Emissions Trading Systems (ETSs) create a market for trading greenhouse gas (GHG) emissions, offering businesses a transformative opportunity to align with India’s decarbonization goals. By participating in these markets, companies can unlock economic and competitive advantages while reducing their carbon footprint.
India’s Transition from PAT to CCTS
The Environmental Defense Fund (EDF) India recently released a report titled India’s Transition from PAT to CCTS: A Strategic Shift, exploring the benefits of moving from the Perform, Achieve, and Trade (PAT) scheme to the advanced Carbon Credit Trading Scheme (CCTS).
India is gradually shifting from the PAT scheme, which primarily focused on energy efficiency, to CCTS, which expands its scope to include GHG emissions reductions. The new system broadens the impact of carbon trading, ensuring industries adopt a more comprehensive approach to sustainability.
Key Features of India’s CCTS
India’s CCTS includes a compliance mechanism that mandates emissions intensity targets for nine high-emission industries. Additionally, it features an offset mechanism, enabling voluntary emissions reduction projects in sectors like agriculture, transport, and forestry to generate carbon credits.
As India prepares to launch CCTS in 2025, businesses have an unprecedented opportunity to integrate carbon markets into their corporate strategies. The report highlights how ETSs have successfully reduced emissions across multiple industries worldwide. A study of 21 carbon pricing schemes shows reductions ranging from 4% to 15%, even with relatively low carbon prices.
Global Success Stories in Emissions Trading
The report underscores the effectiveness of ETSs in various countries. The European Union’s ETS has helped reduce emissions in covered sectors by nearly 50% since 2005. Similarly, China’s pilot ETSs have achieved an average emissions reduction of 13%, alongside improvements in energy efficiency.
Impact on Business Performance
Contrary to concerns that ETSs may harm economic performance, empirical evidence suggests they can enhance firm competitiveness. The EU ETS has increased revenues by approximately 16% and boosted fixed assets by about 8% for regulated firms, without negatively affecting employment or profitability. In China, pilot ETSs have lowered operating costs and improved profitability, particularly for state-owned enterprises.
Essential ETS Design Elements
The success of an ETS depends on its design, which influences business decisions related to emissions reduction, investment in low-carbon technologies, and competitiveness. Key design elements include:
*Emissions caps and targets – Establish clear reduction goals.
*Allowance allocation – Determine how permits are distributed.
*Price management mechanisms – Regulate market stability.
*Carbon credit permits – Enable flexibility in compliance.
*Regulatory certainty – Ensure long-term investment confidence.
How India’s CCTS Works
India’s CCTS follows an intensity-based baseline-and-credit system. Each industry will have both a sectoral trajectory and a target for individual entities, based on emissions per unit of output. Unlike traditional models that use free allocation or auctioning, CCTS operates on a performance-based mechanism. Businesses will earn Carbon Credit Certificates (CCCs) only if they outperform emissions intensity targets.
The system also includes key regulatory features such as a floor price, forbearance price, and a future market stability reserve (MSR) to ensure market efficiency and fairness.
Conclusion
India’s transition to CCTS represents a significant shift toward a more robust and effective carbon market. By leveraging ETSs, businesses can drive sustainability, enhance competitiveness, and contribute to India’s broader climate goals. As reported by thehindubusinessline.com, India is gearing up for the 2025 launch of CCTS. Companies must prepare to integrate carbon trading into their long-term strategies to maximize both environmental and economic benefits.
