2024 Carbon Credit Trading Framework: Opportunities and Challenges for Market Stakeholders in India

The draft notification on the "Central Electricity Regulatory Commission (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations, 2024" has several implications for value chain players in the carbon credit market. Team eninrac has analysed the impact of the draft regulation as per stakeholders involved and would likely be impacted as under:

Summary: The draft notification establishes a comprehensive framework for carbon credit trading. While it opens new opportunities for market players, it also imposes operational, financial, and compliance challenges. The ultimate success will depend on effective implementation, stakeholder cooperation, and robust regulatory oversight.

1. Power Exchanges
   • Likely Impacts:
     • Expansion of roles to facilitate trading of Carbon Credit Certificates (CCCs) in both compliance and offset markets.
     • Requirement for advanced systems to handle new transaction types, pricing discovery, and periodic reporting to the Registry.
     • Increased responsibility for ensuring compliance and managing participants (both obligated and non-obligated entities).
   • Likely Challenges:
     • Implementation of robust IT and compliance frameworks.
     • Managing price volatility and potential regulatory interventions during market anomalies.
2. Registry (Grid Controller of India)
   • Likely Impacts:
     • Centralized role in maintaining accounts of CCC holders and monitoring compliance.
     • Cross-checking sale bids against available CCCs and addressing defaults.
     • Collaboration with multiple stakeholders, including Power Exchanges and the Administrator (BEE).
   • Likely Challenges:
     • High administrative burden to manage compliance and data integrity.
     • Development and maintenance of a comprehensive software platform.
3. Obligated Entities
   • Likely Impacts:
     • Mandated participation in the compliance market for CCCs.
     • Potential cost implications due to the purchase of CCCs to meet compliance requirements.
     • Strategic decisions regarding internal emissions reduction versus market-based solutions.
   • Likely Challenges:
     • Balancing compliance costs with operational efficiency.
     • Risk of penalties and suspension for non-compliance or frequent defaults.
4. Non-obligated Entities
   • Likely Impacts:
     • Mandated participation in the compliance market for CCCs.
     • Potential cost implications due to the purchase of CCCs to meet compliance requirements.
     • Strategic decisions regarding internal emissions reduction versus market-based solutions.
   • Likely Challenges:
     • Balancing compliance costs with operational efficiency.
     • Risk of penalties and suspension for non-compliance or frequent defaults.
5. Administrator (Bureau of Energy Efficiency - BEE)
   • Likely Impacts:
     • Oversight responsibility for compliance mechanisms and the offset market.
     • Development of procedures for registration, trading, and residual CCC-related matters.
   • Likely Challenges:
     • Ensuring transparency and fairness in the market.
     • Disseminating market information to a wide range of stakeholders.
6. Market Participant & Investors
   • Likely Impacts:
     • Introduction of a new asset class with potential for investment and hedging.
     • Opportunities for diversifying portfolios and participating in climate-positive initiatives.
   • Likely Challenges:
     • Navigating market volatility and understanding regulatory frameworks.
     • Assessing risks associated with CCC validity and trading regulations.
7. Consumers
   • Likely Impacts:
     • Indirect effects on electricity tariffs if costs for CCC compliance are passed on by utilities or generators.
     • Encouragement to adopt energy-efficient practices and renewable energy solutions.
   • Likely Challenges:
     • Lack of awareness and understanding of carbon markets.