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India's Carbon Credit Trading Scheme : An Assessment from Vajirao & Reddy Institute

By : Author Desk Updated : 2025-07-15 13:22:22

INDIA'S CARBON CREDIT TRADING SCHEME: AN ASSESSMENT

Context
  • The Government of India has announced Greenhouse Gas (GHG) emission intensity targets under the Carbon Credit Trading Scheme (CCTS) for 8 key industrial sectors.
  • Sectors covered: Aluminium, Cement, Paper & Pulp, Chlor-Alkali, Iron & Steel, Textile, Petrochemicals, Petroleum Refineries
WHY ASSESSING AMBITION NEEDS A BROADER LENS? Issue with Sector/Entity-Level Analysis
  • Evaluating only individual sectors/entities does not reflect the national emissions reduction
  • What truly matters is the aggregate emissions reduction across the entire economy.
Learning from the PAT Scheme
  • Perform, Achieve and Trade (PAT) is India’s flagship energy efficiency program.
  • Entities that exceed their targets can trade energy-saving certificates.
  • Example (PAT Cycle I, 2012–2014):
    • Sectors analyzed: Aluminium, Cement, Paper, Chlor-Alkali
    • Mixed sector-wise performance, but overall energy intensity decreased when data was aggregated.
  • Conclusion: Market mechanisms like PAT can drive economy-level efficiency improvements even if individual sector outcomes vary.
Market Principle
  • The CCTS is based on an externality-driven market.
  • The goal is economy-wide emissions reduction, not uniform sector-level success.
  • Entity or sector-level targets mainly facilitate financial transfers, not necessarily emission cuts.
LIMITATIONS OF PAST DATA Past Performance ? Future Ambition
  • Comparing CCTS targets with historical PAT performance is not meaningful.
  • Future targets must be more ambitious to meet climate goals.
Relevant Benchmark
  • Targets should align with:
    • India's Nationally Determined Contributions (NDC) for 2030
    • Net-Zero goal for 2070
Role of Economy-Wide Modelling
  • Sector-specific targets cannot be directly compared to national targets.
  • However, economy-wide modelling helps evaluate whether current targets are adequate.
HOW DO CCTS TARGETS COMPARE TO FUTURE DECARBONISATION NEEDS? Model Projections (2025–2030)
  • Energy sector: Requires a 3.44% annual reduction in emissions intensity per unit of GDP.
  • Manufacturing sector: Needs a 2.53% annual reduction in Emissions Intensity of Value Added (EIVA).
Current CCTS Targets
  • The average annual EIVA reduction for the 8 CCTS sectors is 1.68% (2023–24 to 2026–27).
  • This is below the required pace:
    • Manufacturing target: 2.53%
    • Energy sector: 3.44%
Caveat
  • The CCTS covers only a portion of the manufacturing sector.
  • Still, this estimate indicates that current targets are likely not ambitious enough.
  • More detailed modelling is needed for a precise assessment.
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