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India tables bill to enable national carbon market; launch 'possible' by 2023
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Bill sets framework for carbon market
Blueprint builds on existing certificates
From voluntary to cap-and-trade system
India's plans to launch a carbon market advanced Aug. 3 with the tabling in parliament of the Energy Conservation (Amendment) Bill 2022 that sets the framework for a rollout in near future, government sources told S&P Global Commodity Insights.
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A national carbon market could move closer to finalization if the bill is passed, the government sources said.
"Let the Energy Conservation Act be amended in this session ... this would be the enabler," one source said, adding a 2023 launch was "possible."
The Energy Conservation Act 2001 is being amended to specify new norms and standards across the energy sector, including for a future carbon market.
Prime Minister Narendra Modi may announce carbon market plans during initiation on Independence Day Aug. 15, local media has reported.
The reports, citing unnamed sources, suggest key sectors like power, steel and cement will be required to participate in what would initially be a voluntary market, later moving to a cap-and-trade model.
Government agencies contacted by S&P Global did not respond to requests for further information.
A draft carbon market blueprint published by the power ministry, however, was in the finalization phase following consultation, a source said.
Ahead of consultation, the draft characterized a future market as "cost effective, politically feasible and ... based on the existing body of knowledge of managing ESCerts [Energy Savings Certificates] and RECs [Renewable Energy Certificates] transactions."
"Such a carbon market would help create synergies across different policy measures for climate change mitigation, by creating a common marketplace for emissions trading through development of a meta-registry," it said.
The blueprint sees a market introduced in three phases, moving from building voluntary demand, then supply before a final cap-and-trade phase.
The market would incorporate RECs and ESCerts currently traded on power exchanges, using the existing Perform Achieve and Trade program as a base.
Phase one would focus on increasing demand, making EScerts and RECs more fungible, adding participants to the buying pool and linking other markets to a voluntary carbon market.
Demand would stem from voluntary buyers, designated consumers in the PAT program representing 50% of India's primary energy consumption, state designated agencies, distribution companies that have renewable purchase obligations, and airlines.
Phase two would focus on increasing supply in the market.
"The crucial supply-side push would come from project level registration and their proper validation, verification and issuance of emission reduction units (ERU)," the draft said.
Participants' activities would be credited with a project-specific reference case. For emissions reduction activities, this would be done by applying a greenhouse gas intensity factor to the production in question.
For carbon capture and storage projects, the reference case would be "zero sequestration."
The performance of the activity will be monitored "and respective amounts of credits issued by the regulatory body," the draft said.
"In order to generate credit, a project developer must complete a rigorous process in order to ensure that real, quantifiable emissions reductions have been achieved."
The third and final phase focuses on moving to a cap-and-trade system with sectors and specific companies given emissions quotas.
Expected sectoral growth in the next few years would be used to determine a baseline for a first crediting period of the program.
Then, to get in step with India's climate commitments, an NDC-alignment coefficient would be introduced.
To participate, each entity would need to set up a GHG emissions inventory and a monitoring, reporting and verification system.
"This approach is comparatively easy to implement and maintain because a high number of different measures can be captured by only one parameter (CO2/unit of output)," the draft said.
While phase three was similar in design to the EU Emissions Trading System, the blueprint document noted the proposals "would allow large companies to address their entire value chain with a comparatively simple, high-level approach."
Such an approach "has not yet been applied in any credit and offset scheme worldwide, thus would make the Indian scheme a first-of-its-kind."
Plans for a carbon market in India, the world's second largest consumer of coal for power, follows similar moves in the world's first such market, China, where a national compliance ETS was introduced in July 2021.
China's market only covers coal-fired and gas-fired power generation utilities for now, jointly accounting for approximately 40% of its CO2 emissions.
Over time, China's environment ministry plans to enroll other industrial sectors into the market. By 2025, steel, building materials, non-ferrous metals, refining and petrochemicals, chemicals, aviation, and paper industries are to join, accounting for another 40% of China's CO2 emissions.
As of Aug. 3, the daily weighted average spot price for China Emission Allowances traded in the national compliance market was Yuan 57.50/mtCO2e ($8.52/mtCO2e), official exchange data showed.
Under Platts Analytics' June reference case in its Global Integrated Energy Model, Indian emissions from the combustion of coal are forecast to peak 2.34 billion mt in 2040 from 1.74 billion mt in 2022.
For China, under the same case, coal emissions of 8.62 billion in 2022 are forecast to peak in 2025 at 8.79 billion.
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