Research Paper ISSN-2455-0736 (Print)

Peer Reviewed Journal ISSN-2456-4052 (Online)

GREEN ECONOMY IN INDIA: JOURNEY THROUGH

CARBON CREDIT MECHANISM
Anu Jossy Joy
Assistant Professor, Dept. of Commerce, Nirmala College, Muvattupuzha
Email: annajossyjoy@gmail.com

Abstract
Emission of Green House Gases such as Carbon Dioxide (CO 2), Methane (CH4), Nitrous Oxide
(N2O), Per Fluro Carbons Carbons (PFCs), Hydro Fluro Carbons (HFCs), and Sulfar Hexa
Fluride (SF6) were considered as the major reason for the drastic climatic changes and global
warming over the years. In order to control and reduce the ill effects of these, Kyoto Protocol
was signed by world nations in 1997. Carbon credit /Carbon offset being the brain child of
Kyoto protocol offers vast potential to the developed countries to reduce their carbon
footprints by investing in the green projects of developing countries through Clean
Development Mechanism (CDM) or Joint Initiative (JI). India ratified “Kyoto protocol” on
26th August 2002 and signed on “Carbon credit” in 2005.
The present paper analyses the potential areas of investment for carbon credit projects in
India, top companies from India in the clean carbon 200 list and shot term reversals faced by
India in the carbon credit market in recent years. Carbon credit system has enormous potential
in India in spite of the short term setbacks it has suffered due to global economic recession.
However, through proper monitoring, evaluation and follow up of the green projects, it can
achieve the targets of „Clean and sustainable development‟.
Key Words: GHGs, Kyoto Protocol, Carbon credit, carbon footprints, CDM, Sustainable
development.

1. INTRODUCTION
Environmental degradation and climatic changes have become a matter of concern all over
the world during the past few decades. It is well known fact that carbon dioxide is the most
important greenhouse gas produced by combustion of fossil fuels (Bhardwaj, 2013). There
has been a tremendous shoot up in the atmospheric carbon dioxide (CO 2) levels in recent
years. It is believed to be the result of the industrialization which began in the second half of
the 18th century and is still going on in many emerging global markets. Clearing of forests,
setting up of factories and various other human structures have contributed a lot to the rising
level of carbon dioxide and other Green House Gases (GHGs) in the atmosphere thereby
causing serious damages to the ecological system. Statistics show that more than 36 billion
metric tons of carbon dioxide was produced globally in 2013 as against 11 million metric
tons in 1751.

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Figure -1 - CO2 emissions in Million Metric tons (from 1751-2013)

Source: www.statista.com/statistics/264699/worldwide-co2-emissions/
In 2014, the largest CO2 producers included the United States and the four members of the
BRIC countries. Brazil, Russia, India and China were all ranked among the five largest
emitters, with China taking the top spot. In 2015, china continued to be the highest emitter,
followed by U.S., India, Russia, Japan and Germany.

Figure -2 - Share of total emissions by world countries in 2015

Source: www.statista.com/statistics/271748/the-largest-emitters-of-co2-in-the-world/
In the International Energy Outlook 2016 (IEO2016) Reference case, world energy related
CO2 emissions increase from 32.3 billion metric tons in 2012 to 35.6 billion metric tons in
2020 and to 43.2 billion metric tons in 2040. Foreseeing the dangerous effect of GHGs over
mankind, Kyoto protocol was introduced by world treaties in an effort to reduce the emission
of these pollutant gases and preserve the natural composition of environment.

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1.1 Kyoto Protocol

Kyoto Protocol is an international treaty made under the United Nations Framework
Convention on Climate Change (UNFCCC) to lower overall emissions of GHGs. Even
though it was initiated in December 1997 as a result of the third conference held at Kyoto,
Japan, it came on to effect only on February 2005. International treaties have established
quotas on the amount of GHG that countries can produce. Credits are awarded to countries
or groups that have reduced their GHGs below their emission quota. The Kyoto Protocol
provides three ways in which developed countries can meet their emission reduction targets:
(i) reduce GHG emissions in their own countries through technological or policy
interventions;
(ii) buy emission allowances from other countries through a regional or global trading
scheme (such as the European Trading Scheme – ETS); or
(iii) invest in emission reduction projects in transition economies through the JI program
or in developing countries through the CDM.
1.2. Carbon Credits
Carbon Credit is the brain child of Kyoto protocol. Carbon credits are certificates issued to
countries that reduce their emission of GHGs which cause global warming. Carbon credits
are measured in units of Certified Emission Reductions (CERs). Each CER is equivalent to
one tonne of carbon dioxide reduction.
Carbon credit is defined as a “generic term to assign a value to a reduction or offset of
greenhouse gas emissions. It is measured in terms of one tonne of carbon dioxide equivalent.
i.e., One Carbon Credit = One tonne of CO2 equivalent. (The Environment Protection
Authority)
Carbon credit is a “permit that allows the holder to emit one ton of carbon dioxide which can
be traded in the international market at their current market price”.(Investopedia)
1.3. Carbon Trading
As per the Kyoto Protocol and Carbon credit mechanism, commercial entities emitting above
the permitted limit of carbon dioxide were required to cut down their emissions to prescribed
levels. Industries or businesses that are over their emission quotas must buy carbon credits
for excess emissions, while those below can sell their remaining credits. Otherwise they
should pay a charge for the excess emission, which is referred to as carbon tax. The prices
are normally quoted in Euros per ton of carbon dioxide.

