Achieving Just Energy Transition in India With an Effective Carbon Credit Trading Scheme
ABOUT THE PROJECT
The Asia Society Policy Institute’s project "Achieving Just Transition in India with an Effective Carbon Credit Trading Scheme" aims to support the establishment of a robust Carbon Credit Trading Scheme (CCTS) as a primary mechanism for India's industrial and power sector decarbonization to help achieve India’s NDC targets in a cost-effective way. A key focus is the development of a scheme that fully leverages the opportunity to generate climate finance to ensure that the shift to cleaner energy sources is inclusive and equitable, providing support for affected workers, communities, and industries while minimizing social and economic disruptions.
AREAS OF WORK
ETS Design Modeling
Facilitate ETS policy design with advanced modeling tools.
Policy modeling tools assist policymakers in evaluating the impacts of different potential design options of an ETS. These tools can provide comprehensive information on GHG emissions, energy mix, and economic impacts at the national, sub-national, sectoral, and sub-sectoral levels. Key design elements that can be assessed by such modeling include cap setting, free allocation, auctioning, auction revenue recycling, sector expansion, interactions with other policies, and other significant elements of the system setup.
Cap Setting and Allocation
Support the development of ambitious and economically viable cap setting and allocation designs.
Decisions surrounding cap setting and allocation are fundamental for ETS design, determining its environmental and economic impacts. Critical challenges include how to align an ETS cap with national GHG emission targets and NDCs; how to set an appropriate intensity-based cap and absolute cap; how to develop and implement benchmarks for free allocation and intensity-based targets; how to achieve consensus with industry; how to reflect differences in abatement potential and costs across sectors; how to deal with cap setting and allocation when carbon costs for the power sector cannot be easily passed through to electricity prices; and so on.
ASPI Dialogue Meeting on ETS Cap Setting and Allocation - Meeting Report
Monitoring, Reporting, Verification and Accreditation
Ensure MRVA systems are robust, transparent, consistent, and accurate.
The successful operation of an ETS relies on robust, transparent, consistent, and accurate monitoring and reporting of GHG emissions. Such processes need to be efficient and cost-effective while also supported by substantial capacity building for relevant stakeholders. Establishing an effective monitoring, reporting, verification, and accreditation (MRVA) system is a vital initial priority for any ETS. Although this can be a challenging task, there are increasing best practices in Asia and around the world that can provide useful lessons for how to establish effective systems more rapidly and efficiently.
ETS and the Power Sector
Enable an ETS to drive power sector decarbonization and promote renewable energy.
Critical challenges to enabling an ETS in Asia to support power sector decarbonization include, firstly, reflecting carbon costs in power station dispatch decisions to promote the switch from coal to lower carbon fuels and renewable energy; and secondly, passing through carbon costs to retail electricity prices in order to reduce end-user demand while protecting vulnerable stakeholders from higher energy costs. In achieving an effective ETS, power market interaction will also enable the introduction and expansion of auctioning of allowances for the power sector, thus generating revenue for multiple beneficial purposes.
ETS Finance Mechanism
Support investment in decarbonization technologies and just transition by generating valuable climate finance.
One of the key desired elements of an ETS is auctioning of allowances for sectors that are not prone to carbon leakage. This embodies the “polluter pays principle” and creates a strong carbon price signal for achieving GHG emission reductions. A substantial added advantage of auctioning is that it enables the government to generate revenue that could be earmarked for climate- and energy-related purposes. The revenue earmarking could be designed to benefit entities’ investments in clean energy and net-zero transitions, vulnerable households, communities dependent on the fossil fuel economy, and others.
Paper: Financing Just Transition Through Carbon Credit Trading Scheme
