India releases draft carbon credit compliance rules

India has issued draft rules for its planned carbon credit compliance mechanism for obligated firms, which are to comply with greenhouse gas (GHG) intensity targets and buy or sell credits based on their carbon intensity.

The environment, forest and climate change ministry will notify obligated companies of their GHG emission targets in terms of tonnes of CO2 equivalent (tCO2e) per unit of product for each defined category, the Bureau of Energy Efficiency (BEE) said as part of the guidelines, issued on 10 November.

These entities will be informed of an annual target spanning three years, after which revisions will be made based on trajectory outcomes. They are to comply with the GHG emission intensity targets within each annual compliance cycle.

Sectors like aluminium, cement, fertilizer, iron and steel, pulp and paper, textile, thermal power plant, petroleum refinery, and hotels will have to comply.

Entities that meet their emission intensity targets will be issued carbon credit certificates, while those that fail to achieve their targets can buy the certificates from the Indian carbon trading market. The certificates would be based on the difference in the achieved GHG emission intensity and the targeted GHG emission intensity for the production quantity in the compliance cycle.

India released a draft proposing a structure for its carbon credit market for both voluntary trading and compliance, earlier this year. The latest draft rules come ahead of the UN Cop 28 climate summit in Dubai next month and suggest Delhi is stepping up emission-reduction efforts to meet its net zero by 2070 target.

The BEE will conduct baseline GHG emission intensity calculations and set targets for each compliance cycle, factoring in fuel-switch potential, non-fossil fuel energy use, decarbonisation of a sector and the cost and availability of technology.

It has categorised direct GHGs as emissions from combusting fossil fuels in fixed equipment, such as boilers, gas turbines, kilns or furnaces to generate heat; burning fossil fuels for mechanical work and steam; and emissions occurring from chemical reactions between substance or their transformation. Indirect GHGs are emissions from activities that use electricity purchased from the grid, emissions from imported electricity, and heat for a plant's activities.

Obligated firms are to identify all their potential emission sources, calculate their GHG emissions in tCO2e terms and undergo independent verification. The performance assessment document, alongside a certificate from an accredited carbon verification agency, must be submitted within three months of the compliance cycle's conclusion.

The BEE can independently review compliance reports if it receives a complaint.

After the verification process, obligated firms must register on the Indian carbon market to trade their carbon credit certificates. If there is a surplus of certificates, firms will be allowed to bank them for future compliance cycles.

This is the third draft this year on setting up a carbon market in the country after India passed the Energy Conservation (Amendment) Bill last year, empowering the central government to establish carbon credit trading markets in India.

India plans to cut carbon emissions by 1bn t by 2030 from 2005 levels. The government is also aiming to increase the share of renewable power generation capacity to 500GW before 2030.

By Rituparna Ghosh