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India's cross-border carbon credit list focused on innovative green technologies


Bilateral deals under Article 6

Separate from VCM: official

  • Author
  • Ruchira Singh    Ivy Yin
  • Editor
  • Adithya Ram
  • Commodity
  • Agriculture Electric Power Energy Transition Natural Gas Oil

The Indian government's list of 13 carbon credit project types eligible for international trade under Article 6 of the Paris agreement is aimed at attracting investments inward on costly innovative green technologies, with investor countries benefitting from the carbon reduction results, industry experts said Feb. 23.

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"It is a very smart play. India will get investments in the high technologies it does not have," said Kishore Butani, head of Program, Policy and Partnerships at Universal Carbon Registry. "The government is saying: if you are coming to invest in India, come with good technology that we do not have."

The government's Feb. 17 notification of credit types eligible for international trade came as the Paris Agreement Rulebook is being finalized with respect to Article 6, which focuses on carbon trading through bilateral/cooperative approaches and international market mechanisms.

Countries differ on the treatment of Article 6. Some regard certain VCM credits as Article 6-compliant if the host country allows their export and a corresponding adjustment is made to avoid double counting in host and import countries.

Market participants were uncertain as to whether the Indian government's list of Article 6-eligible activities would impact activities in the VCM market, in particular whether solar PV, onshore wind and nature-based carbon credits circulating in today's VCM were still open to foreign buyers, given that these credits were not on the list.

The list "has no linkage to the Voluntary Carbon Market," said an official in the Ministry of Environment, Forest and Climate Change who did not wish to be named. "Details will be decided bilaterally between the countries," the official added.

Another uncertainty from the initial list was whether emission reductions from the 13 project types would count towards India's Nationally Determined Contributions (NDC) or the foreign investors' NDCs. NDCs outline climate targets proposed by individual countries under the Paris Agreement.

Details on the trading mechanism are to be included in a Carbon Credit Trading Scheme (CCTS) notification to be released by March 31, the official said.

Investor incentive

Industry members confirmed emission reduction benefits from projects covered by the 13 technology types would go to the investor country.

"If Japan wants to invest in green hydrogen in India, it will collaborate with the government of India, which will install the project with funding from Japan," said Shailendra Singh Rao, founder of Creduce Technologies, a carbon consultancy. "The emissions avoidance advantage will go to Japan [and help] fulfil its NDC commitment."

The Feb. 17 notification of the list would provide investors "with long-term visibility of carbon revenue," said Samrat Sengupta, Vice President, New Business and Market Strategy at EKI Energy Services.

"This will help the expansion of the carbon market as a whole and bring indirect positive impact on the VCM too," he said.

Avoidance credits

The list includes renewable energy with storage, solar thermal power, compressed bio gas, sustainable aviation fuel and high-end technologies for energy efficiency among the mitigation activities for which the intergovernmental projects' carbon credits could be issued.

It also lists renewable ammonia and carbon capture utilization as storage for attracting overseas investments.

The credits generated via the investments would be avoidance credits.

"The credits generated from the projects are most likely to be listed under the revamped Clean Development Mechanism (CDM) and can be used to meet the NDC requirement of the investing nation or traded on their exchange," said Butani from Universal Carbon Registry. "India is saying we can set up the projects and you can take the credits."

The CDM was the initial framework that governed cross-border carbon trading and bilateral, multilateral collaborations in decarbonization activities. Both Article 6 and today's VCMs were built on CDM's legacies.

Between 2010 to 2022 India issued 278 million credits in the VCM, accounting for 17% of global supply, according to a Jan. 31 Greenhouse Gas Emissions Special report by S&P Global Commodity Insights.

Both Rao and Sengupta said initial investments in high-end technologies would act as a forerunner to investors from the private sector getting involved.

"These methodologies have been available but now since the government itself has announced them, there will be retail participation," Rao said.

Platts, part of S&P Global Commodity Insights, assessed the nature-based carbon credit, or CNC, price at $2.75/mtCO2e Feb. 23.