Let's explore the global Carbon Market, initiatives taken by various countries in the field of Carbon Market
What is Carbon Market and how are they regulated?
Carbon markets are specialized type of financial market, through which carbon credits are bought and sold. The objective of the carbon market is to achieve climate targets and implement climate actions cost effectively. The Indian Carbon Market (ICM) is launched to attract private sector participation and investments in key transition for low-carbon pathways.
Some carbon markets are regulated by governments or by international bodies, with certain industries required to participate, while others are entirely voluntary. Do you know how is Indian Carbon Market regulated.
You are right, Indian Carbon Market is voluntary.
History of Carbon Market
Voluntary Carbon market has existed since decades, but it was in 1992 when carbon emission trading began in Rio de Janeiro , when 160 countries agreed the UN Framework Convention on Climate Change (UNFCCC). But, Carbon trading began officially in 1997 under the United Nations’ Kyoto Protocol on climate change which had more than 150 nation signatories. Unfortunately, this was not a great success as widespread adoption remained elusive because of absence of US and China from the agreement. Later, with Agreements on Paris Agreement on carbon markets and US, China joining hands together to work on the carbon market, it has evolved extensively.
Looking at the timeline of evolution of carbon market, now, let's explore the various compliance schemes brought up by different countries globally such as European Union Emission Trading System was brought up in 2005, New Zealand came up with its Emission Trading System in 2008 and so on. Let's have a look at the below diagram to understand more about the International Agreements, International Target Periods, International Carbon Market, Compliance Schemes examples, Independent Standards examples and lot more.
Now let's understand the prospect of India's Voluntary Carbon Market.
The Indian Carbon Market is growing exponentially and it will continue to grow exponentially with the increasing impact of climate change globally. India is already leading in the voluntary carbon market with a valuation exceeding $1.2 billion and 1,451 projects registered or under various stages of consideration across two prominent registries, Verra and Gold Standard. Driven by corporate actions towards carbon neutrality and ESG commitments, with India leading approximately 30% of the global market. It is expected to reach $250 billion by 2050, with the potential to drive $75 billion in FDI to India.
Types of Carbon Credit Certificates:
Let's take an in-depth look at the different types of Carbon Credit Certificates, and explore the differences between these three carbon credit certificate. India's Carbon Market (ICM) is structured into compliance and offset markets, issuing three types of Carbon Credit Certificates (CCCs):
1️⃣ Converted CCCs (C-CCC): Issued to entities following the conversion of ESCerts and RECerts.
2️⃣ Offset Carbon Certificates (O-CCC): Granted to entities via the carbon offset mechanism.
3️⃣ Mandatory Carbon Credit Certificates (M-CCC): Given to entities after reaching Phase 2 targets of the Indian Carbon Market.
Difference between the three types of Carbon Credit Certificates
We have understood the terminologies of different Carbon Credit Certificate now let's understand the key difference between these three carbon credit certificate which are listed below in this diagram. The difference between the C-CCC, O-CCC, M-CCC are based on the various parameters such as its source, purpose, and compliance level, etc.
India's Initiative in the field of Carbon Market
India has undertaken a number of initiatives for the development of carbon market to fulfill its commitment to become net zero by 2070. India finalized the framework for its Carbon Credit Trading Scheme (CCTS) for the Indian Carbon Market (ICM) via gazette notification on June 28, 2023 and it was revised recently on July, 2024.
Currently India is also operating two market-based emission reduction schemes: the Perform, Achieve and Trade (PAT) scheme and the Renewable Energy Certificates (REC) system.
Conclusion
In conclusion, we can say that carbon market has been growing exponentially globally, especially the Indian Carbon Market. Indian Carbon Market has become one of the leader in this market and it is expected to grow with the climate change.
In the next blog we will understand about Article 6.2 and explore the intricacies of Paris Agreement.
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