A marketplace for carbon credits for auto-makers will incentivise EV production and thus help lower overall emissions.
The government is planning to implement NITI Aayog’s proposal to have a tradeable carbon credits system for the auto industry. As per a report in The Economic Times, auto companies will be given tradeable carbon credits/coupons for making vehicles whose carbon dioxide-emissions level—calculated on a per km basis, on a sliding scale for vehicle efficiency—are below the set standard. Makers of such low-emission vehicles can either redeem these coupons/credits to avail certain incentives/subsidies or sell these to manufacturers whose vehicles’ emissions levels are higher than the emission target.
The prices, of course, will be market-determined. The government is hoping that this will also encourage manufacturers to produce electric and other low-emission vehicles, that will help India meet the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) target of EVs accounting for 30% of the car fleet in the country.
As targets are set and penalties must be paid if these targets are not met, this system induces manufacturers to go for low-emission options, thus lowering overall emissions in an economy. Many developed and developing markets have had such systems for about a decade or more.
A 2008 analysis of such a system implemented in Chile highlights some of the reasons why such a system could falter. Chile’s experience was mired by faulty data-gathering, rules that hampered the trade in emission permits/coupons, and lackadaisical monitoring and enforcement of emission limits by government authorities. The Chilean scheme, all the early US programmes and even the European ETS (launched long after the Chilean scheme), all have very similar flaws, relating to over-allocation, lack of clear rules for penalties, etc.
A strong and efficient governance ecosystem must, therefore, exist in order for the credit market system to work. But, there can be no doubt that India must make carbon-trading a part of its basket of climate solutions—a University of California San Diego study says India loses $210 billion every year due to vehicular emissions.