Carbon pricing gaining momentum in India

Climate crisis is for real and countries are actively working towards achieving net zero. In this process, carbon pricing is being looked upon as one of the most powerful tool for countries to reduce emissions. Carbon pricing is a policy approach aimed at reducing carbon dioxide (CO2) emissions by placing a monetary cost on the release of carbon into the atmosphere.

A recent report by the World Bank stated that in 2023, carbon pricing revenues reached a $104 billion, and is further gaining momentum in middle-income countries including Brazil, India, Chile, Colombia, and Turkey. While traditional sectors like power and industry continue to dominate, carbon pricing is increasingly being considered in new sectors such as aviation, shipping and waste.

India adopted the legal basis for a carbon market (including an ETS) in 2022, and it established the institutional framework for the system over the past year, outlining roles and responsibilities of the different governing authorities, and intends to roll out a Carbon Credit Trading Scheme by 2026. While the National Steering Committee for the Indian carbon market is yet to announce more details, the official notice referred to a voluntary as well as a compliance-based element to the scheme.

“India needs to push ahead with electrifying all sectors of economy and greening the electricity; green hydrogen and biomass based fuels will add to these decarbonisation efforts. India’s green credit mechanism and carbon credit trading scheme are being implemented and would help accelerate this transition", says Jagjeet Sareen, Partner and Climate lead at Dalberg Advisors.

India aside, governments globally are increasingly using carbon crediting frameworks to attract more finance through voluntary carbon markets and facilitate participation in international compliance markets. There are now 75 carbon pricing instruments in operation worldwide.

However, despite record revenues and growth, global carbon price coverage and levels remain too low to meet the Paris Agreement goals. Currently, less than 1% of global greenhouse emissions are covered by a direct carbon price at or above the range recommended by the High-level Commission on Carbon Prices to limit temperature rise to well below 2ºC.