Parveen Arora, Suruchi Kotoky and Ishaan Chopra
Background:
On June 28, 2023, the Ministry of Power (“MoP”) in India notified the Carbon Credit Trading Scheme (‘CCTS’) under the Energy Conservation Act, 2001, which inter alia aims to reduce greenhouse gas (“GHG”) emissions through a market-based mechanism. This approach quantifies environmental losses by assigning costs to emissions and incentivizing reduction efforts.
The CCTS introduced a compliance mechanism requiring obligated entities to meet GHG emission intensity targets. It was further amended on December 19, 2023, inter alia to include an 'Offset Mechanism' allowing non-obligated entities to register and seek Carbon Credit Certificates (“CCCs”) for projects that reduce or avoid GHG emissions.
Further this year, in July 2024, the Bureau of Energy Efficiency (“BEE”) published the “Detailed Procedure for Compliance Mechanism under CCTS” (“Compliance Mechanism”) and the “Accreditation Procedure and Eligibility Criteria for Accredited Carbon Verification Agency” (“Accreditation Procedure”) setting the stage for carbon credit trading in India.
This piece primarily focuses on the Compliance Mechanism under the CCTS.
Compliance Mechanism in a Nutshell:
The compliance mechanism under the CCTS is a framework to ensure that the MoP notified entities (i.e., Obligated Entities) meet their specific GHG emission targets set by the Ministry of Environment, Forest and Climate Change (‘MoEFCC’) to meet the national target set by the Indian Government.
These targets will be defined for each year of a designated trajectory period; and, before the start of each trajectory period, the Obligated Entities will be informed of their annual targets based on sector, which will be revised upon completion for the next period. Such compliance is measured annually within the specified trajectory period, and Obligated Entities that exceed their GHG emission targets are entitled to earn CCCs, while those that fail to meet the target shall surrender their banked CCCs or purchase additional CCCs to meet their GHG emission intensity targets in each compliance year.
Key Highlights:
1. GHG Covered: The GHGs currently covered for the compliance mechanism under CCTS are carbon dioxide (CO2) and perfluorocarbons (PFCs) gases from the operations of Obligated Entities.
2. GHG Emission Intensity Trajectory: It refers to the planned reduction path of GHG emissions for specific sectors over time, developed by BEE, but is yet to be notified.
The trajectory will be established by assessing the potential reductions necessary to meet India's nationally determined contributions (NDCs) and will be formulated based on available technologies and their associated implementation costs, as well as the potential for energy efficiency. The trajectory will also be subject to regular reviews and updates by the BEE.
3. Obligated Entities v. Non-Obligated Entities:
Obligated Entities | Non-Obligated Entities |
These are registered and notified entities that are mandated to comply with the notified GHG emissions norms under the Compliance Mechanism. The list of Obligated Entities and Sectors shall be decided by the MoP based on the recommendations of BEE and the National Steering Committee for Indian Carbon Market (‘NSC-ICM’). | These are registered entities that can purchase CCCs on a voluntary basis. They will need to register themselves on the ICM Registry by submitting the relevant details and paying the prescribed fees. |
4. GHG Emission Intensity Targets: It refers to specific quantitative goals set for each Obligated Entity, expressed in tonnes of carbon dioxide equivalent (tCO2e) per unit of output. These targets are derived from the GHG Emission Intensity Trajectory and will be notified annually for compliance. Obligated Entities must achieve these targets to demonstrate progress in reducing their GHG emissions intensity during the compliance year.
5. Banking of CCCs: The Compliance Mechanism allows the Obligated Entities, to save/bank any leftover CCCs for future use, on completion of the compliance year. These saved/banked CCCs can be sold in the Indian Carbon Market or can be used to meet future compliance requirements of the Obligated Entities.
6. Trading of CCCs: For trading, entities have to register on the ICM Registry by submitting the relevant details and paying the prescribed fees. Once registered, a Certificate of Registration will be issued. The entities shall register and trade CCC on the registered power exchanges as per the terms, conditions, and procedures laid down by the Central Electricity Regulatory Commission.
7. Monitoring Procedure: The Compliance Mechanism requires Obligated Entities to establish a "Gate-to-Gate" boundary, which should remain fixed unless there are changes like capacity expansions or mergers. Within three (3) months of the first trajectory period, and annually after that, entities must submit a monitoring plan to BEE. This plan should detail activities, emission sources, monitoring methods, and data reporting procedures.
Additionally, the Obligated Entities within four (4) months after the compliance year ends must submit a GHG emissions report and GHG emission pro forma (collectively “Report”) duly verified by the Accredited Carbon Verification (“ACV”) Agency. This Report should include comprehensive details such as monitoring plans, emission sources, data control, sampling plan/procedure, any operational changes affecting emissions, etc.
8. Verification Process: The Obligated Entities are required to submit a performance assessment document in the prescribed form detailing their performance for the relevant compliance year and demonstrating compliance with GHG Emission Intensity Targets to the BEE and the State-Designated Agency. Additionally, they will be needed to provide a certificate of verification in the prescribed form from an ACV Agency along with the filled pro forma and GHG emission report.
The CCTS further allows the BEE, either suo moto, or on receipt of a complaint about any errors, inconsistencies, or misrepresentations, reported within a year from the date of submission of the GHG emission and verification report or within six (6) months from the date of CCC issuance, whichever is later, initiate action to check verification of compliance.
9. Power to Relax: MoP upon recommendations of NSC-ICM is empowered to relax any provisions of the Compliance Mechanism or Accreditation Procedure.
The Way Forward:
The CCTS in India is currently in a crucial development phase, with several essential components – such as detailed sectoral trajectories, trading platform, registry – still pending finalization. The MoP is yet to officially publish the definitive list of obligated entities, which is vital for CCTS's implementation. As of now, the Accreditation Procedure indicates that ACV Agencies will be empowered inter alia to conduct validation and/or verifications of project activities under the forthcoming detailed procedure for ‘Offset Mechanism' for non-obligated entities; however, this procedure is yet to be issued by the BEE.
Once above mentioned elements are solidified, the CCTS has the potential to significantly contribute to India's climate goals and establish a robust carbon market.