India Inches Closer to Banning Carbon Credit Exports

(Photo by Naveed Ahmed via Unsplash)

Lawmakers in India approved a bill to set up a domestic carbon market and ban the export of carbon credits, local media reported on August 8.

Members of the lower house of the Indian parliament, the Lok Sabha, approved the Energy Conservation Amendment Bill 2022, which enabled the government to regulate carbon trading in the country and oversee the country’s transition to clean sources of energy.

With the move, India joins a growing list of developing countries calling for a halt to the export of carbon credits from local projects.

Before India, Papua New Guinea, Indonesia and Honduras had also announced or planned bans on carbon credit exports.

Countries hosting carbon credit projects, typically based in the global south, are becoming increasingly worried about the impact of the voluntary carbon market on their ability to meet their national emissions reduction goals. 

In the voluntary carbon market, companies develop projects privately. After their climate benefits are certified by third-party standard-setting organizations, they sell credits to those looking to reduce their carbon footprint—often international companies based abroad. 

But to avoid “double counting,” i.e. make sure that only one company or country claims the benefits of a carbon project, if the credit is sold to an international company, the country it was generated in can’t count the environmental benefit of the project for their accounts. And so the growth of the market has some countries concerned that the trade might leave them with insufficient resources to reach their greenhouse gas reduction goals.

“Carbon credits are not going to be exported. No question,” the country’s power and renewable energy minister, Raj Kumar Singh, told lawmakers debating the bill. “These credits will have to be generated by domestic companies, bought by domestic companies,” he said.

In other countries that recently announced credit export bans, such as Papua New Guinea and Indonesia, the governments suggested that the ban would be temporary until governments could “take stock” and issue new rules.

Singh did not provide details about when the ban would come into effect or when the country’s carbon market would kick in. But S&P Global quoted an anonymous source with knowledge of the matter as saying that the ban is likely to remain in place until “climate goals are met.” 

It’s not clear which climate goals the source referred to. India’s upcoming targets include increasing the share of clean energy in its electricity mix from around 42% currently to 50% by 2030, as well as reducing its emissions by 45% from 2005 levels.

ESG Today said that the bill laid the foundation for the country to launch a compliance carbon market, one where authorities allocate an allowance of carbon credits to corporations in polluting industries. If they exceed their allowance, businesses will have to buy additional credits to cover their excess pollution. If they remain below their allowance, they can sell any leftover credits for a profit.

The shares of the Indian company EKI Energy, one of the world’s largest carbon credit developers, fell sharply following the news. Between August 8 and 11, shares fell more than 20% before recovering slightly in the following days.

India is the world’s third-largest carbon emitter after China and the United States and accounts for some 8% of annual global emissions. However, on a per capita basis, India is well below the global average. India’s per capita emissions total 1.96 tons of CO2 per person, while the global average is 6.55 tons.

Earlier in 2022, India pledged to reach net zero emissions by 2070.