Centre Finalises National Designated Authority to Kick-start Carbon Markets

Syllabus: GS3/Environment and Conservation

Context

• The Ministry of Environment, Forest, and Climate Change has announced a ‘National Designated Authority (NDA)’ to enable a carbon emissions trading regime.

About

• It is a mandatory requirement under the provisions of the 2015 Paris Agreement.
  • Within the Paris Agreement, a section called Article 6 defines the contours under which such an emissions trading regime, or a market, can take shape. 
• Composition: A 21-member committee headed by the Secretary of the Environment Ministry.
  • Includes officials from the Ministry of External Affairs, the Ministry of Renewable Energy, NITI Aayog, and the Steel Ministry.
• Functions of NDA: Recommending to the Union government the list of activities that can be considered for the trading of emission reduction units from projects.
  • Modifying them from time to time, keeping in view national sustainable goals, country-specific criteria, and other national priorities; 
  • receive projects or activities for evaluation, approval, and authorisation; 
  • authorise the use of emission reduction units from projects for use towards the achievement of Nationally Determined Contributions (NDC).

Carbon Markets

• Carbon markets are trading systems in which carbon credits are sold and bought. 
• Companies or individuals can use carbon markets to compensate for their greenhouse gas emissions by purchasing carbon credits from entities that remove or reduce greenhouse gas emissions.
• One tradable carbon credit equals one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas reduced, sequestered, or avoided. 
• When a credit is used to reduce, sequester, or avoid emissions, it becomes an offset and is no longer tradable.
• There are broadly two types of carbon markets: compliance and voluntary. 
  • Compliance markets are created as a result of any national, regional, and/or international policy or regulatory requirement.
  • Voluntary carbon markets – national and international – refer to the issuance, buying, and selling of carbon credits voluntarily.

India’s Position in the Global Carbon Pricing Landscape

• India is moving towards a rate-based Emissions Trading System (ETS) with the adoption of the Carbon Credit Trading Scheme (CCTS) in 2024.
  • Rate-based ETS refers to a system where total emissions are not capped, but individual entities are allocated a performance benchmark that serves as a limit on their net emissions. 
• The national ETS will initially cover nine energy-intensive industrial sectors.
• The scheme focuses on emissions intensity, not absolute emissions caps.
• Credit Certificates will be issued to facilities that outperform benchmark emissions intensity levels.

Government Steps to Strengthen Carbon Market Readiness

• As highlighted during the COP 27, India balances its developmental needs with lower carbon emissions through Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC) principles. 
• India’s efforts include:
  • Mission LiFE and the Green Credit Program to promote a sustainable lifestyle.
  • Creation of the National Steering Committee for the Indian Carbon Market (NSCICM) and the Bureau of Energy Efficiency (BEE) under the Ministry of Power.
  • Incentives for private sector participation.

Conclusion

• As global markets evolve and instruments like CBAM create external pressures, India is aligning its policies to maintain competitiveness while achieving climate goals. 
• By focusing on emissions intensity rather than absolute caps, India’s rate-based ETS offers a pragmatic and flexible path forward, particularly for an economy balancing development with decarbonization. 

Source: TH