Two government sources in India have said the country is planning a stabilization fund to keep prices of credits in its planned carbon market above a certain threshold, ensuring that they remain attractive for investors and that the market succeeds in cutting emissions, according to Reuters.
Money in the fund would be used by a market regulator to buy carbon credits if prices fell too low, one of the officials said.
As sharp falls in the market could discourage industries from reducing carbon dioxide emissions, consistent investor interest in credits and a floor under the price would be needed.
Read also: China to unveil new rules to rein in fund ‘greenwashing’
According to slides that India Power Ministry has shown to stakeholders and seen by Reuters, planning envisages the market becoming fully operational in 2026, covering 37% of the country’s emissions and the government is expected to publish the market’s rules soon.
Details of the new market rule would be announced next year, said Samrat Sengupta, vice president for new businesses and market strategy at carbon offsetter EKI Energy Ltd (EKIE.BO), which has been briefed by the government.
In creating a carbon market, a country sets a limit on emissions and then allocates a corresponding quantity of tradable permits, or credits, to emitters. The quantity reduces over time. If a company wants to emit more, it can buy more credits at the market price, but it will also consider whether constraining or even cutting its emissions might more profitable.
The federal government would set up the stabilization fund. However, there are still discussions on how it would work and where the money would come from, although the World Bank had shown interest in financing the carbon market if a stabilization mechanism were created and has already said it will provide $8 million to help India prepare carbon-pricing instruments.
The plans for creating a stabilization fund and funding details have not been reported previously. The officials spoke on condition of anonymity.
MARKET LANDSCAPE
The Indian market would cover emissions of carbon dioxide and also five other greenhouse gases valued in terms of their carbon dioxide equivalence, the sources said.
In a part of the planned market to be called the compliance market, participation would be obligatory for entities in a dozen sectors, such as oil refining, steel, aluminium and cement, the sources said. Another part, the voluntary market, would be open to other entities.
The targets for reducing each sector’s emissions will be set by committees of the environment, power and renewable energy ministries, the two officials said.
India’s carbon market is being set up in two phases, according to the government’s presentation slides. In the first phase, between 2023 and 2025, the existing energy-savings certificates will be converted to carbon credits.
The government was still considering whether the new market would subsume one in which certificates for renewable energy generation are traded, the two officials said.
India has committed to cutting its ratio of greenhouse emissions to gross domestic product by 2030 to 45% of its 2005 level and to net zero by 2070.
Story was adapted from Reuters.
