Current Affairs 2022: Carbon Financing in India

The National Clean Energy Fund (NCEF) is a funding scheme formulated to reduce carbon footprints and fund innovative projects in clean energy technologies in India. 

Carbon Financing In India

Carbon financing is defined as the emission trading process by financing the resources for reducing the emission of carbon into the environment. The objective of this environmental financing process is to minimise the impact of Greenhouse Gases (GHG) on the environment. This process works in such a way that the threshold for carbon emissions is maintained and firms operate to maintain their emissions below it. In case, emissions are greater than the stated carbon standards, particular organisations will be made to pay a price for carbon emission allowance or firms will contribute/provide funding to the sustainable projects. Sometimes firms also partner with private partners, public firms, or NGOs. Organisations formulate strategic decisions to have greater control over the carbon emissions and can trade carbon emissions in the carbon market.

Carbon Market

The purpose of the carbon market is to trade carbon credit by the organisation. When an organisation’s carbon emission is below the stated level, the firm can trade its carbon credits in the carbon market. The buying firm will trade carbon credit with the selling firm to increase its capacity. These carbon credits or Emission Reduction Certificates (ERCs) are the currency in the carbon market. 

CDM and CER

Clean Development Mechanism (CDM) is an initiative of the United Nations Framework Convention on Climate Change (UNFCCC), and its goal is to reduce greenhouse gases in a cost-effective way. Under CDM, firms will receive funding for sustainable projects.

Certified Emission Reduction (CER) is a certification provided by the United Nations to its member nations for reducing or minimising one tonne of their carbon emissions. The CER is a certificate to the member nations when they achieve a reduction in greenhouse gases through the CDM initiative. 

Kyoto Protocol

The Kyoto Protocol, framed in 1992 is an international treaty by the UNFCCC, which focuses on climate change by reducing the emissions of greenhouse gases. The protocol was adopted in Japan and there are about 192 state parties in it as of 2020. The followings are the Kyoto mechanism:

• Firms can gain carbon credits by investing in sustainable projects.
• Firms can gain carbon credits by investing in sustainable projects in the countries adopting Kyoto targets.
• Can trade the carbon credit with the nations that adopted the Kyoto target.

Carbon financing in India

In India, there has been a drastic decrease in the emission of greenhouse gases (GHG) over the past decade. The National Clean Energy Fund (NCEF) is a funding scheme, which was formulated to reduce carbon footprints and fund innovative projects in clean energy technologies. 

At the national level, State Energy Conservation Fund (SECF) serves its purpose by promoting the efficient use of energy within the state thereby setting up an agency to implement the act. Maharashtra, Kerala, Gujarat etc., are the few states that have taken the energy conservative initiatives. The Indian Government has formulated Indian Renewable Energy Development Agency (IREDA) which has its fund resources from international and domestic banks issuing it as long-term green bonds. Green bonds are a financing mechanism which provides long-term and low-cost debt capital to finance green projects to promote the production of renewable energy and emission reduction. It is known that India does not have any domestic carbon trading market because of political reluctance and policy mechanisms.

In India, certain financial institutions have committed to green financing. State Bank of India (SBI), ICICI Bank, L&T Finance Holdings Limited etc., are the major financing institutions. Companies emitting greenhouse gases can avail of their carbon financing through various schemes, green bond initiatives by IREDA etc., thereby concerning the climate change and shifting towards the green project mechanisms.

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About The Author

Naveen Murugan is pursuing MBA in Operations and Marketing from Thiagarajar School of Management, Madurai. Apart from his studies, Naveen is passionate about emerging technologies, travelling, networking, dancing, and writing.

 

 

 

 

 

 

 

 

 

 

 

Note: The views expressed in this article are solely the author’s own and do not reflect/represent those of Shiksha.