Carbon markets

In News: In order to facilitate the achievement of more ambitious climate change targets and ensure a faster transition to a low-carbon economy, the government is seeking to strengthen a 20-year law, called the Energy Conservation Act of 2001, which has powered the first phase of India’s shift to a more energy-efficient future.

The Bill to amend the Energy Conservation Act, 2001 –

• First, it seeks to make it compulsory for a select group of industrial, commercial and even residential consumers to use green energy. A prescribed minimum proportion of the energy they use must come from renewable or non-fossil fuel sources.
• Second, it seeks to establish a domestic carbon market and facilitate trade in carbon credits.

Importantly, the amendment Bill seeks to widen the scope of energy conservation to include large residential buildings as well. Till now, the energy conservation rules applied mainly on industrial and commercial complexes.

What are carbon markets?

Carbon markets allow the trade of carbon credits with the overall objective of bringing down emissions.

• These markets create incentives to reduce emissions or improve energy efficiency.
  • For example, an industrial unit which outperforms the emission standards stands to gain credits.
  • Another unit which is struggling to attain the prescribed standards can buy these credits and show compliance to these standards.
  • The unit that did better on the standards earns money by selling credits, while the buying unit is able to fulfill its operating obligations.
• Under the Kyoto Protocol, the predecessor to the Paris Agreement, carbon markets have worked at the international level as well.
  • As the world negotiated a new climate treaty in place of the Kyoto Protocol, the developed countries no longer felt the need to adhere to their targets under the Kyoto Protocol.
  • A similar carbon market is envisaged to work under the successor Paris Agreement, but its details are still being worked out.

Where else can we see Carbon Markets?

• Domestic or regional carbon markets are already functioning in several places, most notably in Europe, where an emission trading scheme (ETS) works on similar principles. Industrial units in Europe have prescribed emission standards to adhere to, and they buy and sell credits based on their performance. China, too, has a domestic carbon market.
• A similar scheme for incentivising energy efficiency has been running in India for over a decade now. This BEE scheme, called PAT, (or perform, achieve and trade) allows units to earn efficiency certificates if they outperform the prescribed efficiency standards.

Source: Indian Express