Carbon markets and their operation
Recently, the Parliament has passed the Energy Conservation (Amendment) Bill, 2022. With this bill, the government will get the right to set up a carbon market in the country and determine the carbon credit trading scheme.
What is carbon Market?
- Under the Carbon Market, a certificate obtained by various countries or companies of the world due to the reduction in the emission of greenhouse gases, which is called Certified Emission Reduction (CER) or Carbon Credit.
- Companies that have met their carbon offset targets through greenhouse gas reductions will receive carbon credits for additional reductions they make.
- One unit in carbon credits would be equal to one ton of carbon dioxide (CO2) or carbon dioxide equivalent (CO2e).
- One tradable carbon credit is equal to one tonne of carbon dioxide. It can also be an equivalent amount of another greenhouse gas that is reduced, stored or avoided.
- Article 6 of the Paris Agreement provides for carbon markets to meet Nationally Determined Contribution (NDC) targets.
There are two types of carbon markets:
- Voluntary market: Carbon credits under this are called Verified Emission Reductions (VER).
- A corporation that cannot reduce its greenhouse gas (GHG) emissions buys carbon credits to offset emissions from entities that are engaged in projects to reduce, remove, capture or eliminate emissions. .
- Compliance Market: Such markets are established by making policies at the government level. These markets mostly operate under the principle of a ‘cap-and-trade’ system.
Source – The Hindu