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Deep Dive into the Indian Market
Deep Dive into the Indian Market
India is quickly becoming one of the major actors in sustainable development and global climate action. India, one of the fastest-growing major economies in the world and the third-largest producer of greenhouse emissions, must simultaneously maintain economic expansion and lower carbon intensity. The nation has created market-based tools like Renewable Energy Certificates (RECs) and Carbon Credits to address this. Although both tools promote environmental objectives, their regulatory, financial, and sustainability functions differ.
Businesses, investors, sustainability officers, renewable energy developers, and politicians must comprehend the distinction between RECs and Carbon Credits in the Indian market.
Comprehending India’s Carbon Credits
The reduction or elimination of one metric ton of carbon dioxide (CO₂) or its comparable greenhouse gasses is represented by tradable certificates called carbon credits. Projects that lower emissions in comparison to a baseline scenario produce these credits.
Historically, India has produced carbon credits through global frameworks such as the Kyoto Protocol’s Clean Development Mechanism (CDM). India’s extensive renewable energy capacity and energy efficiency initiatives have made it one of the world’s biggest providers of CDM credits.
India is now developing its own domestic carbon market under the Carbon Credit Trading Scheme (CCTS), announced by the Indian government, in response to growing global climate commitments. It is anticipated that the program will generate voluntary and compliance carbon markets at home.
Renewable Energy Certificates (RECs): What Are They?
Market-based documents known as Renewable Energy Certificates (RECs) serve as evidence that a single megawatt-hour (MWh) of power was produced using a renewable energy source, such as small hydro, wind, solar, or biomass.
In order to assist obligated firms in fulfilling Renewable Purchase Obligations (RPOs), RECs were created in India. RPO requires open access users, captive power producers, and some power distribution firms (DISCOMs) to buy a specific proportion of their electricity from renewable sources.
The Central Electricity Regulatory Commission (CERC) oversees the REC mechanism, which is traded on Indian power exchanges.
The regulatory environment around the carbon market in India
In order to support its obligation under the Paris Agreement, India’s regulatory environment is changing quickly. India has committed to achieving net-zero emissions by 2070 and lowering the GDP’s emissions intensity.
The Energy Conservation (Amendment) Act, 2022 provides the legal foundation for the Carbon Credit Trading Scheme (CCTS). The chosen nodal agency for implementation is the Bureau of Energy Efficiency.
It is anticipated that this new compliance carbon market will include energy-intensive industries like:
- Cement
- Steel
- Fertilizers with power
- Refineries
Obligated organizations will be able to trade carbon credits effectively thanks to the market’s operation through registered carbon exchanges.
Pricing Methods: RECs vs. Carbon Credits
- The cost of carbon credits in India
Pricing for carbon credits is based on:
- Type of project (methane capture, afforestation, renewable, etc.)
- Standard of verification
- Worldwide demand
- Obligations for compliance
- Corporate pledges made voluntarily
Domestic pricing trends are frequently influenced by international voluntary carbon markets. It is anticipated that domestic pricing will become more organized when India establishes its own compliance carbon market.
- REC Costing
The following factors affect REC prices:
- RPO objectives
- Compliance at the state level
- Increases in renewable capacity
- Modifications to regulations
Changes in the floor and forbearance pricing set by regulators have historically caused volatility in REC prices.
Businesses’ Function in the Indian Carbon Market
Corporates in India are embracing sustainability initiatives more frequently due to:
- Requirements for ESG reporting
- Expectations of investors
- Pressure on the global supply chain
- Net-zero pledges
Voluntary carbon markets and renewable procurement methods are being actively pursued by large Indian conglomerates and multinational firms operating in India.
Usually, businesses have to decide between:
- Purchase agreements for direct renewable energy
- REC acquisition for compliance with RPO
- Purchasing carbon credits to offset emissions
Regulatory requirements against voluntary sustainability objectives determine which tool is best.
Obstacles in the Indian Market
Despite robust policy backing, a number of obstacles still exist:
- Clarity of regulations throughout the shift to the compliance carbon market
- Volatility of prices in REC markets
- Insufficient knowledge among small and medium-sized businesses
- Infrastructure for monitoring and verification
- Double counting risk
For India to develop a strong and reliable market for environmental commodities, these issues must be resolved.
Future Prospects: India’s Carbon Credits vs. RECs
Over the next ten years, the Indian carbon market is expected to grow rapidly.
Important trends consist of:
- Growth of carbon trading sectors with compliance
- Connectivity to global carbon markets
- A rise in corporate voluntary involvement
- Digital systems for monitoring, reporting, and verification
- Increase in carbon exchanges
RECs will remain essential in promoting renewable energy, particularly as India raises its goal for renewable capacity above 500 GW.
However, because of national carbon regulations and international net-zero obligations, carbon credits are expected to grow more.
In conclusion: Deep Dive into the Indian Market
The ecosystem of environmental trading in India is about to undergo a radical change. In the nation’s pursuit of sustainability, carbon credits and renewable energy certificates play complementary but different roles.
Carbon credits enable emission reductions across industries and are in line with global climate goals, whereas RECs primarily assist the uptake of renewable energy under regulatory mandates.
India is creating one of the most promising carbon markets in the developing world with the introduction of the Carbon Credit Trading Scheme and the reinforcement of Renewable Purchase Obligations.