CSE Recommends Pathways For Upcoming Indian Carbon Market It is essential to free the carbon-intensive sectors from the PAT scheme at the earliest, so that CCTS is the only nation-wide scheme for these sectors, leaving no room for mismanagement and confusion.

As India is about to come up with national compliance-based carbon market, Centre for Science and Environment (CSE) has prepared a clear roadmap to help it along.

Finance Minister Nirmala Sitharaman in the Budget 2024 had announced that a plan and appropriate regulations will be put in place for the transition of hard-to-abate sectors from a Perform, Achieve and Trade (PAT) mode to an Indian Carbon Market (ICM) mode.

CSE in its report titled The Indian Carbon Market: Pathways towards an effective mechanism said that India has pledged to meet its Nationally Determined Contribution (NDC) targets by 2030, and aims for net-zero emissions by 2070, in line with the United Nations Framework Convention on Climate Change (UNFCCC) guidelines. To meet these ambitious goals, the country has set out on a pathway to develop and launch its own national compliance-based carbon market.

CSE director general Sunita Narain said, "The upcoming Indian Carbon Market scheme should kick start with a large coverage of the country's emissions. A single nation-wide carbon market scheme for carbon-intensive sectors should be brought in to ensure effective implementation and avoid any complexity. For this scheme to be effective, it also needs to ensure a high carbon price, data integrity and transparency."

The report has analysed four Emission Trading Schemes (ETS) in use worldwide: the European Union Emission Trading System, the Korean ETS, the Chinese ETS, and the Surat ETS. India's Perform, Achieve, and Trade (PAT) scheme, which specified energy reduction targets over three-year cycles, has also been assessed as it sets the base for the upcoming Indian Carbon Market scheme.

Says Nivit Yadav, programme director, industrial pollution, CSE,"The PAT scheme was initiated with the good intention of increasing energy efficiency in industrial sectors, but faced several shortcomings in implementation. Our analysis shows it has achieved marginal emissions reduction, which is not enough as India attempts to travel towards decarbonisation, especially in the hard-to-abate industries."

Challenges For Proposed New Scheme

Several global carbon markets have initially faced low carbon prices and market liquidity – India's PAT scheme had also faced the challenge of low pricing and excess availability of certificates.

So far, the PAT scheme has faced criticism for its goal-setting, which was perceived as lacking ambition: this has led to overachievement of targets and an oversupply of ESCerts, leading to a poor market price.

Running both schemes simultaneously can create confusion within the sector and companies. Currently, there are plans for entities completing their PAT cycle to receive CCTS targets, which might not be the best way to shortlist entities for the scheme. This does not give a clear signal to achieve maximum emission reduction from CCTS.

According to the CSE, it is essential to free the carbon-intensive sectors from the PAT scheme at the earliest, so that CCTS is the only nation-wide scheme for these sectors, leaving no room for mismanagement and confusion.

It is also essential for the upcoming carbon market to set ambitious targets, establish market stability mechanisms, set up a high floor price and implement sizable penalties effectively. Voluntary credits should be limited to less than five per cent and should be of high integrity.