[Answered] What are carbon markets, proposed under Energy Conservation (Amendment) Bill, 2022? Also, highlight the challenges in effective functioning of carbon markets.

Recently Ministry of New and Renewable Energy introduced the Energy Conservation (Amendment) Bill, 2022 with an objective to support energy transition. The Bill amends the Energy Conservation Act, 2001.  It provides for the regulation of energy consumption by equipment, appliances, buildings, and industries.

Carbon markets:

• Carbon markets are a tool for putting a price on carbon emissions.
• It establishes trading systems where carbon credits or allowances can be bought and sold.
• A carbon credit is a kind of tradable permit that, as per UN standards, equals one tonne of carbon dioxide removed, reduced, or sequestered from the atmosphere.
• The Bill empowers the Centre to specify a carbon credits trading scheme.
• Under the Bill, the central government or an authorised agency will be able to issue carbon credit certificates. These carbon credit certificates will be tradeable in nature.

Challenges in effective functioning of carbon markets:

• Greenwashing: Some companies simply buy credits without making any effort to reduce emissions themselves. It is cheaper for them to buy carbon credit than to invest in emission reducing technologies.
• Environmental activists argue that only high-quality carbon offsets are effective in reducing emissions. However, many credits available in markets are of poor quality.
• Buying carbon credits can deviate the rich nations from the path of reducing emissions. They can simply continue to emit and buy cheap carbon credits from developing countries.
• There has been huge surplus of carbon credits in the voluntary markets. According to an estimate, credits for about a billion tons of CO2 have been put up for sale on the voluntary market. But there have been more sellers than buyers.
• It is difficult to establish the amount of carbon reduced by offset projects (like afforestation or wind energy project). The complexity is inestablishing baseline emissions (the emissions in the absence of the project).
• Double counting of greenhouse gas reductions.

The establishment of a domestic carbon market is a progressive step. However, the actual benefit will depend upon the effectiveness of the market. For this, the Government must ensure that proper regulations are established.