Carbon Trading in India:

Mechanism, Advantages, Policies, and Opportunities

1. Introduction: Why Carbon Trading Matters

Climate change is no longer a distant threat; it’s an economic reality. India, the third-largest emitter of greenhouse gases (GHGs), has pledged Net Zero emissions by 2070 under the Paris Agreement. To achieve this, India must transition to a low-carbon economy, and Carbon Trading will play a pivotal role in this transformation.

Carbon Trading is a market-based mechanism that allows companies to buy and sell carbon credits, incentivizing emission reduction across industries. It aligns environmental sustainability with financial gain, making decarbonization an economically viable pathway.

2. What is Carbon Trading and How Does It Work?

Carbon Trading enables entities to trade carbon credits, where 1 credit = 1 metric ton of CO₂ (or equivalent GHG) reduced or removed.

Two Main Approaches:

• Cap-and-Trade System:
  Government sets an emissions cap; companies exceeding it buy credits from those with surplus.
• Baseline and Credit System:
  Credits generated by projects that reduce emissions below a defined baseline.

Carbon Credit Explained

• Certified Emission Reduction (CER): Under Kyoto Protocol.
• Verified Carbon Unit (VCU): Under Voluntary Carbon Market (e.g., Verra).
• Energy Efficiency Certificates (ESCerts): Under PAT Scheme in India.

3. Global and Indian Carbon Markets

Global Carbon Market Overview

• EU ETS (European Union Emissions Trading Scheme): Largest carbon market, with credits priced at €80–100 per ton.
• China ETS: Covers power sector, world’s second-largest scheme.
• California Cap-and-Trade: Linked with Quebec system.

India’s Current Position

• India was one of the largest generators of carbon credits under Clean Development Mechanism (CDM) during the Kyoto Protocol.
• Over 1,500+ registered CDM projects, mainly renewable energy.
• Now moving toward a National Carbon Market with the Carbon Credit Trading Scheme (CCTS) announced in 2023.

4. Advantages of Carbon Trading for Businesses

1. Monetize Green Projects:
   Sell carbon credits generated from renewable energy, waste-to-energy, or afforestation projects.
2. Cost-Effective Decarbonization:
   Instead of expensive technology upgrades, companies can purchase credits to meet compliance.
3. Regulatory Compliance:
   Helps in meeting emission targets and Renewable Purchase Obligations (RPO).
4. Improved ESG & CSR Ratings:
   Enhances investor confidence and brand image.

5. Regulatory Framework for Carbon Trading in India

Key Laws & Policies

• Electricity Act, 2003: Introduced competition in power sector.
• Energy Conservation Act (Amendment), 2022: Legal basis for India’s carbon market.
• Carbon Credit Trading Scheme (CCTS) 2023: Framework for domestic carbon trading.
• Green Open Access Rules, 2022: Facilitates renewable procurement for industries.

Responsible Agencies

• Bureau of Energy Efficiency (BEE): Market design and oversight.
• CERC & SERCs: Regulatory approvals.
• MoP & MoEFCC: Policy formulation.

6. Platforms for Carbon Trading

International Standards

• Verra (VCS)
• Gold Standard
• Climate Action Reserve

Indian Platforms

• Indian Energy Exchange (IEX) – REC & green market.
• PXIL (Power Exchange India Limited).
• Upcoming National Carbon Credit Platform under BEE.

7. Types of Carbon Trading Instruments

• Carbon Credits (CER/VCU) – For emissions reduction projects.
• Renewable Energy Certificates (RECs) – For renewable energy generation.
• ESCerts (Energy Efficiency Certificates) – Under Perform, Achieve & Trade (PAT) scheme.
• Green Hydrogen Credits – Expected in future carbon markets.

8. Carbon Credit Pricing Trends

• Voluntary Market:
  $2 to $15 per credit depending on project type.
• Compliance Market:
  EU ETS: €80–100 per ton.
• Indian Market Outlook:
  With domestic trading expected by 2025, credit prices could stabilize between $10–$30 as demand rises.

9. Process for Businesses to Participate in Carbon Trading

Step 1: Identify Eligible Projects

• Renewable energy (Solar, Wind, Biomass).
• Energy efficiency (Captive power optimization).
• Waste management (Biogas, Landfill gas).
• Forestry (Carbon sequestration projects).

Step 2: Project Registration

• Choose a recognized standard (Gold Standard, Verra).
• Prepare Project Design Document (PDD).

Step 3: Monitoring & Verification

• Engage an accredited third-party validator.
• Submit monitoring reports as per protocol.

Step 4: Issuance of Credits

• Verified credits listed on registries.

Step 5: Trading

• Sell via brokers, voluntary markets, or upcoming Indian Carbon Market.

10. Who Can Benefit from Carbon Trading?

Industries

• Power (Thermal & Renewable).
• Cement & Steel.
• Fertilizer & Petrochemicals.
• IT & Data Centers (for carbon neutrality).

Project Developers

• Solar & Wind developers.
• Waste-to-energy plants.
• Agriculture & forestry ventures.

11. Challenges in Carbon Trading

• Policy Uncertainty: Domestic carbon market still evolving.
• Double Counting Risk: Need for robust verification.
• Price Volatility: In voluntary markets.
• High Transaction Costs: Validation & certification expenses.

12. Future Outlook for Carbon Trading in India

• Market Size:
  Estimated $10 billion by 2030 with Net Zero commitments.
• Integration with Global Markets:
  India expected to link its carbon market internationally.
• Digital Platforms & Blockchain:
  For transparent, real-time trading.
• Impact of CBAM (EU Carbon Border Tax):
  Indian exporters must adopt carbon credits to avoid penalties.

13. How UrjaOne Helps Companies in Carbon Trading

UrjaOne, India’s energy and sustainability marketplace, provides:
✔ Carbon Credit Advisory: Project identification & registration.
✔ End-to-End Compliance Support: For CCTS and global standards.
✔ Trading Assistance: Access to verified buyers & exchanges.
✔ Digital Carbon Tracking Tools: Monitor emissions and ESG reporting.
✔ Integrated Green Solutions: Solar EPC, Energy Audits, and Carbon Credits – all on one platform.

With UrjaOne, companies can monetize green projects, achieve Net Zero targets, and participate in India’s evolving carbon market effortlessly.

Conclusion

Carbon Trading is not just a compliance mechanism; it’s a strategic business opportunity. With India’s Carbon Credit Trading Scheme set to launch soon, early movers stand to gain financial and reputational advantages. Businesses investing in green projects today will become tomorrow’s sustainability leaders.

UrjaOne simplifies this transition by offering technology, compliance, and market connectivity for your carbon credit journey.