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Carbon Credits and RECs in India for Beginners
Carbon Credits and RECs in India for Beginners
One megawatt-hour (MWh) of electricity produced from a renewable energy source and delivered into the grid is attested by a Renewable Energy Certificate (REC).
RECs do not directly reduce emissions, in contrast to carbon credits. Rather, they stand for the environmental benefits of producing electricity using renewable resources. Renewable energy is physically identical to conventional electricity when it is generated and fed into the grid. RECs aid in monitoring and confirming the production of renewable energy.
In order to support renewable energy and assist obligated firms in fulfilling their Renewable Purchase Obligations (RPOs), RECs were created in India. State electrical regulatory commissions enforce these duties, which are governed by the Central electrical Regulatory Commission (CERC).
Key Distinction: RECs vs. Carbon Credits
Although RECs and carbon credits both support environmental sustainability, their functions and designs are very different.
The goal of carbon credits is to cut or eliminate greenhouse gas emissions. They use carbon dioxide equivalent reductions as a direct indicator of climate impact.
RECs, however, attest to the production of renewable energy. By promoting the generation of clean energy, they indirectly help to reduce emissions even though they do not directly assess carbon reductions.
To put it simply:
- Units of emission reduction equal carbon credits.
- RECs are proof of renewable electricity output.
When creating a business sustainability or ESG strategy, it is essential to comprehend this differential.
How India’s Carbon Credits Operate?
One of the world’s biggest exporters of carbon credits for a long time has been India. Indian forestry, waste management, and renewable energy projects have produced millions of credits under international climate frameworks.
In India now, carbon credits are sold in two primary markets:
- The market for voluntary carbon (VCM)
Carbon credits are voluntary purchases made by businesses to offset emissions and fulfill sustainability pledges. To reach net-zero goals, a large number of international firms doing business in India rely on voluntary carbon markets.
- Carbon Market for Compliance
Under the Energy Conservation Amendment Act, India is currently formalizing a domestic carbon trading system. Some industries will have to buy credits or cut emissions in order to compete in this new market.
How Indian RECs Operate
In India, the REC mechanism was implemented to support the expansion of renewable energy in all states. Due to the unequal geographic distribution of renewable resources, RECs enable governments with limited renewable capability to fulfill their Renewable Purchase Obligations.
This is how it operates:
- Electricity is generated by a renewable energy generator.
- The grid purchases the electricity at standard rates.
- One REC is awarded for the environmental attribute (1 MWh of renewable energy).
- Power exchanges are where RECs are traded.
- RECs are purchased by required entities in order to comply with RPO.
Authorities like the Central Electricity Regulatory Commission oversee REC trading, which occurs on authorized markets.
Important Distinctions Between RECs and Carbon Credits
- Goal
- Reducing greenhouse gas emissions is the goal of carbon credits.
- The goal of RECs is to encourage the production of renewable energy.
- Measurement Unit
- The unit of measurement for carbon credits is metric tons of CO₂ equivalent.
- Megawatt-hours of renewable electricity are used to measure RECs.
- Type of Market
- There are two markets for carbon credits: voluntary and compliance.
- The main framework in which RECs operate is regulatory compliance for renewable procurement requirements.
- Effects
- Emissions are immediately offset by carbon credits.
- By promoting the generation of clean energy, RECs indirectly lower emissions.
The Significance of Businesses
Businesses in all industries must include climate strategies into their operations in light of India’s promise to reaching net-zero emissions by 2070.
Carbon credits benefit businesses by:
- Offset emissions that cannot be avoided
- Fulfill the standards for ESG reporting
- Boost the reputation of your brand
- Draw in investors who are interested in sustainability
RECs benefit businesses by:
- Respect the Requirements for Renewable Purchases
- Show that you use renewable energy.
- Encourage India’s shift to sustainable energy
Understanding both methods is crucial for businesses in the steel, cement, energy, manufacturing, and heavy industries to maintain long-term competitiveness and comply with regulations.
India’s Regulatory Environment
The climate regulation landscape in India is changing quickly.
Policy changes under the Ministry of Power and Bureau of Energy Efficiency are influencing carbon markets. It is anticipated that a national carbon credit trading program will codify the obligations for emission-intensive industries to comply.
RECs are subject to central and state commissions’ Renewable Purchase Obligations and are overseen by electricity regulatory bodies.
India’s Carbon Markets’ Future
Over the next ten years, India’s carbon market is anticipated to expand considerably. Stronger local laws and rising demand for premium carbon credits worldwide should draw significant investment to Indian projects.
Concurrently, as India strives to reach 500 GW of non-fossil fuel capacity, the growth of renewable energy generation will continue to fuel REC demand.
Early comprehension of these dynamics will give businesses a strategic edge in investor confidence, cost control, and compliance preparation.
In conclusion: Carbon Credits and RECs in India for Beginners
It is essential for novices navigating India’s green economy to comprehend the distinction between Renewable Energy Certificates and Carbon Credits. Both tools support climate action, but they function differently and have different goals.
Carbon offsetting and quantifiable emission reductions are the main goals of carbon credits. RECs prioritize regulatory compliance and the production of power from renewable sources. They are essential components of India’s framework for renewable energy and climate change.
Understanding these ideas enables companies to make wise decisions, accomplish environmental objectives, and significantly contribute to India’s low-carbon future as sustainability becomes a key component of corporate strategy.
How Carbon Credits Are Created: The Full Process Explained for Indian Carbon Markets
How Carbon Credits Are Created: The Full Process Explained for Indian Carbon Markets