Emission law amendments to trigger carbon credit trading in India

– Payal Agarwal, Senior Executive | payal@vinodkothari.com

This version: 23rd December, 2022

The Energy Conservation (Amendment) Bill, 2022 (the “Bill”) has been passed by both houses of the Parliament (Lok Sabha: 8th August, 2022 and Rajya Sabha: 12th December, 2022), proposing amendments to the Energy Conservation Act, 2001 (“the Act”). The Bill seeks to bring the mandatory carbon credit markets in India. The Bill provides a legislative inclusion to the formulation of a carbon credit trading scheme [clause (w) of Section 14 of the Energy Conservation Act, 2001] . The scheme will be launched by the Central Government and the contours of the scheme will be known only when the scheme is announced. However, it is clear that with the passing of this Bill, the country is all set to launch carbon credit markets in India. 

With the passing of the Bill and being subject to the carbon credit trading scheme, there will be a “push and beat” for the carbon credits trading market in India. Currently, there are no statutory limits on the emissions permitted in India. The Bill seeks to provide for a concept of “registered entities” which shall be required to comply with the emission limits to be provided by the regulator. The same has been defined under Reg 2(qa) of the Act (currently under the Bill) as following – 

“registered entity” means any entity, including designated consumers, registered for carbon credit trading scheme specified under clause (w) of section 14

This compulsion for carbon credits is complemented with an impulsion of “trading” for the purpose of meeting the targeted emission limits. The proviso to section 14A(2) of the Act further enables the purchase of carbon credits on a voluntary basis, by persons other than the designated consumers. 

Earlier during the year, on 23rd May, 2022, the Gujarat Government had announced signing of a MoU with the Energy Policy Institute at the University of Chicago Trust in India (EPIC India) and the Abdul Latif Jameel Poverty Action Lab (J-PAL) to set up India’s first carbon trading market. While the same is also proposed to operate as a “cap and trade emissions scheme”, however, the modalities of the same will be known to us only upon implementation of the same. 

India has a huge potential of earning forex through trading of carbon credits. Currently recognised as the highest exporter of carbon credits, with the highest share of non-retired credits in the voluntary carbon markets around the world, there are studies suggesting that the country is expected to gain atleast US$ 5-10 billions from carbon trading within a few years. A study by Deloitte suggests that India can earn revenues of upto USD 11 trns through export of its decarbonisation potential. However, amidst this, comes the statement of one of the ministers, as reported on mint, that “Carbon credits are not going to be exported. No question”, casting a doubt on whether with the introduction of the compliance carbon markets in India, will there be a ban on the carbon credits export by the Indian entities. Considering that the objective of carbon credits is to incentivise the private sector, it does not seem that the Government will take such steps to demotivate the private sector entities from participating in the carbon credits generation and trading.   

As the Bill gets passed in the House of Parliament, a lot of questions will gain ground on the model of implementation, impact on existing carbon credits earned under voluntary markets, and several other crucial issues. While the BEE’s blueprint for establishment of carbon markets in India proposed a “cap and trade” scheme with interchangeability of the carbon credits with the other existing energy conservative instruments, the fine text of the carbon credits trading scheme is awaited to understand the practical implementation. 

Our presentation on carbon credits can be accessed here

Our detailed lecture on carbon credits can be accessed here.  

Our resource center on Business Responsibility and Sustainable Reporting can be accessed here –