India, Japan plan joint carbon crediting mechanism

Indian Economic System(CSC) External Sector

Context: India is set to establish a Joint Crediting Mechanism (JCM) with Japan for carbon trading and emission-reduction credits.

Carbon trading is the process of buying and selling permits and credits to emit carbon dioxide.
Article 6 of the Paris Agreement provides for the use of international carbon markets by countries to fulfil their Nationally determined contributions (NDCs).
These markets create incentives to reduce emissions or improve energy efficiency.

Participants: Corporations, private individuals, and others purchase carbon credits voluntarily to offset emissions.
Verification: Credits are verified by private firms against established standards.
Purpose: Often used for public relations or personal commitment to sustainability.

Regulation: Governed by national, regional, or international policies, making them official and mandatory.
Mechanism: Operates under a 'cap-and-trade' system where emission allowances are traded.
Examples: Kyoto Protocol, European Union Emissions Trading System (EU ETS), California ETS, Australia ETS, among others.
Recent Development: China launched the world's largest ETS in 2021.

Promotion of Energy Efficiency: Incentivizes reduction in energy use and transition to cleaner fuels.
Cost-Efficiency: Companies can choose between investing in emission-reducing technologies or purchasing allowances, based on cost-effectiveness.
Innovation: Encourages innovation and adoption of low-carbon technologies due to regulatory pressure and market incentives.

Effectiveness Concerns: Some entities may buy credits without reducing emissions themselves, undermining the actual reduction of greenhouse gases.
Quality Issues: Many credits available may not meet quality standards, lacking additionality (additional emission reductions), verifiability (proper auditing), and permanence (ensuring emission reductions are sustained).
Deviating Emission Reduction Efforts: Purchasing credits might divert attention from genuine efforts to reduce emissions directly.
Measurement Difficulty: It's challenging to accurately quantify emission reductions achieved through offset projects like afforestation or renewable energy initiatives.

Objective and Framework: India and Japan plan to sign a Memorandum of Cooperation to establish a Joint Crediting Mechanism (JCM) for sharing emission-reduction credits. The JCM will involve a structured allocation of carbon credits and maintain a registry to track these credits, with projects needing clearance from a Joint Committee.
Implementation and Oversight: The mechanism will be governed under Article 6.2 of the Paris Agreement, adhering to relevant domestic laws and regulations of both countries. A Joint Committee will develop rules, manage project cycles, and oversee monitoring and issuance of credits.

Credit Allocation: Credits issued under the JCM will contribute to both Japan’s and India’s Nationally Determined Contributions (NDCs) under the Paris Agreement. The JCM will avoid double counting of credits and may authorize some credits for international mitigation purposes.
Technology Transfer and Capacity Building: Japan will support technology transfer, finance, and capacity building to enhance the effectiveness of the JCM and facilitate the adoption of new technologies.

Increased Access to Clean Technologies: The JCM will facilitate the transfer of advanced decarbonizing technologies from Japan to India, such as renewable energy systems, energy-efficient appliances, and waste management solutions.
Job Creation and Skill Development: The implementation of JCM projects will create new employment opportunities in sectors like renewable energy, energy efficiency, and waste management

Strategic Partnership: The JCM will strengthen bilateral ties between India and Japan by fostering collaboration on low-carbon technologies and climate action, aimed at boosting job creation and investments in clean technologies.
Clean Energy Partnership: It was launched in March 2022, the India-Japan Clean Energy Partnership (CEP) aims to enhance cooperation in sustainable energy transitions to achieve net-zero emissions by 2070.
Investment Commitments: During the 14th India-Japan Annual Summit in March 2022, both nations agreed on a target of $42 billion (JPY 5 trillion) in public and private investment from Japan to India over the next five years
Low Carbon Emission Strategies: A $600 million fund was established to focus on environmental sustainability and low carbon emission strategies. This initiative is part of a broader effort to enhance Japanese investments in India while addressing climate change.

Prioritize the adoption of cutting-edge decarbonizing technologies: Japan should prioritize the transfer of its most advanced low-carbon technologies to India, such as renewable energy systems, energy-efficient appliances, and carbon capture and storage solutions.
Expand the scope of the JCM to include other areas of climate cooperation: While the initial focus of the JCM should be on emission reduction projects, India and Japan could explore expanding its scope to include other areas of climate cooperation, such as adaptation measures, climate finance, and capacity building.