{"id":7912,"date":"2023-09-11T12:00:00","date_gmt":"2023-09-11T06:30:00","guid":{"rendered":"https:\/\/ijpiel.com\/?p=7912"},"modified":"2023-09-11T07:30:37","modified_gmt":"2023-09-11T02:00:37","slug":"the-usa-india-carbon-credit-scheme-a-comparative-guide","status":"publish","type":"post","link":"https:\/\/ijpiel.com\/index.php\/2023\/09\/11\/the-usa-india-carbon-credit-scheme-a-comparative-guide\/","title":{"rendered":"The USA-INDIA Carbon Credit Scheme: A Comparative Guide"},"content":{"rendered":"\n

Abstract<\/span><\/strong><\/p>\n\n\n\n

\nCarbon dioxide (\u201cCO2<\/sub>\u201d<\/strong>) is a major greenhouse gas (\u201cGHG\u201d<\/strong>) instrumental in environment\ndegradation. In order to reduce the consequences of Carbon dioxide emissions, the world\ncommunity established CO2<\/sub> Emission Reduction Goals. The Carbon Credit markets quickly\nemerged as an alternative to curb emissions. India and the USA, two of the most powerful\neconomies, bound by international agreements such as the United Nations Sustainable Development\nGoals, the Kyoto Protocol, and the Paris Agreement, have customized their carbon credit schemes.\nIndia follows the polluter pays principle, in contrast to the USA which follows the pay for\nperformance principle. The Bureau of Energy Efficiency in India heads the verification process,\nwhereas the U.S. Department of Agriculture (USDA) is involved in decentralized procedures under\nthe USA\u2019s scheme.\n<\/span><\/p>\n\n\n\n

\nThis article endeavors to analyze their schemes and outlines strategies to enhance the appeal of\nIndia's carbon credit market for local as well as foreign investments. The carbon credit schemes of\nboth USA and India are compared based on scope, type, pricing, quality, and impact. Further, this\nblog elaborates on a strategic roadmap for making the Indian carbon credit market attractive for\nboth domestic and foreign investment. Businesses in this region are required to measure their\nemission levels, research the carbon credits available in the market such as RECs and ESCs, build\nrelationships, stay up to date about the market developments, and seek legal guidance.\n<\/span><\/p>\n\n\n\n

Introduction<\/span><\/strong><\/p>\n\n\n\n

\nClimate change is a matter of significant concern for the entire world. One of the primary causes of\nclimate change is GHG emissions, which pose a serious threat to our environment, specifically the\nsurroundings, as well as the habitats of both flora and fauna. With an aim to reduce and control the\nconsequences of GHG emissions, the global community has come up with certain goals called the\nCO2<\/sub> emission goals. In order to reduce the CO2<\/sub> released in the atmosphere, carbon markets can play\na vital role, wherein the entities can trade carbon just like a commodity by assigning it a price.\nCarbon credit is nothing but a seal of approval obtained from the government for CO2<\/sub> emissions. The entities that end up with excess credits since they have emitted less than their targets are allowed\nto trade them off to some other entities that have surpassed their emission targets.\n<\/span><\/p>\n\n\n\n

\nThe United Nation Sustainable Development Goals (SDGs), the Kyoto Protocol of 1997, the Paris\nAgreement of 2015, all mention about the CO2<\/sub> emission goals. Many of the world\u2019s most powerful\neconomies have ratified the above-mentioned agreements, including India and the USA. Each of\nthese countries has developed carbon credit schemes in their respective nations with a goal of\nreducing the carbon emissions and creating a healthy and sustainable environment for all. This\narticle focuses on comparing the carbon credit scheme of both the countries and identifying the\nways by which we can make the Indian carbon credit market an attractive option for both domestic\nas well as foreign investments.\n<\/span><\/p>\n\n\n\n

Comparison of the Carbon Credit Schemes of USA and India<\/span><\/strong><\/p>\n\n\n\n

Scope<\/u><\/span><\/strong><\/p>\n\n\n\n

\nIndia has a market-based mechanism for its carbon credit scheme which mainly targets at reducing\nthe greenhouse gas emissions as well as promoting low carbon development. The scheme provides\nfor sectors like power, real estate\/construction, transport, agriculture, etc., which are said to be\nmajorly responsible for GHG emissions. The scheme applies to the \u2018Registered Entities\u2019<\/a>, meaning\nany entity, including designated consumers, registered under the carbon credit trading scheme; these\nentities are required to report their emission data and energy consumption to the designated\nauthorities. The Carbon Credit Trading scheme 2023<\/a> is based on the polluter pays principle wherein\nthe entities which emit more than their allocated targets will have to pay for their excess emissions\nby buying carbon credits from the entities which emit less than their targets. The scheme includes\nrenewable energy projects, energy efficiency projects, waste management projects and forestry\nprojects that can generate carbon credits; these projects are called as \u2018Eligible Projects\u2019 and they have\nto follow certain procedures in order to get their carbon credits certified and verified by the Bureau\nof Energy Efficiency (\u201cBEE\u201d<\/strong>). The Indian carbon credit scheme is committed to reduce India\u2019s\nemission intensity by 45% by 2030 over 2005 levels, and achieving net zero emissions by 2070.\n<\/span><\/p>\n\n\n\n

