Key Terms & Concepts — UPSC Mains
Carbon Credits
"Tradeable certificates representing the right to emit one tonne of carbon dioxide or equivalent greenhouse gas"
A carbon credit is a tradeable permit or certificate that represents the right to emit one tonne of carbon dioxide (or an equivalent amount of other greenhouse gases). Carbon credits are the core unit of carbon markets — both compliance markets (mandatory for regulated industries) and voluntary markets (for companies and individuals choosing to offset emissions). Under cap-and-trade systems, governments set a total cap on emissions; entities below their cap can sell surplus credits to those exceeding their limits.
Increasingly tested in GS3 (Environment, Economy). India launched its Carbon Credit Trading Scheme (CCTS) under the Energy Conservation (Amendment) Act, 2022. The Paris Agreement's Article 6 governs international carbon trading. Understanding the distinction between compliance and voluntary markets, and debates about greenwashing, is essential.
- 1 1 carbon credit = 1 tonne of CO2 (or CO2 equivalent) reduced, avoided, or sequestered
- 2 Carbon Credit Trading Scheme (CCTS) — India's domestic carbon market launched under Energy Conservation (Amendment) Act, 2022; administered by Bureau of Energy Efficiency (BEE)
- 3 Two types of carbon markets — Compliance (mandatory, e.g. EU Emissions Trading System) and Voluntary (companies buying credits to meet net-zero pledges)
- 4 Article 6 of the Paris Agreement — governs Internationally Transferred Mitigation Outcomes (ITMOs) — bilateral carbon trading between nations
- 5 REDD+ (Reducing Emissions from Deforestation and Forest Degradation) — generates carbon credits from protecting forests
- 6 Key criticism: additionality problem — some credits represent emission reductions that would have happened anyway; leads to greenwashing
- 7 India's carbon credit market could monetise its forest cover (~21.71% of land area) and renewable energy surplus
- 8 COP28 (Dubai, 2023) operationalised the Article 6.4 mechanism (UN-supervised global carbon market)
Under India's CCTS, energy-intensive industries such as aluminium, cement, iron and steel will receive tradeable Energy Saving Certificates (ESCerts) for over-compliance with energy efficiency norms. These function like carbon credits within the domestic market.