India to bolster carbon trading market with stabilisation fund

Eki Energy Services

21/12/2022 09:52

By Sarita Chaganti Singh and Mohi Narayan
       NEW DELHI, Dec 21 (Reuters) - India 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, two government sources said.
    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.    
    Consistent investor interest in credits and a floor under
the price would be needed because sharp falls in the market
could discourage industries from reducing carbon dioxide
emissions, that official added.
    Planning envisages the market becoming fully operational in
2026, covering 37% of the country's emissions, according to
slides, seen by Reuters, that the Power Ministry has shown to
stakeholders. The sources said the government intended to
publish the market's rules soon.
    Details would be announced next year, said a third person,
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 source said the federal government would set up the
stabilization fund. Exactly how it would work and where the
money would come from was still under discussion.
    The second source said the World Bank had shown interest in
financing the carbon market if a stabilization mechanism were
created.
    The World Bank has already said it will provide $8 million
to help India prepare carbon-pricing instruments.
    India's Power Ministry and the World Bank did not
immediately respond to a request from Reuters for comment.
    The plans for creating a stabilization fund and funding
details have not been reported previously. The officials spoke
on condition of anonymity.
    Beginning in 2008, prices of carbon credits in other
countries slumped heavily, because of that year's economic
crisis and because governments had issued too many of them.
    In the European Union, a credit worth 1 tonne of carbon
dioxide traded at just 5 euros in 2012, down from around 30
euros in 2008, so cutting emissions was not very rewarding. But
creation of a stabilisation fund in 2019, among other measures,
has seen the price rise to between 75 and 95 euros per tonne.
    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.
    Power Minister R.K. Singh said last week the Central
Electricity Regulatory Commission would probably be the market
regulator.
    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.
    India already has a market for trading certificates in
above-target energy savings. Entities in 13 sectors must
participate.
    Green energy companies formed a group in October to mediate
between the government and industry. They included Adani Green,
owned by billionaire Gautam Adani, Hero Future Energies, Ayana
Renewable Power and global private equity major KKR's Virescent
Infra.
    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.
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Sector-wise share of carbon emission in India    https://tmsnrt.rs/3jgBRHQ
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 (Reporting by Sarita Chaganti Singh and Mohi Narayan; Editing
by Bradley Perrett)
 ((Sarita.ChagantiSingh@thomsonreuters.com;))