India, already a leader in renewable energy, reinforced its commitment to climate action by proposing a unified carbon market
The 29th Conference of the Parties (COP 29) under the United Nations Framework Convention on Climate Change (UNFCCC) concluded in Baku, Azerbaijan, on November 24, 2024. While key expectations regarding climate finance remained unmet, significant progress was achieved in carbon market regulations. A landmark agreement on carbon trading rules was reached, aiming to accelerate climate action by enabling countries to meet their emission reduction goals efficiently and cost-effectively. Under its Nationally Determined Contributions (NDCs), the country initially aimed to reduce greenhouse gas (GHG) emission intensity by 33-35 per cent from 2005 levels by 2030, later revising this target to 45 per cent in 2022. India has launched multiple initiatives to combat climate change.
On the supply side, renewable energy generation helps mitigate carbon footprints, while demand-side initiatives like Perform-Achieve-Trade (PAT), star labeling, energy conservation building codes, and improved lighting solutions further reinforce India’s climate commitments. Existing frameworks, including Renewable Energy Certificates (RECs) and Energy Saving Certificates (ESCerts), serve as a foundation. These were introduced under the National Action Plan on Climate Change (NAPCC) in 2008 and have been successfully traded on Indian power exchanges.
RECs drive renewable energy adoption by allowing obligated entities to purchase either renewable energy or its certificates. One REC equates to 1 MWh of renewable energy generated from sources like solar, wind, hydro, and biogas. This system benefits both electricity generators and buyers, ensuring environmental compliance.
Similarly, ESCerts promote energy efficiency by enabling designated energy-intensive industries to either enhance energy savings or buy corresponding certificates.
One ESCert represents a reduction of 1 million tonnes of oil equivalent energy. Currently, 13 key industrial sectors, including aluminum, cement, power distribution, and railways, participate in this program, covering nearly 50 per cent of India’s primary energy consumption. Since their inception, RECs and ESCerts have driven significant emissions reductions, saving over 73 million tonnes of CO2 through REC trading and preventing 106 million tonnes of CO2 emissions via ESCerts. Recognising the need for a unified carbon market, India proposed a comprehensive system merging RECs and ESCerts into a single, internationally aligned framework. The regulatory foundation was set with the amendment of the Energy Conservation Act in January 2023, followed by the notification of the Carbon Credit Trading Scheme, 2023.
The scheme designates the Central Electricity Regulatory Commission as the market regulator and power exchanges as trading platforms, while the Bureau of Energy Efficiency oversees compliance mechanisms.
India’s carbon market will consist of two segments: a compliance market and an offset market. The compliance market will impose emission caps on obligated entities, allowing overachievers to sell surplus carbon credits to underachievers. The offset market will enable voluntary participation by non-obligated entities aiming to reduce their carbon footprints.
Carbon credit certificates will be traded through a regulated bidding process. The transition from existing REC and ESCert markets to a unified carbon trading system is expected to be seamless, given India’s well-established power exchanges and transaction mechanisms. With this development, India moves closer to integrating its climate action efforts into global carbon markets, reinforcing its commitment to reducing emissions and achieving long-term sustainability goals.
(The writer works with Indian Institute of Management, Sirmaur; views are personal)
