Carbon Market


    In News

    Recently, a Bill to amend a 20-year law, the Energy Conservation Act 2001, was introduced in Parliament.


    • The Energy Conservation (Amendment) Bill, 2022, seeks to mandate:
      • Use of non-fossil sources, including biomass and ethanol for energy and feedstock
      • Use of green hydrogen and green ammonia.
    • Objectives: 
      • To make it compulsory for a select group of industrial, commercial and even residential consumers to use green energy. A prescribed minimum proportion of the energy they use must come from renewable or non-fossil fuel sources.
      • To establish a domestic carbon market and facilitate trade in carbon credits. 
      • To widen the scope of energy conservation to include large residential buildings as well. 

    About Carbon Market

    • Carbon markets allow the trade of carbon credits with the overall objective of bringing down emissions. 
    • These markets create incentives to reduce emissions or improve energy efficiency. 
      • For example, an industrial unit which outperforms the emission standards stands to gain credits. 
      • Another unit which is struggling to attain the prescribed standards can buy these credits and show compliance to these standards
      • The unit that did better on the standards earns money by selling credits, while the buying unit is able to fulfil its operating obligations.
    • International carbon markets:
      • Under the Kyoto Protocol, the predecessor to the Paris Agreement, carbon markets have worked at the international level as well. 
      • This system functioned well for a few years. But the market collapsed because of the lack of demand for carbon credits. 
      • As the world negotiated a new climate treaty in place of the Kyoto Protocol, the developed countries no longer felt the need to adhere to their targets under the Kyoto Protocol. 
      • A similar carbon market is envisaged to work under the successor Paris Agreement, but its details are still being worked out.
    • Domestic or regional carbon markets:
      • These are already functioning in several places, most notably in Europe, where an emission trading scheme (ETS) works on similar principles. 
      • A similar scheme for incentivising energy efficiency has been running in India for over a decade now. 
      • This BEE scheme, called PAT, (or perform, achieve and trade) allows units to earn efficiency certificates if they outperform the prescribed efficiency standards. The laggards can buy these certificates to continue operating.

    Source: IE