India close to setting up local carbon market, ban carbon credits exports

The lower house of the Indian parliament, Lok Sabha, passed a bill on Aug 8. to set up a domestic carbon market, with the power and renewable energy minister Raj Kumar Singh citing that carbon credits will not be eligible for exports, local press reported.

"Carbon credits are not going to be exported. No question," Singh was reported as telling members of the Indian Parliament during a debate on changes to the country's energy conservation law, which establishes a domestic carbon market in India. Details on when the ban will be introduced were not given, but a source said that the ban is likely to remain in place until "climate goals are met."

It is not yet clear whether the ban will apply to credits that are already being issued by voluntary carbon projects located in India, which make use of privately set methodologies like Verra's VCS or Gold Standard, or to credits issued under the yet-to-be-created Article 6.4 crediting mechanism of the Paris Agreement.

"These credits will have to be generated by domestic companies, bought by domestic companies," the minister said.

India is the fourth country to have announced or planned bans on the sale of carbon credits in recent months after Papua New Guinea, Indonesia, and Honduras.

Countries that are hosting carbon projects are becoming increasingly concerned about the impact that the international sale of carbon credits can have on their own ability to meet the Paris Agreement targets, also known as Nationally Determined Contributions.

The Paris Agreement allows governments to reach their NDCs via different tools, including compliance markets, carbon taxes, and the retirement of carbon credits produced domestically or purchased on the international market under Article 6 of the agreement.

Countries that are hosting carbon project activities worry that if too many carbon credits produced on domestic soil either as part of the VCM or the Article 6 sovereign carbon market are sold abroad, not enough may be left for local governments to reach their own NDC targets.

In the absence of national registries keeping track of issuances and sales, host countries are also afraid of overselling carbon credits.

Some of the nations that have introduced moratoriums have said the ban will stay in place until clear domestic policies on carbon markets are designed and implemented.