Carbon credit is a market-based instrument that represents permission to emit a certain amount of greenhouse gas (usually 1 tonne of CO2-equivalent) and is used to incentivise emission reduction projects.It is very important for UPSC, especially GS-3 (Environment/Climate change), Prelims Environment, and current-affairs-based questions on India’s carbon market and climate commitments.
What is a carbon credit?
- A carbon credit is a tradable certificate/permit that typically corresponds to the right to emit one tonne of carbon dioxide or its equivalent in other greenhouse gases.
- Credits are generated by projects that either reduce emissions (like renewable energy, energy efficiency, methane capture) or remove CO2 from the atmosphere (like afforestation, reforestation, carbon sequestration projects).
How does the carbon credit mechanism work?
- Under a cap-and-trade style system, regulators set emission caps for sectors or installations; entities emitting below their target can sell surplus carbon credits, while those exceeding limits must buy credits or face penalties.
- Credits are issued after measurable, verifiable emission reductions, often certified under standards such as Verified Carbon Standard (VCS) or Gold Standard, and then traded on compliance or voluntary carbon markets.
Global frameworks and India’s carbon market
- Internationally, carbon credit mechanisms emerged under the Kyoto Protocol (e.g., Clean Development Mechanism) and are being reshaped under the Paris Agreement’s crediting mechanism to help countries meet their NDCs at lower cost.
- In India, the Carbon Credit Trading Scheme (CCTS) 2023 and the Greenhouse Gas Emission Intensity (GEI) Target Rules 2025 aim to operationalise a domestic carbon market, with the Bureau of Energy Efficiency overseeing issuance and trading of carbon credit certificates.
Types, benefits and concerns
- There are broadly two markets: the compliance market (mandatory under laws and agreements) and the voluntary market where companies/individuals buy credits for CSR or net-zero pledges.
- Carbon credits can lower overall abatement costs and encourage clean technology, but raise concerns about greenwashing, integrity of projects (additionality, leakage), uneven community benefits, and monitoring challenges, especially in developing countries like India.
UPSC relevance and how to prepare
- Carbon credit, carbon tax, carbon markets, and India’s carbon credit schemes are explicitly listed or naturally fall under Environment & Ecology topics (climate change, mitigation strategies, sustainable development) in Prelims and Mains syllabi.
- For UPSC, prepare:
(a) basic concept and unit (1 credit = 1 tonne CO2e),
(b) mechanisms like cap-and-trade and offsetting,
(c) global context (Kyoto, Paris, NDCs), and
(d) India-specific developments such as CCTS, GEI Target Rules 2025, BEE’s role, and associated schemes like PAT.
UPSC Prelims Questions
Q1. Consider the following statements regarding carbon credits in India:
1. One carbon credit certificate represents one tonne of CO2 equivalent reduced, removed, or avoided.
2. The Carbon Credit Trading Scheme (CCTS) is regulated by the Bureau of Energy Efficiency under the Energy Conservation Act, 2022.
3. India's carbon market currently operates only in the voluntary segment, excluding compliance mechanisms.
Which of the statements given above is/are correct?
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3
Q2. With reference to the Greenhouse Gas Emission Intensity (GEI) Target Rules, 2025, consider the following statements:
1. They establish sector-specific emission intensity targets for industries like steel and cement.
2. Entities achieving targets beyond compliance receive tradable carbon credit certificates.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
UPSC Mains Question
Q. India's Carbon Credit Trading Scheme (CCTS) and associated mechanisms like GEI Target Rules represent a pivotal shift towards a domestic carbon market. Discuss their objectives, opportunities for emission reduction, and key challenges in implementation, particularly in the context of India's NDCs under the Paris Agreement. (150 words)