Figure 3 – Mechanism of Carbon Trading

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Source: (Vivek, 2012)

Eg:- A company from a developing country(A) is investing in a new hydel project using a
particular technology at the cost of X crore. A company from a developed country (B) is
ready to provide „A‟ with slightly better technology that result in lower emissions, at a much
higher cost (say Y crore. Country „B‟ will only pay the incremental cost of the project i.e., Y
minus X. In return, country „A‟ will get certified emission reductions (CERs), or credits,
which it can use to meet its Kyoto commitments. This is a very good deal for the investing
country. Not only do they sell developing countries their technology, but they also meet
their Kyoto commitments even without lifting a finger to reduce their domestic emissions.
Countries like the US can continue to pollute at home, so long as it makes the reductions
elsewhere.
1.4. India and Carbon Credit
As per the conventions of Kyoto protocol, India being a developing country has no emission
targets to be followed. However, the country can be greatly benefitted by entering into Clean
Development Mechanism (CDM) or Joint Initiative (JI) projects with the developed
countries. Under CDM, a developed country can take up a GHG reduction project activity in
a developing country where the cost of GHG reduction project activities is usually much
lower. The developed country would be given Carbon Credits for meeting its emission
reduction targets, while the developing country would receive the capital and clean
technology to implement the project. Through the CDM project, cooperation between
developed Annex I and developing non-annex I countries is enhanced and a win-win
situation can be realized in a cost-effective way. Other imminent benefits of CDM include
technology transfer to the host country as well as improvement in livelihood of local
communities through job creation and increased economic activity. Thus the developing
countries like India would be able to contribute more revenue to the economy though the
green initiatives.
Table No. 1
Clean Development Mechanism Statistics (as on 31st March 2016)

Total No. of Projects Registered with UNFCCC 7630

Total No. of CERs issued to projects 1.55 bn

Total No. of Registered projects from India(% of total) 1565(20.51%)

Total No. of CERs issued to Indian projects(% of total) 203.31mn(13.09%)

Source: www.idbi.com
China continued to lead with 3,762 registered CDM projects followed by India and Brazil
with 1565 projects and 335 projects respectively.
2. LITERATURE REVIEW
Birla etal (2012) made a review of the prospects of carbon credit market in India by
suggesting the technologies and market standards that India can follow. He pointed out that

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Peer Reviewed Journal ISSN-2456-4052 (Online)

even though India is the largest beneficiary of carbon trading, it does not have a proper
policy for trading carbons in the market.
Bhardwaj (2013) discussed about the business of carbon in International market and the
opportunities for emission trading in the Indian context. She concluded that India will
emerge as the leader in Carbon trading.
Lobo and Raghavendra(2016) evaluated the current scenario of carbon trading in India and
opined that carbon trading is the best way to mitigate climate change. But monitoring,
estimating and verifying of actual emissions are very costly.
Kumari etal. (2013) made a study of carbon credit effects on stock market and the relative
factors which influence stock market in India. She found out that the factors influencing
carbon credits were Msci, Powerex, Carbonex and Greenex.
Rajput and Chopra (2014) analysed the basic concepts related to carbon credit as a tool to
save environment. They also analysed the opportunities for emission trading in India.
Sandeep and Sruthi ( 2013) examined how various CDM projects are financed and the
benefits of financing for both host countries and home countries through a case study of
DMRC(Delhi Metro Rail Corporation) and Japan Carbon Finance Ltd. The study reported
that the DMRC project was financed by Japan and the carbon credits earned by DMRC in
regenerative rolling stock is purchased by Japan at a price of 1.2 crore per annum. Japan
used this carbon credits for meeting its Kyoto requirements and the finance contributed for
sustainable development to DMRC and India.
3. RATIONALE OF THE STUDY
Carbon trading is considered as the “Greenest” trading platform for the small and large scale
private and governmental sector players in India. (Birla etal, 2012) However behind every
trading activity there should be some ethics. It makes no sense if carbon trading is
considered as a license to the companies or counties to emit carbon up to the desired limit.
It is argued that an emission trading does not solve the pollution problem, as the industries
that do not pollute sell their conservation to the polluting industries that continue to pollute;
overall reduction in the greenhouse gas emissions would not occur. So rather than
concentrating on offsetting the carbon credits through carbon trading, steps should be taken
to promote earning more carbon credits though “green projects” (those reducing the emission
of GHGs). In this context the present paper analyses the potential areas of investment for
carbon credit projects in India. It also aims at identifying the top companies from India and
the shortcomings for trading carbon credits in India.
4. OBJECTIVES
a) To identify the potential areas of investment for carbon credit projects in India.
b) To identify the top performers from India and their operations.
c) To analyse the setbacks, if any, faced by India in the carbon credit market.

