With an objective to reduce greenhouse gas emission (“GHG”) emissions by pricing emission reductions through the trading of Carbon Credit Certificates (“CCCs”), the Ministry of Power in collaboration with the Bureau of Energy Efficiency (“BEE”), on June 28, 2023 pursuant to the Energy Conservation Act, 2001 introduced the Carbon Credit Trading Scheme (“CCTS”).
Pursuant to the CCTS, BEE in July, 2024 has issued the ‘Detailed Procedure for Compliance Mechanism under the CCTS’ (“DPCM”) which specifies the structured process for achieving compliance within the CCTS and ‘Accreditation Procedure and Eligibility Criteria for Accredited Carbon Verification Agency’ (“APEC-CVA”) which sets out the qualifications for Accredited Carbon Verification Agencies. This piece only discusses the DPCM.
Outline
The CCTS mandates that registered entities, known as ‘obligated entities‘ must meet specific GHG intensity targets set by the Ministry of Environment, Forest and Climate Change (“MoEFCC”). MoEFCC sets annual GHG emission intensity targets, expressed in tonnes of carbon dioxide equivalent (tCO2e) per unit of product or output. These targets are aimed at encouraging entities to continually improve their emissions performance. Entities exceeding their targets receive CCCs, which they can bank or trade. On the other hand, the entities which do not meet their targets must purchase or surrender CCCs to cover their shortfall, ensuring a market-driven approach to emissions reduction.
The inclusion of obligated entities, which are entities engaged in energy-intensive industries as notified by the Ministry of Power; and specific GHG coverage are central to this compliance mechanism.
The sectors for the obligated entities shall be specified by the central government, with guidance, from the National Steering Committee for the Indian Carbon Market (“NSC-ICM”) established as per the clause 14(e) of the Energy Conservation Act, 2001 and tasked to regulate the Indian carbon market.
Interestingly, while the mechanism allows non-obligated entities to register their projects so as to trade their CCCs, it does not deal with the issuance of CCCs to these entities. It further states that both obligated and non-obligated entities will carry out trade of CCCs in accordance with the procedure issued by the Central Electricity Regulatory Commission (“CERC”).
GHG Emission Intensity Targets
The CCTS currently covers carbon dioxide and perfluorocarbons emissions, which are required to be converted to their carbon dioxide equivalent (tCO2e) using the latest IPCC Global Warming Potential values. To establish the GHG emission intensity targets, the technical committee for the respective sectors, approved by NSC-ICM, will evaluate the obligated entity’s GHG emission intensity in the baseline year and the targets for GHG emissions intensity in the trajectory period.
Monitoring and reporting
Entities must create detailed monitoring plans, specifying methodologies and data control measures to ensure transparent and accurate GHG tracking. Collected data on fuel, energy, and material use must be meticulously reported, encompassing all direct and indirect emissions from production processes. Such obligated entities are required to submit the monitoring plan to BEE within 3 (three) months from the commencement of a compliance cycle.
The DPCM outlines the basic framework within which the monitoring plan is to operate, and also includes the evaluation standards for the calculations of GHG emissions, measurement of energy content, emission factors for GHG emission calculation, measurement of Total Carbon, sampling plan and minimum frequency of analysis, laboratory analysis and more. This is to ensure strict adherence to the norms of the scheme and to avoid arbitrariness in the calculations.
All the activities undertaken by the obligated entity under DPCM shall be scrutinized by an accredited carbon verification agency (i.e. accredited as per APEC-CVA) for the purpose of preparation of verification report and verification of compliance with respect to GHG emissions intensity targets as notified by the MoEFCC.
Issuance and trading of CCCs
Obligated entities are required to comply with the annual GHG emission intensity targets within the compliance cycle (i.e. 3 (three) consecutive years). Entities outperforming their targets receive CCCs proportional to their surplus reductions. Conversely, entities that fall short must surrender or purchase CCCs to meet their obligations, ensuring accountability and fostering a competitive market for emissions trading.
CCCs can be traded on power exchanges, registered with CERC as per the procedure laid out by CERC (which is yet to be published) allowing entities with excess credits to support those with deficits. Obligated entities which fail to achieve their GHG emission targets in any particular compliance year, shall have the option to purchase CCCs which are to be calculated based on the differential between the targeted GHG emission reduction and the actually achieved reduction. Banking surplus CCCs for future use provides flexibility, helping entities manage their emissions more effectively over time.
Banking
On completion of the compliance year, the remaining CCC from that year may be banked for use in subsequent compliance years. The banked CCCs, that were issued to the obligated entity, may either be sold within the Indian carbon market or utilised to meet compliance in future compliance years.
Governance and Compliance
The obligated entity, for the purpose of achieving compliance with the GHG emission intensity targets of the trajectory period, shall prepare a long-term action plan of at least 5 (five) years for greenhouse gas emissions reduction. The essentials for this long-term plan are provided in the scheme, which includes:
- a brief description of identified GHG reduction measures.
- estimated cost and resultant savings of each identified GHG reduction measure.
- implementation plan to achieve GHG emission intensity reduction targets.
- details on GHG reduction measures identified for the next five years.
Conclusion
The compliance mechanism outlined by the BEE creates a structured approach for reducing GHG emissions through target setting, monitoring, reporting, and trading of carbon credits. This framework not only ensures entities meet their emissions goals but also promotes sustainable practices and contributes to India’s overall climate objectives. By incentivizing reductions and facilitating a market for CCCs, the CCTS supports the transition to a low-carbon economy, aligning with national and global environmental goals.
Author: Anish Jaipuriar
Co-Authors: Hardik Sabharwal and Divyam Sharma
