CARBON TRADING MARKET
Environment
Carbon trading is the process of buying and selling permits and credits that allow the permit holder to emit carbon dioxide. It has been a central pillar of the EU's efforts to slow climate change. India is the biggest beneficiary of carbon trading and it is expected that over a period India will gain $5 to $10 billion.
FACTS
- Priced energy: In total, 58.1% of CO2 emissions from energy use in India are priced in 2021, unchanged since 2018.
- Taxes: Fuel excise taxes, an implicit form of carbon pricing, cover 58.1% of emissions in 2021.
- Carbon rates: Effective carbon rates are highest in the road sector, accounting for 8.6% of total CO2 emissions.
- Carbon trade benefits: India claims about 31% of CDM carbon trade.
ADVANTAGES OF CARBON TRADING MARKET
- Unlocking Climate Finance: 83% of NDCs intend to use international market mechanisms for GHG reduction.
- Sustainable Growth: Cap-and-trade markets can reduce emissions and promote economic growth.
- Carbon Exporter: India can export decarbonization and potentially earn $11 trillion over 50 years.
- Private Sector Collaboration: Voluntary trading strengthens business sector climate pledges.
- Improves Economic Resiliency: Market-based pricing avoids shocks, as seen in Europe.
- Incentivise investment: Helps firms identify low-cost emission reduction methods.
- Reducing Environmental Cost: Trading is efficient, reducing cost for households and business.
- Government Revenue: ETS generates revenue usable for climate investments.
- Protecting Low Income Groups: Carbon revenues can compensate vulnerable households.
CHALLENGES / ISSUES
- Poor Demand: Oversupply of permits reduces prices, undermining engagement.
- Double Counting: Risks of counting the same emission reduction multiple times.
- Greenwashing: False climate-neutral claims by companies.
- Legitimacy Issues: Fraud and weak reductions undermine trust.
- Developed Nations Issues: Rich countries shift abatement burden to developing countries.
- Subsidy Issues: Over-compensation increases profits of polluting firms.
- Limited participation: Only designated consumers can trade in some schemes.
FUTURE PROSPECTS
- Reforming Existing System: Better calibration of demand and supply.
- Regularizing Trading Period: E.g., EU-ETS monthly auctions.
- Institutional Reform: Move towards full cap-and-trade.
- Stakeholder Engagement: Key to policy alignment and market adoption.
- Proper Implementation: Strong enforcement and oversight required.
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Subject: Environment
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