India is advancing at the intersection of its energy needs and environmental goals in a world rife with environmental problems. With its emphasis on renewable and clean energy, India is poised to take the lead in the international fight against climate change. The smart use of carbon credits, a financial tool created to decrease environmental damage and promote green practices, is a crucial component of this story.
A carbon footprint, broadly defined, is the total volume of greenhouse gases—like carbon dioxide and methane—emitted into the atmosphere of the planet as a result of human activity. It offers a viable pathway to incentivize emissions reduction and promote sustainable practices, providing a market-based mechanism to combat climate change. In the battle against climate change and reducing global carbon emissions, it was imperative for the nation to find effective and scalable solutions to tackle carbon emissions. In accordance with that, so far India has installed a record 15 GW of new renewable energy capacity in 2021/22, giving visibility to Prime Minister Shri Narendra Modi’s ambitious vision of 450 GW by 2030. A total of 172.72 GW of capacity from non-fossil fuel sources has been installed in the country as of October 31, 2022. The country’s installed renewable energy (RE) capacity stands at 150.54 GW (solar: 48.55 GW, wind: 40.03 GW, small hydropower: 4.83 GW, biopower: 10.62 GW, large hydro: 46.51 GW) as of November 30, 2021. Prior to the global pandemic, India’s energy demand was projected to increase by almost 50% between 2019 and 2030, but growth over this period is now closer to 35% in the STEPS and 25% in the Delayed Recovery Scenario.
Carbon Credits as Powerful Incentives for Investments
- Financial Value for Emissions Reduction: Carbon credits assign a financial value to emissions reductions. When businesses invest in renewable energy projects, they can generate carbon credits by displacing fossil fuel-based energy generation with clean and renewable sources.
- Additional Revenue Stream: By earning carbon credits, renewable energy projects can generate revenue beyond the sale of energy itself. This additional revenue stream enhances the financial viability and attractiveness of investing in renewable energy projects.
- Enhanced Project Viability: The financial value of carbon credits can improve the viability of renewable energy projects. It can bridge the gap between the cost of clean energy technologies and the price competitiveness with conventional fossil fuel-based energy sources.
- Market Demand and Certainty: The growing demand for carbon credits and the carbon market provides certainty for investors in renewable energy projects. The existence of a robust and active market for carbon credits ensures that there is a tangible value for emissions reductions. This market demand incentivizes investors to engage in renewable energy projects and participate in emissions reduction initiatives.
- Compliance and Corporate Social Responsibility: In addition to financial incentives, carbon credits also address compliance requirements and corporate social responsibility goals. Many jurisdictions and companies have emission reduction targets to meet regulatory obligations or demonstrate their commitment to sustainability.
Economic Advantages of Utilizing Carbon Credits
By embracing carbon credits, India can unlock the full economic potential of its clean energy sector and accelerate the transition to a sustainable and low-carbon economy. Here are the key benefits:
- Revenue Generation
- Access to Funding and Investment
- Lower Energy Costs
- Job Creation
- Market Opportunities
- Environmental and Health Benefits
Environmental Benefits of Reducing Carbon Emissions through Carbon Credits
Reducing carbon emissions through carbon credits offers several environmental benefits that contribute to the preservation of ecosystems and the improvement of air quality.
- Climate Change Mitigation
- Improved Air Quality
- Preservation of Ecosystems
- Sustainable Land Use
- Water Conservation
- Preservation of Natural Resources
Overcoming Challenges and Promoting Awareness
While carbon credits hold immense potential, several challenges must be addressed to fully leverage their benefits in India. Creating an enabling regulatory environment and establishing transparent mechanisms for carbon credit trading are crucial steps. Policymakers need to collaborate with industry stakeholders to develop standardized methodologies and measurement techniques for verifying emissions reductions.
Ways of using Carbon Credit in removing India’s Carbon Footprints
Here are some of the ways that carbon credits can be used to reduce India’s carbon footprint:
- Investing in renewable energy projects: When a company invests in a renewable energy project, it is essentially buying carbon credits that represent the emissions reductions generated by the project. This helps to offset the company’s own emissions and contribute to India’s clean energy goals.
- Investing in energy efficiency projects: Energy efficiency projects can help reduce energy consumption, which in turn reduces emissions. When a company invests in an energy efficiency project, it can earn carbon credits that can be used to offset its own emissions.
- Supporting reforestation projects: Reforestation projects help to absorb carbon dioxide from the atmosphere, which helps to reduce greenhouse gas levels. When a company invests in a reforestation project, it can earn carbon credits that can be used to offset its own emissions.
To meet its objectives for clean energy and combat climate change, India must significantly reduce its carbon footprint and carbon credit is a revolutionary solution for that. Along with incentives for reducing emissions, investments in clean energy, and support for sustainable development, Carbon Credit can stimulate economic growth, generate job opportunities, and preserve the environment in India. Companies can acquire carbon credits that can be used to offset their own emissions by investing in renewable energy, energy-efficient projects, and reforestation efforts. This promotes a cleaner, more sustainable future for India by lowering greenhouse gas levels.
(The author is Mr Shalin Sheth, Founder & Managing Director, Advait Infratech, and the views expressed in this article are his own)