Carbon Credits form fundamental blocks of carbon emission trading mechanism in India and across world. They help transfer environmental effects of carbon emission back to producer in way of increased costs of production and delivery of goods/ services. Just like supply and demand determine price of shares of a particular corporation, carbon credits’ prices are determined entirely by market forces.
Carbon pricing in India has been a elusive concept in India. Even with policy advancements in decarbonization space, India has not yet put a price to its carbon emissions thereby giving its polluting industries a relaxed life as of yet. Having said that taxes on automobiles which includes Excise duty is a form of implicit taxation on fuels. India doesn’t really have any ETS yet but plans are underway to bring one within next 3 years as informed by RK Singh. India follows Offset approach and not exactly ETS approach.
Primarily, Carbon offset approach has been the dominating mechanism of carbon trade in India. It consists of two instruments: ESCerts(Energy Saving Certificates) and RECs(Renewable Energy Certificates).
RECs: RECs are part of Repurchase Obligations in which states who don’t have enough renewable energy generation capacity can buy RECs from entities in states which have in surplus.
ESCers: It is an part of Perfrom, Achieve and Trade mechanism which aims to enhance industrial efficieny by specifying energy savig targets, shortfall in which can be compensated through ESCers.