To reduce carbon emissions, different countries use different policies to promote clean energy production and discourage use of fossil fuels which emit carbon dioxide. Carbon Taxes and Carbon Credits are two such instruments widely used all over the world. India uses both the instruments and is slated to introduce a domestic cap-and-trade carbon market which will further boost the renewable energy sector, including power generation from Biogas.
What are Carbon Credits?
Carbon credits or Carbon offsets are like a policy instrument in that they allow a firm to emit a certain quantity of CO2 per year. One carbon credit is equivalent to one tonne of emissions of CO2. So, if a firm buys one carbon credit, it can emit one tonne of CO2. But if the firm emits less than 1T of CO2, it can sell the remaining credits to another firm. This creates an economic incentive for firms to lower their emissions and/or support the development of clean energy production technology.
How do Carbon Credits Support Renewable Energy?
Carbon credits can be voluntary or mandated. In the absence of a regulation and laws specific to this, carbon credits are voluntary by default. With regulations in place, the government assigns certain number of “units” of emissions permitted to a firm, and the firm gets the equivalent number of carbon credits assigned to them. In the scenario that the firm exceeds the permitted level of emissions, the firm must buy enough carbon credits to meet the requirements. These can be bought from other firms and clean energy projects, which have obtained the carbon credits for generating energy without emissions. Thus, either mandatorily, or voluntarily, a firm can purchase carbon credits from renwable energy projects, thus financing innovation and development of clean energy.
Carbon Credits Market and Biogas in India
Biogas can be used to generate power or energy in multiple ways. It is an ideal substitute for natural gas and biomass, and is finding use in many countries as an easy, accessible source of renewable energy.
Indian government passed the Energy Conservation Amendment Bill 2022 in August 2022, where the government restricted the export of carbon credits by firms to outside the country until the country’s emission targets, as declared in COP26, are met. This means that Indian firms will now have greater incentive to invest in renewable energy projects in India, rather than trade their carbon credits internationally.
Indian government has also announced the creation of a national market for carbon trading, with the view to incentivize innovation and investment in clean energy. It will also allow a smoother transition from fossil-fuel based energy to renewable energy.
With this financial incentive, Biogas-based energy has immense potential in India, wherein small, medium as well as large-scale establishments can setup their own cooking gas or power plants by installing biogas digesters.
The technology for Biogas-based power generation has existed in India since the 1940s, but due to multiple socio-economic factors and government subsidies for fossil-fuel based power generation, the sector did not see as much growth as was possible. With these new announcements, perhaps India can rediscover its path to a clean, green cow-based economy.
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Cover Image by Gerald Krieseler from Pixabay
Very concisely presented. Look forward to more such articles. Thanks.