ISSUE OF CARBON CREDIT

 

There was a piece of news a few months ago that India may keep its carbon markets insulated from the international carbon trade under play.

Later, there was a course correction, and it was announced that we would not be operating in complete isolation. It was stated that the government is looking forward to engaging with the carbon markets abroad—emphasising, that this engagement would be limited, ensuring our domestic interests remain protected.

In my opinion, the following aspects are critical to our understanding while designing domestic carbon markets and the trading scheme:

1. In the current era of globalisation and liberalisation — our businesses, supply chains, and financial markets are extensively integrated with the outer world.

2. We live in a networked world and conducting business in isolation is not feasible.

3. Hence, it is essential for our domestic carbon markets to be safely integrated with the international carbon trading frameworks.

4. The European Union’s CBAM (Carbon Border Adjustment Mechanism) will have an adverse impact on Indian exports to the EU.

5. In all likelihood there might be several more discriminatory policy barriers, in line with CBAM, announced by other developed economies in the near future — impacting our cross-border trade.

6. Carbon emissions mitigation action is the reality of today’s globalised world, and facing it upfront by leveraging our negotiating strength would perhaps be the best and only way out of this new and emerging order in international business and trade.

7. There are three aspects which are peculiar to India when it comes to climate change.

First, India ranks much below in being responsible for its legacy contributions to the global emissions budget.

Second, when compared to most of the advanced economies the Indian per capita emissions are very low.

And, third, the direct and indirect cost of climate change impact borne by the individuals and the physical and natural capital of the country is disproportionately higher when compared with the contribution to the global emissions budget.

8. India may think of incorporating a mix of the above three aspects as the negotiating points while determining how domestic markets are aligned with the international carbon markets and border trade.

9. India needs to benchmark its business-wise emission standards and green taxonomy at the earliest. And, align it with the international framework for comparable, reliable and transparent information sharing across countries. Else, global trading or swapping of Indian certificates would not gain the desired traction.

10. India should actively collaborate in the IFRSF’s efforts to develop harmonised standards through the ISSB.