Carbon Markets


Carbon Market: It is a term used for a trading system through which countries may buy or sell units of CO2 emissions in an effort to meet their national limits on emissions.

Carbon markets under the Kyoto Protocol:

Under the Kyoto Protocol, three carbon markets were established. The aim was to reduce greenhouse gas emissions cost-effectively by setting limits on emissions and enabling the trading of emission units.

  • Clean Development Mechanism:

o   CDM allows emission-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2.

o   These CERs can be traded and sold, and used by industrialized countries to meet a part of their emission reduction targets under the Kyoto Protocol.

  • Joint implementation: It enables developed countries to carry out emission reduction or removal enhancement projects in other developed countries. This allows developed countries to earn emission reduction units (ERUs) , each equivalent to one tonne of CO2.
  • Emission trading: It allows countries that have emission units (carbon dioxide) to spare (emissions permitted to them but not “used”) to sell this excess capacity to countries that are over their targets.

Carbon Market under Paris Agreement:

  • Article 6 of the Paris Agreement established the Sustainable Development Mechanism (SDM) as a new carbon market instrument for the period after 2020.
  • It aims to deliver an overall mitigation in global emissions. It seeks to achieve the twin objectives of limiting global warming to 1.5 degrees, and the Sustainable Development Goals laid out in the UN 2030 Agenda.

· Article 6 puts forward two different approaches for carbon trading:

o   Article 6.2 enables bilateral arrangements for the transfer of emissions reductions while ensuring that they do not double-count the reductions.

o   Article 6.4 talks about a wider carbon market in which reductions can be bought and sold by anyone

Additional Information:

Market-based Initiatives in India:

Perform Achieve and Trade (PAT) initiative:

  • It is a flagship programme of the Bureau of Energy Efficiency under the National Mission for Enhanced Energy Efficiency (NMEEE). It was launched in 2012 by the Ministry of Power.
  • ·         The scheme provides the option to trade any additional certified energy savings with other designated consumers to comply with the Specific Energy Consumption reduction targets.

Renewable Energy Certificate (REC) trading system

  • It was launched in 2010. Its primary purpose is to promote renewable energy. The Ministry of Power regulates the REC mechanism. The Central Electricity Regulatory Commission (CERC) is the federal authority that administers the REC scheme.
  • Under Energy Act-2003, the country’s State Electricity Regulatory Commissions (SERCs) set targets for power companies to purchase a certain percentage of their total power from renewable sources. These targets are called Renewable Purchase Obligations (RPOs).

Gujarat’s Emissions Trading Scheme (ETS) for trading in Particulate Matter (PM) emissions:

  • It was launched in 2019. The programme aims to reduce particulate air pollution and facilitate robust economic growth. It is the first in the world to regulate particulate air pollution.
  •  Under the programme, the government sets a cap on emissions and allow industries to buy and sell permits to stay below the cap.