Opinion: Combating climate change via carbon credits

In today’s world, climate change is a reality we have to contend with and among the various measures undertaken to combat it, carbon credits can prove to be an effective solution. 

Carbon credits can help in achieving net zero goals and inculcate better business practices as well. 

Carbon Credits are actively carving a distinctive niche in combating climate change, by causing quantifiable greenhouse gas reductions which are being achieved through projects or activities such as renewable energy initiatives and reforestation efforts. Weaving a new framework in the climate space, carbon credits incentivize sustainable practices by assigning a financial value to reductions in GHG emissions. 

How carbon credits work 

Carbon credits refer to units of measurement that signify the reduction of greenhouse gas emissions below a particular threshold. In such cases, respective entities accumulate these carbon credits when they engage in related activities. Notably, one carbon credit corresponds to one metric ton of CO2 or equivalent emissions that have been removed. 

Rooted in enhancing international cooperation, and promoting worldwide green investment, Carbon offsets can also be traded within the market. Mirroring the typical market setup, it creates an intricate relationship between buyers, sellers, and the object which is none other than carbon credits. Today, there are primarily two carbon credit markets, voluntary and regulatory compliance markets.

Within the former, although buyers are not legally obligated to curb emissions, proceed with it voluntarily to foster a healthier eco-space, despite it incurring a high cost. On the opposite threshold, the compliance market is concerned with entities that are legally obliged to reduce emissions. Based on a cap and trade mechanism, a specific level of emission is set by the authority, as per which respective entities have to reduce their emissions. Upon success, they receive carbon credits. 

Carbon credits in India 

The Ministry of Power, and the Ministry of Environment, Forest, and Climate change have augmented the Carbon Credit Trading scheme, which aims at decarbonisation of India's landscape. In tandem, the government is working towards developing the Indian Carbon Market (ICM) where a national framework will be established with the objective to decarbonise the Indian economy by pricing GreenHouse Gas (GHG) emissions through trading of the Carbon Credit Certificates. 

At the same time, the ICM will mobilise new mitigating opportunities via the demand generated for emission credits by both public and private entities alike. Within a growing economy like India, a competitive carbon credit market will be instrumental in enabling the reduction of GHG emissions at the least cost. Thus by accelerating this transition, ICM will help India in achieving the NDC goal of reducing Emissions Intensity of the GDP by 45 percent by 2030.  

committed to advancing the voluntary carbon credit market, the government has also introduced the ‘offset mechanism’, which is aimed at penetrating India’s carbon credit. As per the new mechanism, the non-obligated entities that were previously only allowed to purchase credit can now register their projects for accounting for greenhouse gas emission reduction for issuance of carbon credit certificates. 

Role of EV and carbon credits 

For so long, India’s primary challenge in combating climate change has been the increased carbon footprint caused due to the never-ending proliferation of internal combustion engine (ICE) vehicles. Infact, over the past decade CO2 emissions from the transportation sector alone have tripled in the country. Having said that, the advent of EVs is actively paving a new path in India’s sustainability endeavours, with the domestic electric vehicle market expected to grow at a CAGR of 49% between 2022 and 2030.  

In tandem with this, a plethora of carbon credit projects are also focusing on the penetration of EVs, along with the establishment of charging stations. In light of this, companies that are switching to EVs from ICE vehicles for logistics, will be able to generate carbon credits through either of the two approaches, Clean Development Mechanism (CDM) and Voluntary Carbon Standards (VCS). Thus, it's an understatement to say that EVs can play a significant role in accelerating the expansion of India's carbon credit market. 

The interconnected relationship between EVs and carbon credits is poised to deepen further, with EVs set to become the major contributor towards generating carbon credits. With active investments in the proliferation of EVs, the landscape of carbon credits is automatically within the loop of exponential growth.