The Ministry of Environment, Forest and Climate Change (“MoEFCC”) has recently issued The Green Credit Rules 2023 (“ Rules”) in October 2023, which formally established the Green Credit Program (“GCP”) for India. Initially proposed as draft rules in June 2023, this program introduces a market-based approach to incentivise eight identified environmental activities. The main objective was to establish a mechanism where participants could earn incentives in the form of ‘Green Credits'.

The proposed GCP will be implemented in phases, with the initial phase focusing on water management and afforestation. Subsequent phases will cover activities such as sustainable agriculture, waste management, air pollution reduction, mangrove conservation and restoration, eco mark label development, and sustainable building and infrastructure. These activities will be undertaken gradually in the later phases of the programme.

Who can participate in the GCP?

Any person or entity, including individuals, farmers, cooperatives, businesses, and government agencies, has the opportunity to participate in the GCP. Even though GCP is not mandatory, many companies that can easily achieve their goals are likely to participate to earn credits for their commitments towards the environment and can sell any extra credits to make more money.

This could eventually make it easier for smaller companies, that cannot afford to invest in clean solutions (like green fuels, emission control technologies, waste collection, and segregation systems etc.) right now, to buy extra credits to meet their goals and create demand in the market for green credits. Earning green credits can also improve the goodwill of businesses and can make investors feel good about them, which can help to get funding for further clean solutions.

What's new?

1. Methodology

The Rules mention that the calculation would take into account factors like the resources needed, the size and scope of the project, and other relevant factors to ensure that the desired environmental result is achieved. For methodology, which would be used to calculate green credits for any activity undertaken will be notified by the central government. Till date, the MoEFCC has issued draft methodology for green credit based on tree plantation and water harvesting activity.

The process to earn green credit

  • Identifying eligible activities: The first step is to identify the activities that are eligible for green credits. This can be done by reviewing the list of eligible activities provided in the Rules.
  • Registering activities: Once eligible activities have been identified, they must be registered with the Administrator i.e. Indian Council of Forestry Research and Education (“ICERE”). The registration process is relatively straightforward and can be completed online through a dedicated mobile app or website. Further, the Administrator will establish guidelines for activities to be registered through self-certification or third-party certification.
  • Getting activities verified: Once activities have been registered, they will need to be verified by a designated agency. The verification process will involve an assessment of the environmental benefits of the activity.
  • Trading green credits: Once activities have been verified and green credits have been granted, they can be traded on the domestic market platform.

2. Pros and Cons

Pros

Cons

Earn Carbon Credit: In addition to green credits, these environmental activities may also reduce carbon emissions and earn carbon credits under the Carbon Credit Trading Scheme (Under the Energy conservation (Amendment) Act, 2022) independently.

Impact on competitiveness: Some businesses have expressed concern that the GCP could put them at a competitive disadvantage, especially if their competitors are not participating in the programme due to its voluntary nature.

Curb on unintended trade: The green credits generated or procured to fulfil any other obligations in compliance with the existing laws cannot be traded. This means green credits cannot be bought or sold as a commodity in the market. The purpose of such restriction is not to use green credits for speculative or commercial purposes.

Uncertainty about benefits: There is some uncertainty about the financial benefits of participating in the GCP. The value of green credits will be determined by market forces when trading, and it is possible that the price of green credits could fall below the cost of obtaining them. For example, how the  EU carbon price crashed at the time of Russia – Ukraine war.


3. What'snext?

The upcoming expected developments for the GCP include formation of technical committees for each identified activities, on the lines of recently established technical committee on tree plantation. Additionally, other responsibilities of the Administrator, such as developing guidelines for implementation, establishing methodologies for other activities for issuance of green credits, and setting up the Green Credit Registry and trading platform will be expedited. The Administrator will also create and notify guidelines for self-certification or third-party certification, develop the program portal and knowledge platform, and develop guidelines for the market stability mechanism. Further, we can expect developments on GCP from the Indian Government at upcoming COP 28, which is set to be held in the end of November and early December at Dubai.

Our parting thoughts

The GCP is an ambitious initiative that can drive positive environmental outcomes but requires robust processes, technical support, and proper monitoring at the source level. The objective is to witness behavioural transformation, which is critical in combating climate change. It is too early to say if the GCP will be successful, but it is expected to set a precedent for other countries to follow. In the meantime, the GCP incentives are praiseworthy, but we need to be careful about how calculations and measurements of benefits are inculcated for activities to avoid counterproductive outcomes.

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