The Ministry of Power has initiated the development of the “Indian Carbon Market” (ICM) under the purview of the Energy Conservation Act (2001) and the Environment (Protection) Act, 1986, to further its achievement of Nationally Determined Contributions (NDCs) and mobilise new mitigation opportunities through demand for emission reduction credits by private and public entities. Under the scheme, the objective of the ICM is to mitigate greenhouse gas (GHG) emissions by monetising emission reduction through trading of carbon credit certificates (CCCs). In order to operationalise the ICM in the country, the Bureau of Energy Efficiency (BEE) has recently released detailed guidelines and procedures for compliance mechanisms under the Carbon Credit Trading Scheme (CCTS).
Power Line presents a summary of BEE’s detailed procedure for the compliance mechanism under the CCTS…
Compliance mechanism and emission targets
As per the guidelines, the GHG emission intensity targets will be defined as tonnes of carbon dioxide (CO2) equivalent per unit of equivalent product for each cycle of, initially, a three-year trajectory for the considered obligated entities, which shall be revised later.
The obligated entity that exceeds the targeted GHG emission intensity in any compliance cycle is entitled to the issuance of CCCs based on the difference in the achieved GHG emission intensity and targeted GHG emission intensity for the production quantity in the relevant compliance cycle. Those who fail to achieve the targeted GHG emission intensity in any compliance cycle are entitled to purchase CCCs based on the difference in the achieved GHG emission intensity and targeted GHG emission intensity for the production in the relevant compliance cycle.
The GHG emissions will be converted to CO2 equivalent based on their global warming potential relative to carbon dioxide, specified in India’s Biennial Update Report. The emission reduction trajectory will be determined based on the fuel switch potential and technological advancements in the sector. It will be specific for every entity of any sector determined on the basis of the emission intensity reduction trajectory developed for that sector, and the average rate of reduction in GHG emission intensity across all its entities, based on the historical data.
The technical committee will calculate emission targets in the baseline year covering the direct energy, process (non-energy) and indirect energy-related emissions from the boundary of the obligated entity’s establishment against the product manufactured during the year. Direct GHG emissions are emissions from combustion of any type of fuel (fossil) burnt in stationary (fixed) equipment, such as boilers, gas turbines, kiln, or furnaces to generate heat, mechanical work and steam. Direct process emissions from industrial processes means emissions other than combustion emissions occurring because of chemical reactions between substance or their transformation. Indirect GHG emissions are a consequence of the activities of sources outside the obligated entity establishment and will include indirect emissions from electricity purchased from the grid and emissions from electricity and heat imported outside the plant boundary.
The default emission factors (Type 1) depending on the type of fuel and materials will be applied for the first trajectory period. For the subsequent trajectory period, emissions will be based on the actual emission factors (Type 2) for fuel and material. However, the emission factor shall be consistently applied for baseline and assessment years.
Monitoring and reporting process
The obligated entity, in consultation with the Accredited Carbon Verification Agency, will put in place transparent, independent and credible monitoring and reporting arrangements (monitoring plan) for GHG emissions and production for compliance with GHG emissions intensity targets, which will be submitted to the bureau. It will consist of detailed, complete and transparent documentation of the monitoring methodology for each emission source. It shall further convert sources of direct and indirect GHG emissions and estimate GHG emissions from these sources by converting them into tonnes of CO2 equivalent.
The entity will monitor the net calorific value of the fuel at the beginning of and during the reporting period, minus the consumed and closing quantity of fuel, either on continual measurements or aggregated quantities at regular intervals for calculating emissions. The entity should acknowledge certain factors (type 1, type 2) for the emission calculation and form a sampling plan for material and fuel analysis in an internal and external lab facility (National Accreditation Board for Testing and Calibration Laboratories).
The electricity exported by means of captive power plants, cogeneration plants or waste heat will be adjusted for emissions and subtracted from the overall emissions of the entity, after calculating it on the basis of weighted average net heat rate of the power generation and fuel used.
Assessment of performance and verification process
The entities are obligated to submit quarterly performance reports specifying compliance with GHG emission targets, verified by an accredited carbon verification agency. The agency shall assess the data and information systems, control systems and IT systems, emission source and source stream coverage, perform auditing and verification techniques, document review and follow-up action, and verify fuel and material analysis process and GHG emission measures.
The accredited carbon verification agency will independently evaluate each activity undertaken by the obligated entity for compliance with the GHG emission intensity targets and entitlement or requirement of CCCs, to ensure that they meet the requirements of the compliance mechanism under this scheme.
Within six months of the compliance report submission date or three months of the CCC’s issuance date, whichever comes first, the bureau may, on its initiative or upon receiving a complaint about any error, inconsistency, or misrepresentation, take steps for an independent review of the compliance report under subrule (2). The accredited carbon verification agency (appointed by the bureau) shall assess and verify activities performed by the obligated entity for compliance with GHG emission norms, which shall involve a review of both quantitative and qualitative information on the GHG emission norms, the quantitative information comprising the reported data and the qualitative information comprising information on internal management controls, calculation procedures, procedures for transfer of data, reports and review of internal field audit of calculations or data transfer.
Trading, issuance and banking of CCCs
Once the verification of the report by the bureau is completed, CCCs to be issued are specified in it accordingly by NSCICM based on the following formula:
Number of CCCs – (specific GHG emission notified for the respective compliance cycle – specific GHG emission as achieved in the respective compliance cycle) x production in that compliance cycle. After the issuance of CCCs, the entities will register themselves on the ICM Registry to get the equivalent CCC credited into the respective entity registry accounts. Obligated and non-obligated entities can register and trade the CCC on power exchanges registered by the commission for the purpose of CCC trade.
The banked CCCs that were issued to the obligated entity can be sold in the ICM or can be used to achieve compliance in the next compliance cycles; whereas the issued ones can be used only to achieve compliance in the compliance cycles.
The obligated entity to achieve compliance with the GHG emission norms in any compliance cycle of the trajectory period will submit the long-term action plan within three months from the commencement of the first cycle. The obligated entity will comply and furnish the status of compliance after the verification and trading process within nine months from the completion of the compliance cycle. If the actions implemented are found inadequate for achieving compliance with the specific GHG emission norms, the obligated entity will meet the shortfall by purchasing CCCs from the ICM.
Conclusion
The goal of ICM is to help India meet its NDCs by accelerating decarbonisation and mobilising resources, including money and technology. A single national market would be more advantageous than several sectoral market instruments as it can lower transaction costs, increase liquidity, foster mutual understanding and focused capacity building, and simplify the accounting and verification processes. Establishing an integrated credit market mechanism has the potential to generate acceptable carbon credits, boost credit trading liquidity and establish a strong basis for price discovery and carbon emission reduction incentives in India.
