Global Carbon Credit to Fund India

 Global Carbon Credit to Fund India 

The global carbon credit market is promising to become a significant source of funding for development projects across the world. As the drive to curb global warming gathers pace, carbon markets have become increasingly fundamental to achieving net-zero green-house-gas(GHG) emissions. Institutional investors can play a critical role.

When countries set a limit, or cap, on greenhouse gas emissions, they create something of value: the right to emit. What happens if we apply market principles and rules? The countries or companies that reduce Carbon emissions below their cap have something to sell, an unused right to emit, measured in tonnes of CO2 equivalent. Countries and companies that don’t meet their target can buy these one-tonne units to make up the shortfall. This is called emissions trading, or cap and trade. The net affect on the atmosphere is the same, provided measurements are accurate – ie each unit represents a true one-tonne reduction below the cap – and each unit is used only once. This operates on clear rules and transparency. under Article 6 of the 2015 Paris Agreement on climate change , if one country pays for carbon emissions to be reduced in a second country, the first country can count those reductions towards its own national targets. 

The total value of global carbon markets grew by over 20 percent in 2020—the fourth consecutive year of record growth. Compliance carbon markets (CCMs),  where mandatory national, regional, or international  regimes trade and regulate carbon allowances, play an increasingly visible role in efforts to reduce  emissions. Voluntary carbon markets (VCMs), where companies and individuals trade carbon credits on a voluntary basis, play an important role in driving investment in carbon-compensation and - neutralisation projects to offset their emissions.

The volume of negative emissions needed to reduce emissions in line with the 1.5-degree warming goal, McKinsey estimates that annual global demand for carbon credits could reach up to 1.5 to 2.0 giga tons of carbon dioxide (GtCO2) by 2030 and up to 7 to 13 GtCO2 by 2050. Depending on different price scenarios and their underlying drivers, the market size in 2030 could be between $5 billion to $30 billion per year. The chief executive of the Institute of International Finance believes there is “huge upside potential” for voluntary carbon credits, predicting the market could be worth as much as $100 billion a year by 2050

India's carbon market is one of the fastest growing markets in the world and has already generated approximately 30 million carbon credits, the second highest transacted volumes in the world. The carbon trading market in India is growing faster than even information technology, bio technology and BPO sectors. 

The sellers could be anybody who saves CO2. The buyers  are sovereign markets, Compliance market & voluntary market typically companies, governments, municipalities or any other organisations. For example, companies like Google, Amazon and Apple have vowed to go ‘net zero’ by a certain date, which means their operations will put into the atmosphere no more greenhouse gases than they can absorb back. By using the carbon markets, entities can neutralise, or offset, their emissions by retiring carbon credits generated by projects that are reducing GHG emissions elsewhere. Of course, it is critical to ensure, or verify, that the emission reductions generated by these projects are actually occurring. 

There are many standards of mechanisms and programs to monetise the carbon credits like Certified emission reduction (CER), Verified Carbon Standards ( VCS), Gold Standard (GS), Global Carbon Council (GCC) Etc., Projects developed under any of these Program must follow a rigorous assessment process in order to be certified. project developers can be issued tradable GHG credits.  Those credits can then be sold on the open market and retired by individuals and companies as a means to offset their own emissions. Over time, this flexibility channels financing to clean, innovative businesses and technologies.

The  projects cover a diverse range of sectors, including Renewable energy (such as wind, Solar, hydroelectric, Biomass projects), forestry (including the avoidance of deforestation), and others. Emission reductions certified by any of the above mentioned program are eligible to be issued as Carbon credits, with one credit representing one metric tonne of greenhouse gas emissions reduced or removed from the atmosphere.

Conclusion : India has declared already net zero Carbon by 2070 in the COP26 held in 2021. India should focus on the public spending budgets and investments by Governments  towards Carbon credit generating projects to tap  the growing global carbon market funds.

The Author is Ramesh Shivanna , Director - Sadbhavana Ventures Pvt Ltd.  Director - FKCCI , email: ramesh@prideworld.in