By Shailendra Singh Rao
Ever since the Indian government declared its intention to achieve net zero carbon emissions by 2070, there has been a significant buzz around the concept of carbon credits. Simply put, carbon credit refers to a permit that allows the owner (an organisation or a country) to emit a predefined amount of carbon dioxide or greenhouse gases. One carbon credit allows one tonne of carbon dioxide or equivalent gas emission.
For emerging countries such as India, it is of critical importance that economic growth and development are not hampered due to allegiance to sustainability. Even though taking care of the planet and environment is vital, the decision-makers are often perplexed to choose between growth or sustainability. In such circumstances, carbon credits can be quite beneficial. This ensures that economic activities, manufacturing, logistics, and other processes can continue as usual along with attaining the carbon-related targets. This is why the global markets for carbon credits increased by almost 164% in the previous year, and the total size of the sector is expected to breach the $100 billion mark by 2030.
Some of the most important reasons for the increased importance of the carbon credits market are discussed here:
More emphasis on sustainability and climate change goals
From a macro (country-wide) perspective, the trend towards climate-change goals and sustainability has improved drastically. With the Paris Agreement, even the developing and emerging countries have committed to reducing emissions and attaining net zero carbon goals. This has been the trend among multinational companies, and the number of organisations pledging net-zero targets doubled within two years (between 2019 and 2020). Due to the increased emphasis on sustainability and climate-change-related factors, the demand for carbon credits must grow in the future.
Industrialisation shall continue in the future
Even though there has been a transformation in how renewable energy sources replace fossil fuels, one could not disagree that even today, around 70% of greenhouse emissions are from factories and manufacturing concerns. With an increased demand for goods and infrastructure, it is expected that the industrialisation rates in the country shall also increase. Even with a conscious effort to reduce fossil fuels with renewable energy, the impact of such concerns on the environment cannot be ignored. For the economic development of a region, the industries must be allowed to operate. Hence, carbon credits shall be critical in maintaining a balance.
Financial rewards for regenerative practices
For innovative practices and efforts to reduce carbon emissions, there must be ample financial rewards for such attempts. Such practices in industries and agriculture should be financially rewarded as they save significant carbon emissions and work towards attaining climate goals. Hence, carbon credits are an excellent way to reward such efforts.
Introduction of a regulatory framework
The carbon credits market shall receive a massive push due to a regulatory framework backed by legislation. The Indian government is expected to make critical changes to achieve uniform carbon trading through policy changes and legislation. With such developments, carbon credits shall have a robust domestic market that will include both the manufacturing and agriculture sector. This shall also ensure that the required $10 trillion investment in different fields, including power, hydrogen and mobility sectors, can be raised through carbon credits trading.
With the increased acknowledgement of the importance of sustainability and clean business practices, the overall relevance of carbon credits is anticipated to exceed all expectations in the future. This, backed by favourable legislation and a business environment, shall ensure that this could be an area of significant opportunities in the next couple of decades.
(The author is Founder & Managing Director, Creduce. Views expressed are personal)