5. METHODOLOGY
The study mainly relies on secondary data to identify the top performers and their initiatives.
Data were mainly collected through online sources including the World Bank and UNFCCC
reports.

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6. FINDINGS
a) Objective 1- Potential areas of Investment for carbon Credit Projects in India
India can set up environment friendly projects in the following areas:-
i) Energy Efficiency Projects
 Increase building efficiency (Concept of Green Building) e.g. Technopolis Building
Kolkata
 Increase commercial/industrial energy efficiency (Modernization and renovation of
old power plants)
 Fuel switching from more carbon intensive fuels to less carbon intensive fuels
 Introduction of wind, solar, hydel energy projects
ii) Transport
 Improvements in vehicle fuel efficiency by the introduction of new technologies
 Changes in vehicles and/or fuel type, for example, switch to electric cars or fuel cell
Vehicles (CNG/Bio fuels)
 Switch of transport mode, e.g. changing to less carbon intensive means of transport
like trains(Metro in Delhi)
 Reducing the frequency of the transport activity and Prohibiting prolonged use of
vehicles
iii) Methane recovery
Animal waste methane recovery & utilization
 Installing an anaerobic digester & utilizing methane to produce energy
Coal mine methane recovery
 Collection & utilization of fugitive methane from coal mining
 Capture of biogas
Landfill methane recovery and utilization
 Capture & utilization of fugitive gas from gas pipelines
 Methane collection and utilization from sewage/industrial waste treatment facilities
iv) Industrial process changes
 Any industrial process change resulting in the reduction of any category greenhouse
gas emissions
 Recycling of plastics and using them for road tarring along with bitumen.
 Recycling of e-wastes.
v) Cogeneration
 Use of waste heat from electric generation, such as exhaust from gas turbines, for
industrial purposes or heating (e.g. Distillery-Molasses/ bagasse)
vi) Agricultural sector
 Energy efficiency improvements or switching to less carbon intensive energy sources
for water pumps (irrigation).
 Methane reductions in rice cultivation.
 Reducing animal waste or using produced animal waste for energy generation.

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 Avoidance of artificial fertilisers and pesticides.

 Any other changes in an agricultural practices resulting in reduction of any category
of greenhouse gas emissions.

b) Objective 2 – Top performers from India and their operations

Corporate Knights (a company that produces corporate rankings, research reports and
financial product ratings based on corporate sustainability) published the Carbon Clean 200
(Clean 200TM) list on 15th August 2016. It is a list of the 200 largest companies worldwide
ranked by their total clean energy revenues.
The list is topped by Japan‟s Toyota Motor followed by Germany‟s Siemens AG. More than
70 of the companies included in the list receive majority of their revenue from clean energy,
the rankings show, with most of the 200 from China (66 entries) and the US (40), although
there is also strong representation from Japan (20), Germany (8), India (7) and Canada (5).
Four Indian companies - Godrej Industries, NHPC Ltd, SJVN, and Bharat Electronics - have
moved out of the rankings for being laggards and being utilities producing less than 50 per
cent green energy.
Table No. 2
Indian companies among Carbon Clean 200 List

World Name of Type of projects

Rank company

68 Suzlon Energy Wind farms

106 Bharat Heavy Wind electric generators and solar cells

Electricals Ltd.

