which is lower than the required pace for the broader manufacturing sector (~2.53%) and the power sector (~3.44%).
• Limited Sectoral Coverage: The scheme currently excludes key sectors, most notably the power sector, which accounts for nearly 40% of India’s GHG emissions. This limited scope could hinder the overall impact of the scheme.
• Focus on Transactions over Outcomes: Critics argue that the scheme primarily guides financial transfers between industries and does not guarantee a net emissions reduction at the aggregate economy-wide level. An entity can meet its target by simply purchasing credits, without undertaking any actual in-house decarbonization.
• Implementation Risks: The success of the scheme depends on a robust Monitoring, Reporting, and Verification (MRV) framework, a reliable digital registry to prevent fraud, and strict enforcement. Past experience with the PAT scheme, where a large number of certificates remained unpurchased and penalties were not imposed, raises concerns about the CCTS’s enforcement mechanisms.

Conclusion and Way Forward

While India’s CCTS is a commendable step towards establishing a domestic carbon market, its targets are a starting point rather than a definitive solution. To be truly effective, the scheme’s targets must be periodically revised to become more ambitious, particularly for high-emitting industries. The government should consider expanding the scheme’s coverage to include the power sector and other major emitters. The final success of the CCTS will be determined not by the number of credits traded, but by its ability to drive a genuine, measurable, and large-scale decarbonization of India’s economy, ensuring the country meets its climate pledges without sacrificing its development ambitions.

Smoke and sulphur

Context

Environmental standards must be uniform across India.

Introduction

India’s Environment Ministry has rolled back its 2015 mandate that required coal power plants to install Flue Gas Desulphurisation (FGD) systems. This affects air pollution control, especially for sulphur dioxide (SO₂), a harmful gas. The decision, based on cost concerns and scientific advice, raises concerns about public health, policy consistency, and transparency in environmental decisions.

Policy Rollback: FGD Installation Exemptions

• The Environment Ministry has exempted most coal-fired power plants from installing Flue Gas Desulphurisation (FGD) systems.
• This reverses the 2015 mandate that required all such plants to adopt FGDs by 2017.
• India has around 180 coal power plants (with about 600 units), but only 8% have installed FGDs.
• Most of these compliant plants belong to the public-sector NTPC.

Why FGDs Matter: Health and Pollution Concerns

• FGD systems are designed to cut sulphur dioxide (SO₂) emissions, a harmful gas.
• SO₂ is monitored by the Central Pollution Control Board (CPCB) due to its potential to harm human health.
• SO₂ can also form sulphates in the air, which contribute to particulate matter (PM) pollution.

Weak Implementation: Reasons for Delay

• Reasons cited for the poor implementation of FGD norms:
  • Limited number of vendors
  • High installation costs
  • Potential rise in electricity bills
  • COVID-19 disruptions
• Despite missing the 2024 deadline, the Environment Ministry has formally rolled back the requirement.

Scientific Justifications for Exemption

• Expert appraisal committee findings:
  • Indian coal is naturally low in sulphur.
  • Cities with and without FGD units show similar SO₂ levels, both below permissible limits.
  • Concerns about sulphates are considered overstated.
  • Sulphates may have a cooling effect that offsets greenhouse warming — so reducing them might worsen climate change.
  • This view is supported by the Power Ministry.

IPCC Perspective: Nuanced View

• The IPCC does recognize sulphates’ temporary cooling effects.
• However, this is not seen as a benefit — just a side-effect, not a reason to retain SO₂ emissions.
• Relying on sulphates for cooling is scientifically controversial and not recommended.

Uneven Rules: Location-Based Exceptions

• A minority (about 20%) of plants must install FGDs by 2028:
  • Plants within 10 km of the NCR
  • In cities with over 1 million population
  • Located in pollution hotspots
• This creates inconsistent environmental standards across the country.

Call for Transparency: Public Debate Needed

• Changing pollution policy without a public, scientific debate weakens accountability.
• Revising norms should be science-led, but also transparent and consultative.
• Without open discussion, this move risks undermining public health and environmental trust.

Conclusion

Though the move may reduce costs and delays, it weakens pollution standards without wide public discussion. By applying different rules based on location and citing uncertain benefits of sulphates, the government risks undermining scientific credibility and climate goals. Strong, science-based policies and uniform regulations are vital to protect public health and maintain trust in environmental governance.