\nThe USA has a carbon credit scheme which is a voluntary program that focuses on encouraging the\nfarmers and forest landowners, who own at least 10 acres of land, to adopt practices that help in\nreducing GHG emissions. Agriculture and forestry are the sectors which account for around 24% of\nthe USA\u2019s total emissions and hence the scheme covers these sectors<\/a>. This scheme is based on the\n\u2018pay for performance\u2019 scheme which means that the above-mentioned entities that implement the\nemission reduction projects get paid for the carbon credits which they generate. The scheme houses\nsoil health, nutrient management, livestock management, conservation tillage and reforestation\nprojects that can generate carbon credits. The scheme is expected to reach net zero emissions by\n2050.<\/a>\n<\/span><\/p>\n\n\n\n

Type<\/u><\/span><\/strong><\/p>\n\n\n\n

\nThe Indian carbon credit scheme is a mandatory scheme, meaning that the registered entities have to\nstrictly adhere to their emission reduction targets and submit their performance report to the\nconcerned authority which is the Bureau of Energy Efficiency (\u201cBEE\u201d<\/strong>). The entities may face\npenalties and sanctions if they fail to adhere to the targets as given under the scheme unlike the\nUnited States which has a voluntary carbon credit scheme where the producers are at their own\ndiscretion to enroll themselves into the emission reduction projects. It is not mandatory and hence\nno penalty or sanctions are to be faced by them, however, they can get the benefit from the\npayments which they receive for their carbon credit.\n<\/span><\/p>\n\n\n\n

Price<\/u><\/span><\/strong><\/p>\n\n\n\n

\nIndia does not have a fixed carbon price. Carbon pricing helps in reducing GHG emissions by\nplacing a price on emissions. A report by the World Bank in 2017<\/a> recommended a carbon price of at\nleast $40 per tonne of carbon. The USA too does not have a fixed carbon price, it is more variable\nand diverse in terms of pricing. However, it has few state level initiatives that set the carbon price\nbut these prices depend on the supply and demand of the carbon allowances. For instance, on\nDecember 2021, the Regional Greenhouse Gas Initiative allowance price was USD 13 per tonne of\ncarbon dioxide equivalent.<\/a>\n<\/span><\/p>\n\n\n\n

Quality<\/u><\/span><\/strong><\/p>\n\n\n\n

\nThe BEE in India and the third-party entities verify the energy consumption and emission data of\nregistered entities and eligible projects. The Ministry of Power (\u201cMoP\u201d<\/strong>) on the basis of the\nrecommendations made by the BEE and the National Steering Committee for Indian Carbon\nMarket (NSCICM), will decide the sectors and entities that will be required to record and maintain\nthe GHG emissions intensity data. After which the MoP will recommend the GHG emission intensity targets for the entities to the the Ministry of Environment, Forest and Climate Change for\nnotification under the Environment Protection Act, 1986. The entities which surpass the set targets\nwill be issued carbon credit certificates and the entities which fall short of the target will have to\npurchase carbon credit certificates from the ICM. A single carbon credit certificate will be equivalent\nto one tonne of CO2<\/sub>.\n<\/span><\/p>\n\n\n\n

\nIt is the duty of BEE to monitor the performance of the registered entities and eligible projects. In\nthe USA the verification and validation process are more on the decentralized side and are looked\nafter by the U.S. Department of Agriculture (USDA), which is the federal agency that oversees the\nprogram. Technical Assistance Providers (\u201cTAPs\u201d<\/strong>) assist producers in implementing and\ndocumenting their emission reduction projects. TAPs may be either public or private entities. The\nUSDA issues the carbon bank credits<\/a> (CBCs), after the submission of documentation and data by\nthe producers which are also verified by the TAPs. CBC is a certificate which gives right to entities\nto emit one tonne of carbon dioxide or an equivalent of another greenhouse gas.\n<\/span><\/p>\n\n\n\n

Impact<\/u><\/span><\/strong><\/p>\n\n\n\n

\nThe emission reduction targets of both the USA and India have significant differences<\/a> wherein India\nis aiming to achieve net zero emissions by 2070 and also to reduce its emissions intensity by 33% to\n35% by 2030 from 2005 levels. The Indian carbon credit scheme is committed to reduce the carbon\nemissions as well as enhance the renewable energy capacity of the nation. This scheme looks\nforward to incentivize the low carbon investments and generating revenue for the Indian\ngovernment.\n<\/span><\/p>\n\n\n\n

