Indian ban on carbon credit exports could damage global market: industry players

Carbon industry representatives in India told S&P Global Commodity Insights that they are concerned a ban on exports of carbon credits will damage the wider global market for voluntary credits.

India's lower house of Parliament passed the Energy Conservation (Amendment) bill 2022 Aug. 8, which will enable the setting up of a National Carbon Market. During the debate, Minister for Power and New and Renewable Energy R K Singh said exports of credits would be banned.

"If any ban is imposed, it will shatter the global carbon market because India is a big issuer of carbon credits," Shailendra Singh Rao, founder of Creduce Technologies, a carbon consultancy told S&P Global Aug. 26. "India has enough credits to fulfil domestic and international markets' needs."

Rao said the industry expects a few classes of credits that could be banned, and not all of them.

The carbon credits industry would be looking for compensation from the government in the case of a ban due to lost revenue opportunities, he said.

Other India-based project developers and traders raised concerns over a lack of demand in the domestic market that could impact prices in case of an export ban. They feared the government could impose a cap on carbon prices akin to the existing Renewable Energy Certificates where it sets a price band.

"There's no domestic demand currently... where will the credits be absorbed?" one developer told S&P Global on the condition of anonymity.

With the industry already burdened with taxes and inflation, it is unlikely they would be interested in buying carbon credits unless a compliance market is imposed, a trader said.

The Energy Conservation (Amendment) bill has yet to be cleared by the upper house and may be taken up in the Parliament's November-December session.

Prices

Platts CNC, which represents the commoditized nature-based credits, was assessed at $9.50/mt CO2 Aug. 26, up 24% since the start of the month, while Platts Renewable Energy Current Year was assessed at $3.60/mtCO2e, down nearly 6.5% in the same period.

While nature based credits are seeing relatively higher demand compared to other sections of the market, demand has fallen in the VCM market in the aftermath of the war in Ukraine as participants felt the need to conserve liquidity amid an energy crisis.

"Can project developers be assured that the prices in the Indian domestic voluntary carbon market will be at par with those being offered at the international level?" Kishore Butani, Head of Program at the Universal Carbon Registry said.

"The EU ETS does not allow for voluntary carbon credits to be swapped for allowances so it makes sense to switch to the compliance Indian cap-and-trade as soon as possible."

According to the National Carbon Market draft document for stakeholder consultation issued by the Indian government in 2021, the carbon market will be a compliance-cum-voluntary market, introduced in three phases. The last phase will have cap-and-trade system.

India's renewable energy certificates and energy savings certificates that are currently traded on exchanges will evolve into carbon credits according to the National Carbon Market draft policy.

New association

Rao said Creduce is a part of 10 other firms in the carbon credits industry that have founded the Indian Carbon Alliance that would represent 100 companies including exporters of carbon credits and intermediaries.

"The setup is ready, we are waiting for the registration of societies certificate," he said. "One of the objectives of Indian Carbon Alliance would be to initiate a dialog with the authorities and government for an equal inclusion of industry players' thoughts and concerns in the upcoming domestic Carbon Credits regime."

Its other founding members include Kaviraj Singh, founder of Earthood; Kartik Upadhyay, founder of Creduce Hydel Private Limited; Sumeet Singhvi, founder of Infinite Solutions and also Butani.

According to Rao, $1 billion worth of VCMs were traded across the globe in 2021, of which $300 million worth of credits were exported from India.

"By 2025, India is poised to grab at least $2 billion worth of credits," he said, citing industry projections. "The global carbon market is set to touch $200 billion by 2030."

Issuances

India issued 35.94 million carbon credits between 2010 and June 2022, accounting for about 17% of the total VCM credits issued worldwide, data from Platts Analytics showed.

More than 45% of these credits came from renewable energy sources and around 6% from the household devices sector, the data showed.

As much as 20% of credits generated by Indian projects were retired between 2010 and July 2022.

Turkey, China

A trader in Europe said any Indian ban on carbon credits may shrink international supply of carbon credits with other regions likely to fill in.

"If the Indian credits are out of the market, Chinese and Turkish credits would see more demand," a trader in Turkey said.

At present, global markets are seen continuing to trade Indian carbon credits in the absence of definitive timelines for the launch of the Indian carbon markets and a ban that may come alongside it.

That said, some issuers of carbon credits have called for the development of a comprehensive carbon market in India.

"A national carbon market is long overdue for India," said Rajat Seksaria, Chief Executive Officer of ACME Solar Holdings. "But eventually, it is very important that we integrate this carbon market with other markets."