Adherence to the provisions of the Carbon Credits Trading Scheme, 2023, and compliance with them require expert legal assistance.
Introduction
The Indian Carbon Market (ICM) was established to facilitate India’s Nationally Determined Contributions (NDCs) under the Paris Agreement, 2015.
The ICM aims to mobilize finance and technology to meet these targets.
The entire ICM framework has been established pursuant to provisions of the Energy Conservation Act, 2001 and the Environment (Protection) Act, 1986.
The Carbon Credit Trading Scheme, 2023 (CCTS) was notified by the Central Government under Section 14(w) of the Energy Conservation Act, 2001.
Under the CCTS, the Bureau of Energy Efficiency (BEE) issued the “Detailed Procedure for Compliance Mechanism under the CCTS” (DPCM) specifying compliance procedures for obligated entities.
Compliance Mechanism
- The Ministry of Environment, Forest and Climate Change (MoEFCC) shall set emission targets in tons of CO2 equivalent (TCO2e) per unit of equivalent product.
- Each obligated entity shall receive annual targets for a trajectory period of three years.
- Entities that exceed their targets shall earn Carbon Credit Certificates (CCC).
- Entities failing to meet emission intensity targets shall purchase CCCs to achieve compliance.
GHG emission intensity targets have emerged as an important tool for measuring and managing climate impacts by companies, sectors and nations.
Unlike absolute emissions, intensity targets focus on emissions per unit of output, allowing greater flexibility and practical adaptation to changing business conditions.
Absolute Targets or Intensity Targets?
Four major factors must be considered while evaluating GHG emission targets:
- Whether the target is absolute or based on intensity.
- The practicality and stringency of the targets.
- The scope of applicability of the targets.
- Whether the targets are voluntary or legally binding.
Intensity targets provide flexibility to businesses undergoing expansion and growth.
For expanding companies, absolute targets may become difficult to achieve because production and operational activities increase over time.
Intensity targets evolve alongside operational growth and reward efficiency improvements.
However, one challenge associated with intensity targets is that total absolute emissions may still increase despite efficiency improvements.
Despite these challenges, intensity targets remain essential in the global fight against climate change.
For developing economies like India, which continue to experience rapid industrial growth, intensity targets provide a more balanced and practical approach compared to rigid absolute reduction targets.
GHG Emission Intensity Trajectory and Targets
Under the CCTS, the Central Government shall determine the obligated entities under the compliance mechanism based on recommendations of the National Steering Committee for Indian Carbon Market (NSCICM).
The greenhouse gases covered under the compliance mechanism include carbon dioxide (CO2) and perfluorocarbon (PFC) gases.
GHG emissions shall be converted into CO2 equivalent (CO2e) based on Global Warming Potential (GWP) values specified by the Intergovernmental Panel on Climate Change (IPCC).
The Bureau of Energy Efficiency (BEE), in consultation with the technical committee, shall develop sectoral GHG emission trajectories until 2030.
Trajectory Development
The GHG emission intensity trajectory will be developed considering:
- India’s Nationally Determined Contributions (NDCs).
- Potential for fuel switching and use of non-fossil fuels.
- Availability of technology and associated implementation costs.
The trajectory period shall be three years with annual targets assigned to obligated entities.
The technical committee established by BEE shall calculate baseline emissions and set emission intensity targets.
Calculating Emissions
The GHG emissions from an obligated entity shall be calculated by:
- Identifying all possible GHG emission sources.
- Including emissions from both energy use and industrial processes.
- Considering emissions from solid fuels, liquid fuels, gaseous fuels, purchased electricity and purchased heat.
- Including process-related emissions resulting from chemical reactions during production.
- Converting all emissions into tonnes of carbon dioxide equivalent (CO2e).
- Including notional emissions where intermediate products are imported within plant boundaries.
Excluded Emissions
Certain emissions are excluded from total GHG emission calculations:
- Emissions from biomass or biogenic energy sources.
- Renewable energy-based emissions.
- Emissions from approved alternate fuel co-processing.
- Captured and utilized emissions through carbon capture technologies.
- Emissions from residential colonies attached to industrial establishments.
- Refrigerant leakage emissions from office buildings.
- Exported captive energy production emissions.
- Other emissions excluded upon recommendation by technical committees.
These exclusions balance concerns relating to sustainability, energy security and economic growth.
By providing such exclusions, the Government continues supporting innovation and industrial growth while gradually transitioning toward stricter GHG accounting systems.
Production Calculation and Notification Process
The main product or equivalent product under the Energy Conservation Rules, 2012 shall be considered for production calculation.
If production of the primary product stops, the obligated entity must notify the Bureau of Energy Efficiency.
Baseline Year
GHG emissions for the baseline year shall be calculated using data submitted by the obligated entity and verified by accredited carbon verification agencies.
Report
The technical committee shall prepare a report regarding emission intensity targets and submit it to the BEE.
Examination
The BEE shall review the report and submit finalized recommendations to the NSCICM working group.
Ministry Recommendations
The Ministry of Power shall recommend GHG emission intensity targets to the MoEFCC.
Notification
After reviewing the recommendations, the MoEFCC shall officially notify annual GHG emission intensity targets for obligated entities.
View Point
Emission intensity targets remain an essential tool in combating climate change.
When designed with sufficient stringency, these targets can drive meaningful emissions reductions while providing companies flexibility to adapt and grow.
The Indian Carbon Market represents a major step toward integrating market-based mechanisms into environmental governance.
The Carbon Credit Trading Scheme has the potential to create a transparent and efficient market focused on reducing greenhouse gas emissions.
Integration of carbon credits within corporate sectors, including through CSR initiatives, can encourage sustainable industrial practices.
Regular reviews of the compliance framework are essential to ensure adaptability to technological developments and changing economic conditions.
Ashwini Panwar (Mr) and Priyanshi Aggarwal (Ms)
