Energy Conservation (Amendment) Bill, 2022 and Carbon Credits

Energy Conservation (Amendment) Bill, 2022 and Carbon Credits

Why in news :

• The Energy Conservation (Amendment) Bill, 2022 has been passed in parliament.
• The opposition demand of sending the bill for parliamentary committee has been neglected.
• The bill empowers the central government to establish carbon markets in India and also to specify a carbon credit trading scheme.
• The central government or an authorized agency will be able to issue carbon credit certificates which are tradable under the Bill.

What are Carbon Markets and what is their working mechanism?

• Carbon markets are basically a tool for putting a price on carbon emissions.
• They generally establish a trading system where carbon credits can be bought and sold.
• A carbon credit is a kind of tradable permit.
• As per the United Nations standards it is equal to one tonne of carbon dioxide removed, reduced, or sequestered from the atmosphere.

International working mechanism :

• Article 6 of the Paris agreement 2015, provides for the use of international carbon markets by countries to fulfill their nationally determined contributions.

India’s NDC at 2015 Paris Agreement :

• A recent UNDP report released this year noted that interest in carbon markets is growing globally.

Types of Carbon Markets :

• Broadly, there are two types of carbon markets which are commonly used in today’s world.
• They are :
  1. Compliance markets
  2. Voluntary markets
• Voluntary markets :
  • These are markets in which emitters- corporations, private individuals, and others buy the carbon credits to offset the emission of one tonne of CO2 or an equivalent greenhouse gas.
  • These carbon credits are created by activities which reduce CO2 from the air, such as afforestation.
• Complince markets :
  • These are also called as regulatory markets.
  • In this type of market, a corporation looking to compensate for its unavoidable emissions, purchases carbon credits.
  • It can buy from an entity engaged in projects that reduce, remove, capture or avoid emissions.
  • For example, in the aviation sector, airlines may purchase carbon credits to offset the carbon footprint of the flights they operate.

Issues related to the carbon Markets Mechanism :

• The UNDP points out serious concerns in the accounting standards in the carbon markets mechanism.
• They are :
  1. Double counting of greenhouse gas emissions.
  2. Quality and authenticity of climate projects that generate credits.
  3. Poor market transparency
  4. Greenwashing : it is a practice in which companies in reality are not reducing any emissions but they claim that they are reducing the emissions.

The concerns associated with the new Bill :

• The bill does not provide clarity on the mechanism to be used for the trading of carbon credit certificates.
• The bill is also silent in who will regulate such trading.
• In other countries, the market schemes are framed by environment ministries while in India it is by Power ministry.
• The bill also does not specify whether certificates under already existing schemes also be interchangeable and tradable with the carbon credit mechanisms.

Syllabus : Prelims + Mains; GS3 – Environment