At the COP26 meet held at Glasgow, UK, the pithy term LiFE (Lifestyle for Environment) was introduced as a 'one-word' movement for combatting climate change. The recently draft Green Credit Programme Implementation Rules, 2023 (Rules) published by the Ministry or Environment, Forests and Climate Change provide more complexion. LiFE is a 'grassroot, mass movement for combating climate change, enhancing environment actions to propagate a healthy and sustainable way of living based on traditions and values of conservation and moderation, and for sustainable and environment-friendly development'. One of the ways in which this ambitious objective is sought to be met is by instituting a Green Credit Programme (Programme) under the framework of the Rules.
The Programme is conceptualized as a market-based mechanism to promote LiFE. It aims at incentivizing voluntary environmental actions by stakeholders, private industries and other persons to generate or buy Green Credits (GCs) to meet their obligations stemming from other legal frameworks. The Rules provide no details about the other frameworks referred to.
The Programme would be implemented in a phased approach. In the first phase, sectors targeted would be geared towards increasing green cover, promoting water conservation, water use efficiency/savings, sustainable agriculture practices, sustainable and improved practices for waste management, measures for reduction of air pollution, mangrove conservation and restoration and encouraging manufactures to obtain the Ecomark label and construction of buildings and other infrastructure using sustainable technologies and materials. The current scope however seems limited and could benefit from wider objectives.
The Rules contemplate implementation of the Programme by a Green Credit Programme Administrator (Administrator), being the Indian Council of Forestry Research and Education. Given the sectors involved, whether the Council has the expertise and the independence necessary to undertake its functions remains a question.
The functions of the Administrator include the maintenance of the Green Credit Registry for registration of entities and issuance and recording of green credits. The Administrator has also been tasked with issuance of guidelines for the establishment and operation of a trading platform. It is important to note, however that both these functions would ordinarily fall within the expertise and purview of market depositories and regulators These functions being critical to the development of the Programme, it is important that the current Rules to be examined in this regard.
The Programme vis-à-vis the Carbon Credit Mechanism
In May 2023, the Ministry of Power announced that the Government intends to develop the Indian Carbon Market to decarbonize the Indian economy. It was also indicated that a voluntary mechanism would concurrently be developed to encourage GHG reduction from non-obligated sectors. The Programme appears to be this voluntary mechanism.
Thus, the Programme is distinct from the carbon credit mechanism envisioned under the Energy Conservation (Amendment) Act, 2022 (ECA), which seeks to empower the Central Government to notify a carbon credit trading scheme for reduction of carbon emissions pursuant to which carbon credit (CC) certificates would be issued by the Central Government or authorized agencies. The ECA contemplates the establishment of a CC trading scheme, where CCs would permit the CO2 or other greenhouse emissions.
Interestingly, the Rules consider a reduction of carbon as a co-benefit of an environmental activity generating GCs. Hence, the same activity could simultaneously generate CCs.
Green attributes in the form of Energy Savings Certificates (ESCerts) and Renewable Energy Certificates (RECs) already exist. While ESCerts can be purchased by designated entities not meeting their energy saving targets, RECs are purchased by energy generators, distribution licensees and open access consumers that are legally mandated to procure renewable energy (RE) to offset such obligation, where they cannot obtain RE.
Trading of credits
The various green attributes form independent mechanisms for achieving similar purposes. ESCerts and RECs are currently traded in Indian energy markets, and it is likely CCs and GCs may as well. However, there appears to be no fungibility of credits or unified markets, which adds complexity. Further, how India's Nationally Determined Contributions (NDCs) would be met through different credits and the values to be attributed to them, especially where activities under the Programme could generate multiple types of credits remains uncertain.
Voluntary carbon credits registered through international agencies have long been generated and sold by Indian businesses. However, there have been widespread allegations in recent times that such credits are without substance and mere attempts to 'greenwash'. A robust monitoring and evaluation system is therefore required for GCs and all other attributes. Having unrelated attributes under different systems arising from the same activities could have a counterproductive effect. An integrated national and perhaps international system should be considered to effectively achieve climate goals.
However, this seems like a distant goal, given that the Minister of Power, New & Renewable Energy, R K Singh, in August last year indicated that carbon credits exports would be banned until India's climate goals are met. A clarification was subsequently issued to indicate that surplus carbon credits could be exported and the ban on exporting carbon credits would only be to the extent necessary meeting for India's own NDCs. Whether export of GCs would also similarly be banned, remains to be seen. It may be noted that the sector objectives of the Programme are aligned to the eligible activities for issuance of attributes by international agencies. Sale of credits overseas have generated great value for Indian businesses and have also invited foreign investments.
While the Rules are beset with certain challenges, these could be ironed out vide the public consultation process. If the final Rules are framed after considering public suggestions and are implemented effectively, the Programme could play a vital role in offsetting carbon emissions and promoting sustainability. Given that the Programme is purely voluntary, it would be important to not place too many fetters on the sectors and the activities that can be undertaken pursuant thereto.
Further, it may at some point be necessary to create a framework of the various green attributes available for trade in the Indian market and their interdependence or permitting their inter-tradability. The export of green attributes without compromising India's NDC targets and climate goals should also be seriously considered in order to boost their generation.
- The Article has been published in ET Energy World
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