Carbon Trading: A Remedy Or A Cause
What is Carbon Trading?Imagine a typical cold winter morning, you wake up and the first thing you do is
to make yourself a hot cup of coffee, in your new coffee filter your aunt just
gifted you. Then you head along, light the fire place, to have a moment to
yourself, sit and sip your coffee. Its your breakfast time, you put the pan on
the stove and realize the cylinder renewal bill is about to come. Now, you're
ready to get started with your day. You get ready to head to your office, and
you'll barely make it in time, chances are slim.
No wait, there are no chances at all. You'll have to stop by the gas station to
fuel up your car. The first half of your day has hardly begun and your carbon
production is already high in quantity. The point of absolute commonality in our
actions above is our use of fossil fuel. From electrically operating your coffee
machine, to the utilization of coal for lightening your fireplace and buying
petrol and LPG. At one point you might rest but even at that time, these fuels
are in action.
The above example was on an individual level. Now, think about these energies
used on an industrial level. Like, the phone you're holding right now, the
factories that made small parts of it and the factory that assembled it, through
heavy machinery. Can you imagine the quantity of fuels necessary to run these
machines? Every small thing we possess today, from our clothes, to our cups, are
in fact manufactured in these factories, through heavy machineries.
Industries' emissions of greenhouse gases affect the natural environment and are
the major cause of global warming and climate change. Burning fossil fuels, as
we know, emits high quantity of green house gasses. USA, which is known to be a
developed nation, sources 81% of its energies from fossil fuels. Therefore, we
can reasonably calculate that the number in India must be much higher, given its
developing stage and high population.
So, keeping in mind the sustainable use of fossil fuel and to cut down excess
production of green house cases (which largely constitutes of carbon dioxide),
the concept of carbon trading was introduced. According to an international
treaty, named Kyoto protocol, a restriction was placed on the free emiction of
carbon dioxide. Each country is given a limit to which it can emit carbon
dioxide with consideration to their size and population. After careful
researches on industries and environment, the degree to which carbon can
relatively safely be produced, globally, was found out and distributed.
Now, there are countries with advanced development who needs their production to
be at par to their demands. They have certain goals to meet. Therefore, these
countries buy their carbon emiction rights from other countries which emits less
carbon than their maximum limit. The buying and selling of carbon emiction
rights is known is carbon trading. The monetary aspect in carbon emiction was
introduced to insure conscious execution of the laws. Providing financial
incentives, instigated the reduction of carbon production. Carbon credit in
India is traded on NCDEX only under Forward Contracts (Regulation) Act, (FCRA)
One of the biggest examples of carbon trading in India has to be of Jindal
Vijaynagar Steel. JVS introduced an advanced technology in their system, by the
name of Corex Furnace. This particular technology ensures prevention of release
of 15 million tons of carbon into the atmosphere. In the course of ten years,
they will be entitled to sell $225 million worth of saved carbon.
Indian Legal Regime On Carbon Trading:
India signed an international treaty named Kyoto protocol in the August of 2002.
Kyoto protocol directs the utilization of natural resources in a way that the
climate and environment doesn't get negatively affected. It obliges the
countries to fund and promote constant researches to find an optimal solution to
the environmental problems and to abide by the environmental laws. India comes
under Non-Annex I country, which means it has no binding order to be a part of
this protocol and cut carbon emiction. But India willfully became a part of this
treaty for the greater good and also politico-economic reasons.
National Action Plan And State Action Plan
A national action plan on climate change was prepared to align domestic actions
with the provisions of Kyoto act. NAPCC comprises of eight National Missions
that is the, National Mission for Enhanced Energy Efficiency National Mission on
Sustainable Habitat and National Solar Mission that talks going to restrict and
lessen the ozone harming substance discharges in India, all States and Union
Territories have likewise executed a State Action Plan on Climate Change (SAPCC)
that lines up with the embodiment of NAPCC.
National Environmental Policy, 2006
NEP'S primarily directs regulatory reforms and projects. The goal of NEP is to
protect the environment but also to ensure the prosperity of the nation. It
encourages large industrial organizations to invest in social development for
concessions on public charges i.e., tax etc. Social development here can mean
setting up large non-profit plantations, sponsoring researches etc.
Energy Conservation Act, 2001
According to the Energy Conservation (EC) Act 2001, industries that require high
energy consumption like railways, iron, steel, aluminum, cement and many others,
are tagged as designated consumers. Designated consumers are required to submit
an yearly report on the quantity of energy used, to the Bureau of energy
efficiency. If the energy requirement is more than the allowance, the energy
manager take charge of article 57 of the act and allocate the emiction allowance
from the industry which still has a margin left. It facilitates local carbon
trading, which takes place between the industries.
Renewable Energy Credit Trading System
Renewable Energy Credit Trading System trading system was started in India in
November 2010, it intends to advance renewable energy in areas that have a low
potential for renewable power generation. GOI plans for this system to
contribute altogether to sustainable power source age objectives illustrated by
the NAPCC and the Electricity Act, 2003. REC mechanism has created a national
level market for the renewable producer to compensate for their cost. One REC
(Renewable Energy Certificate) represents 1 MWh of energy generated from
Under this REC mechanism, a renewable energy generator will produce power in any
part of the world by renewable resources and the generator gets the cost equal
to that from any traditional source when the environmental characteristic is
sold at the market-determined exchanges.
Tax Related Legal Aspects:
Value Added Tax
Under Delhi value added tax act, 2004, carbon emiction rights has gained the
status of a commodity because of its demand in industries and credits gained
through international trades. It is traded under India's multi commodity
exchange and also clean development mechanism under article 12 of Kyoto
protocol. Therefore, carbon credits have a value added tax of 4% on sale.
On 28-11-2014, in the case of Subhash Kabini Power Corporation Ltd. vs. CIT, it
was held that selling of carbon credits is a receipt of capital, not revenue.
Therefore, income tax in not charged.
Carbon trading seems like a proper solution to the environmental degradations on
paper. But in reality, carbon market can neither be controlled nor monitored.
There is no international organizations or a capable strategy, to handle this
intangible market. Because of various loopholes, the protocol is deliberately
cheated on. The international legal framework is typically very weak. Lawless
and corrupt countries gladly accept doctored carbon credits for incoming foreign
In my opinion, carbon trading is an easy way out of the provisions of the Kyoto
protocol. The government finds it cheaper to pay for their inabilities of
abiding by the laws than shutting businesses and cutting down incomes. Companies
facilitating fossil fuel to the general public encourages its reckless use to
avoid any price cut downs. The Kyoto Protocol has been hijacked by carbon
traders. Carbon trading is an excuse to avoid real emissions reductions.
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