114 Tata Chemicals Chemicals for biodiesel, solar energy, and fuel cells

139 Thermax Ltd. Vapour absorption chiller that uses water as refrigerant
instead of ozone depleting chlorofluorocarbons

153 Exide Indus Electric storage batteries

155 IDFC Ltd. Green infrastructure financing

166 Havells India Energy meters

Source : www.ibef. org

c) Objective 3- Set backs to India in the Carbon credit market

India as the third largest contributor of CDM projects worldwide; it bagged a lot in terms of
Certified Emission Reductions. However, there is a short fall in the demand for carbon
credits and sharp decline in CER prices in recent years. Even though it is traded in different
parts of the world, there is no full-fledged system for trading in India. Another problem is

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that carbon credit system is not yet compulsorily implemented in India by Law. Neither the
govt. provides incentives to boost up green projects nor imposes taxes on projects having
emissions over a ceiling limit. As India has no emission targets to be followed as per the
Kyoto protocol, the fixation of emission limit is also a major difficulty. The main problems
faced by India in the carbon credit market in recent years are:-
 Due to global recession, in the year 2008, there was a sharp decline in sales and
manufacturers were forced to reduce the volume of manufacturing.
 Global decline in manufacturing meant that companies were producing lower than
expected carbon. As a result, demand for carbon credits was substantially lower than
the supply.
 This resulted in CER prices to fall drastically. For credits to be issued between 2013
and 2019, the estimated notional loss is of around Rs 10,500 crore. Although it is
termed as notional loss in the realm of finance, it is perceived as real loss to the
overall industry.
 Indian CER holders have been struggling to sell their CERs to countries with
maximum emission of greenhouse gases.

7. CONCLUSION
Even though the Corporate‟s have made significant contribution in the carbon credit regime,
Small Scale industries which are the backbone of the Indian economy can contribute a lot to
the green economy initiative. If they were given subsidies to purchase solar power systems
or adopting less energy consumption methods, it will be a remarkable achievement
considering the Indian scenario. Another alarming situation is due to plastics and e- wastes.
Recycling of degradable items such as rubber and usage of agri waste will reduce the carbon
emission problem. Non degradable items like plastic should also be recycled. India is the
largest producer and consumer of plastic. Plastic has a life span of nearly 300 years which
can cause health problems as well as air pollution while burning. Incentives should also be
given to such industries. Besides, Re usage of electronic items by small modifications will
provide us with lesser e-waste.

Thus carbon credit system has enormous potential in India in spite of the short term setbacks
it has suffered due to global economic recession. It doesn‟t matter how India earned in terms
of Emission trading. Rather it is essential to check the contribution of India in terms of
CERs, Greener projects and events. As Indians, we cannot simply sit and say “global
warming is the result of industrial revolution”. If we are planting a tree and nurturing it, it
can be counted as one of the green initiatives at the grass root level. Through proper
monitoring, evaluation and follow up of Green projects and imposition of carbon tax for
non- green projects, India can achieve the targets of „Clean and sustainable development‟
and become a Green economy.

References and Citation:

1. Bhawana Bhardwaj, Future of Carbon Trading: A business that works for global environment,
International Journal of Science, Environment and Technology, Vol. 2(1), 2013,pp. 115 – 121.
2. Bhushan Ramesh Shinde and Rajnikant S. Jadhao, “Carbon credit science and business” Jounal of
scientific reviews and Chemical Communications, Vol.4( 2), 2014, pp. 80-90.

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Peer Reviewed Journal ISSN-2456-4052 (Online)

3. Lumen Shawn Lobo and Raghavendra, “ Carbon Credit Trading: Expectations and Current
Scenario, International Journal of Engineering Research and Modern Education (IJERME), Vol.
1(1), 2016, pp.196-200.
4. Mahankali aruna Kumari, Kapulaneni Divya, Mandali Revanth and L.Swetha, An Analysis on
Carbon Credits(India), Asia Pacific Journal of Marketing & Management Review, Vol.2 (8),
2013, pp.62-68.
5. Meenu Maheswari and Nidhi Giyal, “Carbon Credit Accounting :A Case Study of Delhi Metro
Rail Corporation, Pacific Business Review International Vol. 8( 3), September 2015, pp.113-116.
6. Namita Rajput and Parul Chopra, Carbon Credit Market in India: Economic and Ecological
Viability, Global Journal of Finance and Management, Vol. 6( 9), 2014, pp. 945-950.
7. Sandeep K. and Sruthi D., “ Carbon Finance and India”, International Research Journal of
Commerce and Behavioural Science, Vol. 2(8), June 2013, pp.33- 40
8. Vivek Birla,Gunjan Singhal,Rashi Birla and Vaishali Gauri Gupta, “Carbon Trading: The Future
Money Ventures In India”, International Journal of Scientific Research Engineering &Technology
(IJSRET), Vol. 1 (1), 2012 pp. 19-29 .

Websites:
www.carboncredit.org
www.cdmindia.gov.in
www.cdm.unfccc.int
www.corporateknights.com
www.delhimetrorail.com
www.ibef. org
www.unep.org
www. worldbank.org
www. eia.gov.in

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