The Significance of Carbon Credit Policies in Bridging Economic and Climate Objectives in the Global South

Addressing climate change presents distinct obstacles for the Global South. These regions are, on the one hand, endeavouring to attain economic expansion and enhance the standard of living of their inhabitants. Conversely, they are disproportionately impacted by climate change's consequences, which comprise extreme weather phenomena, escalating sea levels, and perils to food security. Notwithstanding the disproportionate adverse impacts that these regions often endure due to climate change, their financial resources for adaptation and mitigation initiatives are constrained. Carbon credit policies present a prospective resolution through the provision of financial incentives that promote the reduction of emissions and fund sustainable development initiatives. These policies, which encourage sustainable practices and provide incentives for reducing emissions, provide a means to attain sustainability on both the economic and environmental levels.

Advocating for economic expansion while simultaneously addressing environmental degradation is a dual challenge posed by climate change. Carbon credit policies have surfaced as a significant approach in the Global South to tackle this issue in recent times. This article examines the potential of these policies to reconcile economic and climate objectives, with an emphasis on the advantages and difficulties they may present.

An Overview of Carbon Pricing and Its Advantages

Carbon pricing is an economic mechanism that quantifies carbon emissions in monetary terms. This objective can be accomplished by implementing mechanisms like carbon taxes or emissions trading systems. Carbon pricing facilitates the reduction of carbon footprints among businesses and individuals by requiring them to internalize the cost of emissions. This phenomenon not only contributes to the mitigation of climate change but also fosters economic efficiency and advancements in low-carbon technology.

Varieties of Mechanisms for Pricing Carbon

Carbon pricing can manifest in a multitude of ways, encompassing emissions trading systems (ETS) and carbon taxes. ETS creates a market for carbon credits by enabling companies to trade emissions permits, whereas carbon taxes impose a direct tax on carbon emissions. Both mechanisms are designed to decrease emissions by increasing the financial burden on polluters.

Advantages of carbon credit initiatives

Carbon credit initiatives have social, environmental and economic advantages – hitting the advantage trifecta and presenting perfect solution. Some of them are: 

The capacity of carbon credit policies to generate funds for sustainable development initiatives is one of their primary advantages. This revenue may be allocated towards financing initiatives aimed at mitigating climate change, such as reforestation or renewable energy projects. 

Moreover, carbon credit policies have the potential to foster advancements in environmentally friendly technologies and assist nations in fulfilling their global climate obligations. Lastly, carbon credit policies can assist nations in meeting their Paris Agreement-mandated international climate commitments.

Nevertheless, the execution of carbon credit policies poses obstacles, specifically for developing nations. These encompass the necessity for strong capacity building to enable nations to effectively participate in carbon markets and the requirement for robust monitoring and verification systems to ensure the integrity of carbon credits.

Opportunities and Obstacles in the Implementation Process

Notwithstanding the advantages, the execution of carbon credit policies in the Global South presents obstacles. These encompass the necessity for strong capacity building to enable nations to effectively participate in carbon markets and the requirement for robust monitoring and verification systems to ensure the integrity of carbon credits. Nonetheless, these obstacles also provide prospects for cooperation and innovation, both domestically and internationally.

India's Carbon Credit Trading Scheme: A Case Study

India, being one of the world's largest and most rapidly expanding economies, assumes a pivotal role in international endeavours aimed at mitigating climate change. The nation has undertaken substantial measures to mitigate its carbon emissions and advance sustainable development, such as the establishment of a Carbon Credit Trading Scheme (CCTS).

An Examination of India's CCTS

Designed to encourage the adoption of cleaner technologies and provide incentives for emissions reductions, India's CCTS is a market-based mechanism. Companies and individuals may participate voluntarily in the carbon credit market by purchasing carbon credits to offset their emissions under the scheme.

By permitting non-obligated entities to participate in the market for tradable carbon credits, the revised CCTS broadens the scheme's scope beyond obligated entities. By encouraging greater participation in efforts to reduce emissions and stimulating investment in low-carbon technologies, this action seeks to achieve both objectives.

Principal Aspects of the Revised CCTS 

Non-obligatory entities, including individuals and businesses, are permitted to voluntarily engage in the carbon credit market under this scheme. This provides entities with novel prospects to offset their emissions and make contributions towards climate action.

The offset mechanism, which is implemented by the CCTS, enables entities to register projects and acquire tradable carbon credit certificates (CCCs). Each CCC is equivalent to one metric ton of carbon dioxide emissions. This mechanism permits entities to invest in projects that eliminate or reduce greenhouse gas emissions to offset their emissions.

The CCTS is an organization that comprises entities operating in both the compliance and voluntary sectors. The commencement of the compliance segment is scheduled for 2025–26; however, the exact date of the voluntary carbon market launch has not been determined at this time. By utilizing a dual-sector approach, the scheme can be implemented in stages, thereby accommodating the varying requirements of stakeholders.

Sectors encountering difficulties in achieving reduction targets, specifically those with emissions that are difficult to mitigate, are considering the utilization of energy-saving certificates (ESCerts) and renewable energy certificates (RECs) as offsets through trading. The adaptability of trading mechanisms contributes to the CCTS's efficacy in advancing the cause of emissions reductions.

The effects of India's CCTS

It is anticipated that the revised CCTS will significantly affect India's initiatives to reduce greenhouse gas emissions and advance sustainable development. By encouraging the adoption of clean technologies and providing incentives for the reduction of emissions, the program can assist India in reaching its climate objectives while also fostering economic expansion.

Further aligned with India's broader energy transition objectives—including the promotion of clean energy, the improvement of domestic fuel supply, and the prioritization of renewables—is the CCTS. The scheme facilitates investment in renewable energy sources and energy-efficient practices, thereby supporting India's objective of energy security and carbon intensity reduction.

The Global South and Carbon Credit Policies

The Global South stands to benefit significantly from the implementation of carbon credit policies. These policies offer an opportunity to leapfrog traditional development pathways and adopt sustainable practices from the outset. By investing in clean technologies and sustainable infrastructure, countries in the Global South can reduce their carbon emissions while simultaneously promoting economic growth and resilience to climate change.

Conclusion

Carbon credit policies possess the capacity to significantly impact the transition towards a low-carbon, sustainable future in the Global South. By synchronizing economic incentives with environmental objectives, these policies have the potential to assist nations in attaining their development goals while concurrently alleviating the consequences of climate change. 

Nevertheless, to fully harness the capabilities of carbon credit policies, governments, businesses, and civil society must collaborate harmoniously to surmount the obstacles and capitalize on the prospects that they create.

The Carbon Credit Trading Scheme implemented by India signifies a substantial advancement in the pursuit of sustainable development objectives and the mitigation of climate change. The programme has the capacity to stimulate favourable developments in both India's environment and economy by encouraging the uptake of clean technologies and providing incentives for the reduction of emissions. India's ongoing implementation and refinement of its CCTS establishes it as a paradigm for other nations in the Global South that wish to exploit carbon credit policies in the pursuit of sustainable development.

[This article has been authored by Shaurya Mahajan, a second-year law student at JGLS and the Legal Team Leader of The Final Stand]