\nWhereas the USA has an aim to achieve net zero emissions by 2050 and also to reduce the\ngreenhouse emissions by 50% to 52% by 2030 from 2005 levels<\/a>. The carbon credit scheme in the\nUSA strives to reduce the carbon emissions, generate revenue for the states, improve the air quality,\nand support various social programs like Emission reductions payment agreements (ERPA)<\/a> where\nthe developing countries can sell their carbon credits to the World Bank\u2019s trust funds and then use\nthat revenue for sustainable development, climate-action projects<\/a>, conservation projects<\/a> etc. Both\nIndia and the USA have developed carbon credit schemes which cater to their unique interests.\n<\/span><\/p>\n\n\n\n

How to make the Indian Carbon Credit Market a Desirable Option for Investment?<\/span><\/strong><\/p>\n\n\n\n

\nThe Indian Carbon Credit market is cardinal in making the Indian carbon credit scheme\u2019s goal of\nreducing the carbon emissions a reality and also to contribute in combating climate change. In order\nto make the Indian Carbon Credit market an attractive and vibrant option for investment there are\ncertain pertinent things which businesses need to follow such as:\n<\/span><\/p>\n\n\n\n

\n1. One of the first steps could be by starting with assessing the current emission levels of the\nbusinesses and then developing plans accordingly to reduce the emissions. These plans can\nbe according to their historical and projected performances and their potential to reduce the\nhappening of any undesirable events. As such, as and when the Indian government\nprescribes limits under Indian Carbon Credit market, the concerned business will have to\ncomply with the same.\n<\/span><\/p>\n\n\n\n

\n2. The second way could be of researching the different types of carbon credits which are\nalready available on the Indian Carbon Credit market and then identifying the ones which\nare most relevant to their respective business. For this there are two main types of carbon\ncredits available:\n<\/span><\/p>\n\n\n\n

\na. Renewable Energy Certificates (\u201cREC\u201d<\/strong>) and\n<\/span><\/p>\n\n\n\n

\nb. Energy Savings Certificates (\u201cESC\u201d<\/strong>)\n<\/span><\/p>\n\n\n\n

\nWith a view of incentivizing all the renewable energy producers, the Indian government has\ncome up with Renewable Energy Certificates<\/a>. These certificates are issued when businesses\ngenerate electricity from any of the renewable sources and are also tradable.\n<\/span><\/p>\n\n\n\n

\nEnergy Savings Certificates (ESCerts) are certificates which are issued to businesses that save\nmore energy than their set targets under the Perform, Achieve and Trade (PAT) scheme.\n<\/span><\/p>\n\n\n\n

\n3. Another alternative could be of starting to build relationships with other businesses and\norganizations that are interested in participating in the Indian Credit Market by identifying\nrelevant stakeholders and networks and communicating the business\u2019s value propositions\nand goals to them. Businesses can build such relationships with other businesses whose\nobjectives align with their goals of reducing GHG emissions, thereby being able to identify\npotential carbon credit buyers and sellers as well as partners for joint projects or initiatives.\n<\/span><\/p>\n\n\n\n

\n4. Staying up-to-date on the latest developments in the Indian Credit Market and being\nprepared to act quickly when it is launched. By this the businesses will not only be able to\ngain a competitive edge but also it will help in considerably reducing the cost and risks\nassociated with the Carbon Credit market. The Indian Carbon Market is expected to start as\na voluntary market in 2023, and become a regulated market by 2025<\/a>. The market will operate\nthrough an online platform where carbon credits can be traded. The businesses can act\ninstantly and thus plan accordingly to these changes. However, the Indian market has not\nturned voluntary; instead the Indian government is planning to launch a domestic carbon\nmarket<\/a> which will enable the domestic companies to trade carbon credits. Also, carbon\ncredit market plans for online trading platform.\n<\/span><\/p>\n\n\n\n

\n5. The businesses can seek proper legal advice regarding the contracts, agreements, Intellectual\nProperty Rights (IPR), compliances, etc. to avoid pitfalls and stay well-advised and informed\nfor making the best of the opportunity. The Indian Carbon Market will have rules and\nregulations that need to be followed by the participants, such as registration, verification,\nmonitoring, reporting, etc.\n<\/span><\/p>\n\n\n\n

\n6. Government should provide tax exemptions, subsidies etc., to businesses who participate in\nthe emission reduction projects and trade carbon credits. This would provide incentive to\nbusinesses to involve in the Indian Carbon Credit market and trade carbon credits.\n<\/span><\/p>\n\n\n\n

