INDIA’S CARBON CREDIT TRADING SCHEME: AN ASSESSMENT
Context
- The Government of India has announced Greenhouse Gas (GHG) emission intensity targets under the Carbon Credit Trading Scheme (CCTS) for 8 key industrial sectors.
- Sectors covered: Aluminium, Cement, Paper & Pulp, Chlor-Alkali, Iron & Steel, Textile, Petrochemicals, Petroleum Refineries
WHY ASSESSING AMBITION NEEDS A BROADER LENS?
Issue with Sector/Entity-Level Analysis
- Evaluating only individual sectors/entities does not reflect the national emissions reduction
- What truly matters is the aggregate emissions reduction across the entire economy.
Learning from the PAT Scheme
- Perform, Achieve and Trade (PAT) is India’s flagship energy efficiency program.
- Entities that exceed their targets can trade energy-saving certificates.
- Example (PAT Cycle I, 2012–2014):
- Sectors analyzed: Aluminium, Cement, Paper, Chlor-Alkali
- Mixed sector-wise performance, but overall energy intensity decreased when data was aggregated.
- Conclusion: Market mechanisms like PAT can drive economy-level efficiency improvements even if individual sector outcomes vary.
Market Principle
- The CCTS is based on an externality-driven market.
- The goal is economy-wide emissions reduction, not uniform sector-level success.
- Entity or sector-level targets mainly facilitate financial transfers, not necessarily emission cuts.
LIMITATIONS OF PAST DATA
Past Performance ≠ Future Ambition
- Comparing CCTS targets with historical PAT performance is not meaningful.
- Future targets must be more ambitious to meet climate goals.
Relevant Benchmark
- Targets should align with:
- India’s Nationally Determined Contributions (NDC) for 2030
- Net-Zero goal for 2070
Role of Economy-Wide Modelling
- Sector-specific targets cannot be directly compared to national targets.
- However, economy-wide modelling helps evaluate whether current targets are adequate.
HOW DO CCTS TARGETS COMPARE TO FUTURE DECARBONISATION NEEDS?
Model Projections (2025–2030)
- Energy sector: Requires a 3.44% annual reduction in emissions intensity per unit of GDP.
- Manufacturing sector: Needs a 2.53% annual reduction in Emissions Intensity of Value Added (EIVA).
Current CCTS Targets
- The average annual EIVA reduction for the 8 CCTS sectors is 1.68% (2023–24 to 2026–27).
- This is below the required pace:
- Manufacturing target: 2.53%
- Energy sector: 3.44%
Caveat
- The CCTS covers only a portion of the manufacturing sector.
- Still, this estimate indicates that current targets are likely not ambitious enough.
- More detailed modelling is needed for a precise assessment.
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