Carbon credits market rocked by India’s export ban

Carbon credits

India’s proposed ban on the export of carbon credits could destabilise the world net zero market and lead to millions in lost revenues.

Carbon credits support the established practice of carbon offsetting and changes planned by the Indian government could seriously disrupt the market, increase prices and hamper efforts to meet climate targets.

India recently announced it will ban companies from exporting carbon credits until the nation meets its climate goals. “Carbon credits are not going to be exported,” Raj Kumar Singh, Power and Renewable Energy Minister said. “These credits will have to be generated by domestic companies and bought by domestic companies.”

The announcement sent shockwaves through the world market forcing Singh to rapidly backtrack and issue a clarification, saying yesterday that the suggested export restriction would only apply to the extent required for India’s Nationally Determined Contributions (NDCs) and that it was not a blanket ban. But doubts and fears remain as to the impact of India’s planned new law.

The Indian government is seeking changes to the energy conservation law to create a domestic carbon market and introduce energy transition targets that will help limit climate change. The new law will prepare Indian companies for forthcoming carbon taxes in export markets and aims to help transform India, a major energy importer, into a net exporter of energy by utilising its potential for the generation of clean energy.

The planned new law could leave India with an excess of carbon credits that it cannot sell leading to multi-millions of lost revenue. Without India’s credits in the market countries such as Turkey and China will see more demand. The carbon credits industry could demand compensation from the Indian government over the loss of revenue with the new plans leading to higher prices and scarcity in the voluntary credits market.

India’s prioritisation of its own climate goals could encourage other countries to follow suit. Bloomberg suggests that India’s commitment to reaching its own climate targets has fuelled its carbon credit ban as the country aims to cut its emissions by 45 per cent from 2005 levels. A larger domestic carbon market in India could support a low-carbon future and accelerate environmental activism in the country. But the low domestic demand for carbon credits could result in the Indian government introducing carbon finance instruments to stimulate the market. The success of India’s plan will determine whether other countries follow suit; Papua New Guinea, Indonesia and Honduras have already imposed similar bans.

Maya Hilmil, net zero climate risk analyst at Verdantix, believes that India is unlikely to stop the export of all carbon credits but sustainability leaders and energy experts should prepare for disruption to the carbon credits market if more countries develop comprehensive local carbon markets and credits will be absorbed domestically. Prices will likely go up and insetting projects (credits developed through investments in India’s own infrastructure) will become more attractive.

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