What are the evolving dynamics of India's carbon market? BigMint shares expert's insight

• India's carbon price in the near term expected to be $8-10/tCO2
  
  
• CCTS to contain offset mechanism to include entities outside PAT scheme
  
  
• BEE mulling AI-enabled monitoring and validation process in two years
  
  

Morning Brief: Saurabh Diddi, Director of the Bureau of Energy Efficiency (BEE) under the Ministry of Power, Government of India, recently took part in a webinar conducted by sentra.world in association with BigMint on 'Measuring & Reporting Techniques of Carbon Footprint'. Diddi highlighted the key features of India's emerging carbon market - the Carbon Credit Trading Scheme (CCTS) which was enabled by the Energy Conservation (Amendment) Act, 2022, allowing the central government to establish a carbon market by specifying a carbon credit trading scheme under the act.

Highlights from the webinar

Scope 3 emissions

The carbon credit trading scheme (CCTS) is not presently looking for Scope 3 emissions to be included. It is only partially included. However, from the point of view of the government's green taxonomy, the CCTS has to include many things in order to be able to calculate the footprint of the green steel finished product.

Target setting in CCTS

In terms of CCTS, BEE diverged from the erstwhile PAT scheme. In the steel sector, the Bureau has identified technologies for the next six years. Based on those technologies, BEE has calculated the investments required and the marginal abatement cost, which is the amount needed to be invested to save one tonne of CO2. There are technologies such as energy conservation technologies which will help steel producers actually cut costs, while there are other technologies such as CCUS which have to be implemented at significant costs but returns, in financial terms, may be zero.

So the marginal abatement cost has to be arrived at while, at the same time, ensuring that its impact on the price of steel is minimal - say 1%. So, if the emission reduction potential is around 15-20% and 40% of it is the target for 2027, in the case of steel, hardly 3 paise per kg is the impact on the cost, as per BEE calculations.

Incentive vs. market mechanism

The government has declared that about 37-40% of steel used in public infrastructure projects will be low-emissions steel and thereby it has directly created a market mechanism of favouring producers who produce efficiently and emit much lower compared with high-CO2 steel. This market-based mechanism is expected to deliver better results than incentives.

However, the CCTS is kind of an incentive: If an obligated entity is given a target of 6% reduction in emissions and achieves 8% that entity can sell the credits in the market.

Carbon price

The price of carbon credits in India should be in the vicinity of $8-10 at least and entities that leverage breakthrough technologies and reduce emissions can directly monetise by selling credits in the market.

Offset mechanism

One key difference between the Perform Achieve & Trade (PAT) scheme and the CCTS is the inclusion in the latter of a voluntary mechanism, or what the BEE calls an "offset mechanism". Industries other than the over 270 that were part of the PAT scheme can also participate in the CCTS offset mechanism, get their projects enlisted and generate carbon credits similar to the clean development mechanism (CDM) era following the Kyoto Protocol.

However, those projects cannot be solely related to a company's own business interests. They will have to demonstrate that the undertaking is directly beneficial to society. The offset mechanism will most likely be launched in the coming couple of months.

Verification process

Apart from physical checks and balances to verify emissions data of entities and developers, BEE is mulling to introduce AI-enabled processes in the future to ensure transparency and rigour in the monitoring and verification process. So, in around 2-3 years the CCTS will start relying heavily on advanced technologies such as AI.

Data security

All data submitted by entities are confidential and are treated as such by the BEE, whether relating to CCTS or PAT scheme. This is because of the direct linkage between the data and the business interests of the entities. Not even an RTI application can succeed in getting that data out. It can only be divulged by the submitters themselves.