[Answered] A carbon-trading scheme can generate conditions necessary for the economy’s green transition. Discuss.

Carbon trade is the buying and selling of credits that permits a company or other entity to emit a certain amount of carbon dioxide or other greenhouse gases. It is authorized by the government with the goal of gradually reducing overall carbon emissions and mitigating their contribution to climate change.

Need:

• Energy requirements: India’s energy system is highly dependent on fossil fuels that supply about 90 per cent of the country’s demand.
• Power generation: Power generation is highly dependent on coal and about 78 per cent of it comes from fossil fuels.
• Transportation: It is almost entirely dependent on oil.
• Economic activities by consumers (e.g., driving or air-conditioning) and by producers (such as electricity generation and manufacturing) cause emissions which lead to pollution and global warming. The outcomes of these negative externalities are not reflected in the costs incurred by consumers or producers. This leads to an uncontrolled rise in emissions and also concern for mitigation efforts.

How it will help in transition to green economy?

• Auction-based carbon trading will provide efficient capital flows and resource allocation for green-tech, renewable energy and energy efficiency measures.
• Carbon pricing disincentivizes the use of fossil fuels, making deployment of renewables more attractive.
• Clear and predictable carbon-price signals in domestic and international markets can help countries achieve climate change targets cost-effectively.
• Governments may choose to auction their permits to companies and the resulting fiscal revenue can be reinvested in funding other climate action programs.
• The costs caused by GHG emissions such as the impact on public health, costs linked to extreme weather etc., are made visible and integrated into the price of goods and services.

A green economy has the potential to lead to the path of sustainable development. Focusing on carbon trade is essential because reducing the domestic carbon emissions alone would not avert the harm if imports remain carbon-intensive.