CARBON MARKET
Source: indianexpress
Why in news?
In order to facilitate the achievement of more ambitious climate change targets and ensure a faster transition to a lower carbon economy, the government is seeking to strengthen a 20-year law, the Energy Conservation Act of 200, which has powered the first Phase of India's shift to a more energy-efficient future
Key takeaways
The bill to amend the Energy Conservation Act of 2001, which was introduced in Parliament has two main Objectives
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Carbon Market
- The creation of the domestic carbon market is one of the most significant provisions of the bill (Proposed Amendment bill)
- Carbon markets allow the trade of carbon credits with the overall objective of bringing down emissions
- These markets can create incentives to reduce emissions or improve energy efficiency
- For example, an industrial unit which outperforms the emission standards stands to gain credits and another unit which is struggling with the prescribed standards can buy these credits and show compliance with these standards
- The unit did better on the standards and earns money by selling credits while buying unit is able to fulfil its operating obligations
Kyoto Protocol
- Under the Kyoto Protocol, the predecessor to the Paris agreement, the carbon markets worked out well at the international level
- Kyoto Protocol had prescribed emission reduction targets for a group of developed countries
- Other countries did not have such targets, but they did reduce their emissions, and they could earn carbon credits
- These carbon credits could be sold off to those developed countries which had an obligation to reduce emissions but were unable to do so
- This system worked well for years, but the demand for carbon credit has gone down
- 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 Paris Agreement, but its details are being worked out
Conclusion
Europe
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 standards to adhere to, and they buy and sell credits based on their performance.
China too has a domestic carbon market
India
A similar scheme for incentivising energy efficiency has been running in India for a decade now.
BEE scheme called PAT, (perform, achieve and trade) allows units to earn efficiency certificates if they outperformed the prescribed standards
The laggards can buy these certificates to continue operating
However, the new carbon market that is proposed to be created through this amendment to the Energy Conservation Act, would be much wider in the scope
Although The details of this carbon market are not yet known, it is likely to be along the lines of European ETS, facilitating buying and selling of carbon credits
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