Global VCM gets 'negative signals' on India carbon market: report
Quantum Commodity Intelligence – India's emerging compliance carbon market will squeeze availability of offset credits to foreign buyers as the country's government will ringfence most of the country's future voluntary market potential for domestic companies, the Oxford Institute of Energy Studies said in an analysis published on Monday.
Soon to be the world's most populous nation, India has long been a major source of offset credits through the Kyoto protocol's market mechanisms and the voluntary carbon market – but could struggle to fulfil its growth potential, observers say, citing the government's hostility to future large-scale exports of carbon credits.
"In relation to international carbon markets, India is cautious about overselling mitigation outcomes internationally as this may impact the nationally-determined contribution (NDC) targets due to corresponding adjustments," said the OEIS report, which was published against the backdrop of an Indian government consultation on what carbon markets in India should look like.
Indian media in recent days have reported that the country is expected to announce details of the India Carbon Market (ICM) scheme in June to cover both compliance and voluntary markets, with credits being issued in 2025 by a new registry and exchange.
Under India's NDC, the country has committed to reducing emissions intensity of GDP 45% by 2030 compared with 2005 levels.
Although the Indian government – specifically the Bureau of Energy Efficiency – has already designated carve-outs (exemptions) for sectors that can export credits, several observers have voiced concerns that a restricted list is sending out negative signals to the market, the OEIS report added.
Under these exemptions, cross-border sales of offsets can only occur only when new, cutting-edge technologies – accompanied by the necessary finance – are provided to India by the project sponsor and are deployed through investment in carbon cutting project, OEIS explained.
Article 6 of the Paris Agreement, if made fully operational, in theory would enable major growth in opportunities to source offsets – but in practice the Indian government agency responsible for readiness with the international carbon market has stated that only a designated list of projects will be eligible to sell their offsets abroad.
These include renewable energy with storage (limited to the stored component, because generation is a mature technology); solar thermal power; offshore wind; green hydrogen; green ammonia; carbon capture utilization and storage; compressed biogas; emerging mobility solutions such as fuel cells); sophisticated technology for energy efficiency; sustainable aviation fuel; best available technologies in hard-to-abate sectors; and high voltage direct current transmission in conjunction with renewable energy projects.
Kyoto Controversy
This list also includes a range of projects in the marine environment, such as tidal energy, ocean thermal energy, ocean salt gradient energy, ocean wave energy, and ocean current energy.
The report also cites past experiences with the Kyoto Protocol's Clean Development Mechanism as a major reason for the reticence of Indian policymakers to engage fully with Article 6.
"A major trust deficit lingers after the debacle of the CDM in 2012, where millions of Indian certified emission reductions (CERs) lost their value overnight due to the decision of European buyers to stop purchasing from India and other countries, without consultation…They will keep a carve-out only where there is a clear benefit for India," the OEIS said.
Requirements
And even though India already has environmental compliance markets for particulate emissions and for renewable energy, along with other developing countries it will be a huge undertaking for India to deliver the required readiness in both compliance and voluntary carbon markets, the OEIS report added.
Many of these problems have already been acknowledged by the BEE in its draft ICM proposals, which outlined a long list of requirements to make carbon markets a success, such as price discovery for carbon, importance of monitoring, reporting and verification, combining existing renewable energy certificate schemes with a new national carbon market, the OEIS report said.
The BEE's draft has also committed the authorities to devising clear rules on additionality (proving that carbon finance is needed for a project to be viable); details on contribution to sustainable development; expanding the role of the VCM for domestic use; and supply–demand balance in the carbon credit market and avoidance of surplus credits.
