Hindu Editorial Analysis : 29-August-2024
In the recent Union Budget speech, the Indian government indicated a significant shift in how polluting industries, particularly iron, steel, and aluminium, will be regulated. These industries will now need to adhere to strict emission targets, moving from the current ‘Perform, Achieve, and Trade’ (PAT) system to the more comprehensive ‘Indian Carbon Market’ system.
Understanding Carbon Markets
Carbon markets play a crucial role in reducing greenhouse gas emissions through cap-and-trade programs. Here’s how they work:
- Cap-and-Trade Basics: Governments set an overall emissions cap and allocate specific limits to companies.
- Types of Carbon Markets:
- Voluntary Carbon Markets: Entities buy and sell carbon credits voluntarily, often generated by projects aimed at reducing emissions.
- Compliance Markets: These markets are established due to regulatory requirements, ensuring companies meet set emission limits.
How Carbon Markets Work
Carbon markets operate on a simple mechanism:
- Emission Caps: Each company is assigned a limit on how much it can emit.
- Carbon Credits: Each credit represents the removal of one tonne of carbon dioxide. Companies can trade these credits to manage their emissions effectively.
- Pricing Carbon: By assigning a price to carbon emissions, companies are incentivized to lower their output. If they emit less than allowed, they can sell their surplus credits; if they exceed their limit, they must buy additional credits.
India’s Carbon Market Landscape
India has a thriving voluntary carbon market valued at over $1.2 billion. It features:
- Registered Projects: 860 projects are generating voluntary carbon credits, focusing on areas like afforestation and renewable energy.
- Income Generation: Indian entities have earned approximately $652 million through these credits.
Moving from PAT to Carbon Markets
The transition from the PAT system to carbon markets marks a significant shift in India’s approach:
- Focus on Absolute Emissions: While PAT emphasizes energy efficiency, the new system prioritizes overall emissions reduction.
- Economic Incentives: Companies that reduce emissions earn tradable credits, encouraging a more proactive approach to sustainability.
India’s Climate Goals
India aims to balance development with emission reductions:
- Nationally Determined Contributions (NDCs): India plans to reduce the emissions intensity of GDP by 45% from 2005 levels by 2030.
- Establishing a Carbon Trading System: The government is working on the Energy Conservation (Amendment) Bill, 2022, to empower the creation of domestic carbon markets.
The Future of Carbon Markets
As India prepares to navigate the global carbon market landscape, it faces challenges and opportunities:
- Mitigating EU’s Carbon Border Adjustment Mechanism (CBAM): With the EU’s CBAM coming into effect soon, India is adopting measures to protect its high-emission industries.
- Upcoming International Agreements: The next Conference of the Parties (COP 28) will focus on establishing rules for carbon markets globally.
Why In News
In the recent Union Budget speech, it was signaled that polluting industries, such as iron, steel, and aluminium, must conform to stricter emission targets. To facilitate this shift, appropriate regulations are necessary to transition these industries from the current ‘Perform, Achieve, and Trade’ (PAT) mode to the ‘Indian Carbon Market’ mode, which aims to create a more robust framework for reducing carbon emissions and promoting sustainable practices.
MCQs about Transitioning to Carbon Markets: A New Era for India’s Polluting Industries
- What is the primary purpose of transitioning from the ‘Perform, Achieve, and Trade’ (PAT) system to the ‘Indian Carbon Market’?
A. To increase production in polluting industries
B. To enhance energy efficiency in all sectors
C. To enforce stricter emission targets for polluting industries
D. To eliminate all carbon emissions immediately
- Which of the following best describes carbon credits?
A. Financial penalties for exceeding emissions limits
B. Tradable permits representing the removal of one tonne of carbon dioxide
C. A form of tax levied on carbon emissions
D. Government grants for renewable energy projects
- What is a key feature of voluntary carbon markets?
A. They are regulated by the government.
B. They allow companies to trade credits on a mandatory basis.
C. They involve the issuance, buying, and selling of carbon credits on a voluntary basis.
D. They focus solely on large-scale industrial emissions.
- What challenge does India face regarding its climate goals?
A. Increasing fossil fuel production
B. Balancing development goals with emission reductions
C. Reducing investment in renewable energy
D. Implementing carbon trading without any external support
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