EXCLUSIVE-India to boost carbon trading market with stabilization fund

By Sarita Chaganti Singh and Mohi Narayan

NEW DELHI, December 21 (Reuters)India is planning a stabilization fund to keep the prices of credits in its planned carbon market above a certain threshold, ensuring they remain attractive to investors and the market succeeds in reducing emissions, two government sources said.

The money in the fund would be used by a market regulator to buy carbon credits if prices fell too much, one of the officials said.

Continued investor interest in the credits and a floor below the price would be needed because sharp declines in the market could discourage industries from cutting carbon dioxide emissions, the official added.

Planning calls for the market to be fully operational by 2026, covering 37% of the country’s emissions, according to slides, seen by Reuters, that the energy ministry has shown to interested parties. The sources said the government intended to publish the market rules soon.

Details will be announced next year, said a third person, Samrat Sengupta, vice president of new business and market strategy at carbon offsetter EKI Energy Ltd. EKIE.BOwhich has been informed by the government.

By creating a carbon market, a country sets an emissions cap and then assigns a corresponding number of tradable permits, or credits, to emitters. The amount is reduced over time. If a company wants to issue more, it can buy more credits at the market price, but it will also consider whether restricting or even reducing its emissions might be more profitable.

The source said that the federal government would establish the stabilization fund. Exactly how it would work and where the money would come from was still being discussed.

The second source said that the World Bank had shown interest in financing the carbon market if a stabilization mechanism was created. The bank extended an $8 million grant to India in 2016/17.

“The World Bank remains committed to supporting India in developing a carbon trading market and other instruments to help scale up financing for key climate transitions,” he said in an email to Reuters.

India’s energy ministry did not respond to a Reuters request for comment.

Plans to create a stabilization fund and financing details have not been previously reported. The officials spoke on condition of anonymity.

Starting in 2008, the prices of carbon credits in other countries plummeted sharply due to the economic crisis that year and because governments had issued too many.

In the European Union, a credit worth 1 ton of carbon dioxide traded for just €5 in 2012, down from €30 in 2008, so cutting emissions wasn’t very rewarding. But the creation of a market stability reserve in 2019, among other measures, has caused the price to rise between 75 and 95 euros per ton.

MARKET LANDSCAPE

The Indian market would cover carbon dioxide emissions and also five other greenhouse gases valued in terms of their carbon dioxide equivalency, the sources said.

Energy Minister RK Singh said last week that the Central Electricity Regulatory Commission would likely be the regulator of the market.

In a part of the planned market to be called the compliance market, participation would be mandatory for entities in a dozen sectors, including oil refining, steel, aluminum and cement, the sources said. Another part, the voluntary market, would be open to other entities.

India already has a market for trading energy saving certificates above target. Entities from 13 sectors must participate.

Green energy companies formed a group in October to mediate between government and industry. These include Adani Green, owned by billionaire Gautam Adani, Hero Future Energies, Ayana Renewable Power and Virescent Infra, from the major global private equity firm KKR.

Targets to reduce emissions from each sector will be set by committees of the environment, energy and renewable energy ministries, the two officials said.

India’s carbon market is being established in two phases, according to slides in the government’s presentation. In a first phase, between 2023 and 2025, the existing energy saving certificates will be converted into carbon credits.

The government was still considering whether the new market would include one where certificates for renewable power generation are traded, the two officials said.

India has committed to reducing its ratio of greenhouse gas emissions to gross domestic product by 2030 to 45% of its 2005 level and to net zero by 2070.

Sectoral share of carbon emissions in Indiahttps://tmsnrt.rs/3jgBRHQ

(Reporting by Sarita Chaganti Singh and Editing by Mohi Narayan)

((Sarita.ChagantiSingh@thomsonreuters.com;))

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