含羞草社区

The Central Electricity Regulatory Commission (CERC) has published the draft , under the power granted to the government by the Energy Conservation (Amendment) Act, 2022, to bring in a carbon credit trading scheme (CCTS). The aim is to facilitate the trading of carbon credit certificates (CCC) on power exchanges by obligated and non-obligated entities, as defined in section 2 of the CCTS, 2023.

The regulations will govern the trading of CCCs and contracts for CCCs on power exchanges approved by the CERC under the Power Market Regulations, 2020. The Grid Controller of India (Grid India) will be the registry for the exchange of CCCs and will create an appropriate framework.

CCCs will only be traded on power exchanges monthly unless otherwise permitted by the CERC. The carbon market will have two segments: a compliance market for obligated entities and; an offset market for non-obligated entities. Bodies must register with power exchanges and adhere to CERC-approved trading rules. They cannot bid in excess of their CCC holdings, with the registry cross-checking each bid. Entities defaulting more than three times in a quarter will be suspended from trading for six months. A list of defaulters will be published monthly. Power exchanges must report transaction details to entities and the registry. After a trade, the registry will update the accounts of the seller and buyer, ensuring a seamless process. CCCs issued by the Bureau of Energy Efficiency (BEE) and approved by the government can be traded on any power exchange.

Each CCC represents the reduction, removal or avoidance of one tonne of carbon dioxide equivalent. Prices will be determined through bidding on power exchanges, although they will be within a CERC-approved floor and a forbearance price range proposed by the BEE. Two procedures in section 12 of the CCTS outline the validity of CCCs. One is for the compliance mechanism of certificates issued under that system, the other is for the offset mechanism. The BEE will designate CCCs as belonging to either obligated or non-obligated entities.

The CERC may intervene in case of abnormal price changes, sudden price volatility or unusually high or low trading volumes. The CERC may consult with the BEE to set fees and charges for obligated and non-obligated entities to cover the costs of the registry.

The BEE is the administrator for CCCs and will develop procedures for implementing the trading programme after public consultation and CERC approval. It will facilitate CCC transactions, ensure transparency and report non-compliance to the CERC. It will also manage information on obligated and non-obligated entities. The BEE will co-ordinate with power exchanges and the registry to achieve operational harmony and will oversee compliance with the Energy Conservation Act, 2001, and the Environmental Protection Act, 1986. The bureau will disseminate relevant market information to all stakeholders.

Despite the regulations being good overall, some are ambiguous. For example, the definition of banking and extinguishment of CCCs in regulation 2(1c) conflicts with the meaning of surrender in the Detailed Procedure for Compliance Mechanism under section 12 of the CCTS, 2023. To avoid confusion, the term banking and surrender of CCCs should be replaced by banking and extinguishment.

Regulation 9(3) implies that only CCCs issued to entities by the BEE will be traded and that an entity cannot resell a CCC. It also suggests that a purely trading entity cannot work in the market. This restriction contradicts the broader trading provisions under the CCTS, 2023. Traders and market makers will be necessary to bring depth into the market.

Regulation 9(4) details the timeframe for transactions but overlooks essential elements such as demand-supply matching, settlement, payment and dispute resolution. Addressing such gaps will improve market efficiency and stakeholder confidence.

The regulations are significant for operating carbon markets. However, gaps must be filled for them to achieve their full potential. By fostering a robust, transparent and efficient carbon trading framework, the regulations can play a pivotal role in helping India realise its climate goals and set a precedent for global carbon markets.

Abhishek Tripathi is the managing partner and Nirmal Johnis an associate at Sarthak Advocates.