Conclusion<\/span><\/strong><\/p>\n\n\n\n

\nThe problem of carbon emissions, that is, the leading component in the greenhouse effect, has seen\nexponential increase in the previous few years, owing to the rapid paced development, industrial and\ncommercial activities. The alarming rate of increasing carbon emissions warrant immediate and\neffective legislative actions with environment-centric policy making. The major countries whose\npolicies have been analysed and compared, are also countries leading the market in the global trade\nscenario- The United States of America, and India. Both the countries, although active participants\nin the mentioned industrial as well as commercial activities, have different levels of emission, and\ntherefore, different approaches, and further very different policies. When one examines the\nAmerican approach, it can be perceived to be a voluntary programme. It specifically recognises\nimportant stakeholders, such as farmers, persons owning forest lands, and encourages them to implement emission reduction practices. The programme is carried out in consonance with their\ngoal of achieving the net-zero emissions by the year 2050, and further aligns with its focus on\nimproving air quality, as well as, fostering diverse social and conservation initiatives. On the other\nhand, whilst analyzing the Indian approach, it may be duly noted that the approach is very well\nanchored upon the principle of \u2018Polluter Pays\u2019. It has been implemented in order to meet the Indian\nobjective of reducing emission intensity by 45% by 2030 and further achieving net zero emissions by\nthe year 2070.\n<\/span><\/p>\n\n\n\n

\nBoth the schemes are key tools to counter climate change and make a sustainable future. The article\nhighlights an alternative solution to reduce the carbon emission by using carbon markets, this is\ndone by trading carbon just like a commodity by assigning it with price. It will help a developing\nnation like that of India to transition into a low carbon economy. India\u2019s lack of fixed carbon pricing\ngives us an idea about the prospect of flexible pricing scheme and its conformity to the global legal\nnorms, it not only encourages adaptability but also innovation. Whereas USA\u2019s variable pricing\nsystem makes the market scenario complex.\n<\/span><\/p>\n\n\n\n

\nThe Indian Carbon Credit market offers great opportunity to businesses to reduce their carbon\nemissions, save energy and generate revenue by trading their excessive carbon credits. The strategic\nplanning, involving with stakeholders, staying up to date with the carbon credit market\ndevelopments and seeking legal advice, all these steps can aid in making the Indian Carbon Credit\nmarket an attractive option for investments. Given the transition of the market from voluntary to\nregulated trading, businesses should be quick to seize the opportunities. In gist, the comparison\nprovides us with a view on how the two nations are customizing their carbon credit schemes\naccording to their requirements and objectives and how can we make appeal investments in the\nIndian Carbon Credit market in order to combat climate change worldwide.\n<\/span><\/p>\n\n\n\n

Disclaimer<\/span><\/strong><\/p>\n\n\n\n

The views are personal and for general informational purposes only, and may not reflect the current law in your jurisdiction. It should not be construed as legal advice.<\/em><\/strong><\/span><\/p>\n\n\n\n

About the Authors<\/span><\/strong><\/p>\n\n\n\n

\nMr. Kunal Sharma is a Partner (General Corporate) at Singhania and Co. LLP.\n
\nDebashri Chowdhury is a 4 th Year Student at UWSL, Karnavati University, Gandhinagar\n<\/span><\/p>\n\n\n\n

Editorial Team<\/span><\/strong><\/p>\n\n\n\n

Managing Editor: Naman Anand<\/em>
Editors-in-Chief: Abeer Tiwari & Muskaan Singh<\/em>
Senior Editor: Harshita Tyagi<\/em>
Associate Editor: Debashri Chowdhury<\/em>
Junior Editor: Nalin Arora<\/em><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Abstract Carbon dioxide (\u201cCO2\u201d) is a major greenhouse gas (\u201cGHG\u201d) instrumental in environment degradation. In order to reduce the consequences of Carbon dioxide emissions, the world community established CO2 Emission Reduction Goals. The Carbon Credit markets quickly emerged as an alternative to curb emissions. India and the USA, two of the most powerful economies, bound […]<\/p>\n","protected":false},"author":264,"featured_media":7993,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":"","wp_social_preview_title":"","wp_social_preview_description":"","wp_social_preview_image":0},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts\/7912"}],"collection":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/users\/264"}],"replies":[{"embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/comments?post=7912"}],"version-history":[{"count":80,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts\/7912\/revisions"}],"predecessor-version":[{"id":7992,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/posts\/7912\/revisions\/7992"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/media\/7993"}],"wp:attachment":[{"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/media?parent=7912"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/categories?post=7912"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ijpiel.com\/index.php\/wp-json\/wp\/v2\/tags?post=7912"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}