You have read 1 of 3 stories. Sign up for free to read more.

How will India’s green credit scheme work?

Experts say the voluntary market mechanism could be an effective alternative to punitive measures to drive positive environmental outcomes. Others suspect that corruption, bureaucracy and insufficient market participants may impede the programme’s effectiveness.

Little sprout growing on top of a pile of coins
India's Green Credit Programme aims to leverage a market-based mechanism to motivate individuals and businesses to undertake positive environmental actions. Image: Aleksander-777, Pixabay.

In the first step towards the launch of a voluntary market mechanism to encourage environmental-friendly behaviour, India’s Ministry of Environment, Forests and Climate Change issued rules to implement the Green Credit Programme under the Environment Protection Act on 27 June. 

The draft of the Green Credit Programme’s implementation rules will remain open for public scrutiny and feedback for 60 days. 

The move follows Indian finance minister Nirmala Sitharaman’s union budget speech in February where she announced the creation of the Green Credit Programme. 

The government said that the idea behind the programme is to motivate individuals, private sector producers, farmers, small-scale industries, cooperatives and forestry enterprises to undertake positive environmental actions by leveraging a competitive, market-based system. 

The Green Credit Programme will cover eight sectors, primarily affecting rural areas. They are focused on increasing tree cover, promoting water conservation, adopting natural and regenerative agricultural practices, improving soil health and the nutritional value of food, managing waste effectively and reducing air pollution. 

For instance, an individual who plants trees can earn green credits, which can then be sold on the trading platform after a steering committee has validated the credits. Similarly, a local government body can earn green credits for building waste management infrastructure. Each green credit will have a monetary value assigned.

The programme will be implemented in phases. In the initial phase, two to three activities from the chosen sectors will be considered, and more activities added subsequently.

Green Credit Programme economically sound: experts

Sumit Agarwal, managing director at the National University of Singapore’s Sustainable and Green Finance Institute, believes the incentive-based scheme could drive positive environmental outcomes and be economically viable. 

He cites successful policies such as India’s Production Linked Incentive Scheme, which doles out financial incentives to manufacturers for producing high-performance solar panels, as an example.

The scheme has resulted in 48-gigawatts of domestic module manufacturing capacity being added to the South Asian country over the next three years.

Agarwal makes the case for incentives instead of punitive measures.

“If the government puts in place an environmental tax, entities are just going to find ways to circumvent it, particularly in India where enforcement is lax,” said Agarwal. 

Vibhuti Garg, director, South Asia at the Institute for Energy Economics and Financial Analysis, an energy think tank, said that the programme will give India’s newly-announced domestic carbon market a shot in the arm. 

“Unlike carbon credits, the Green Credit Programme incentivises entities to undertake pro-environmental behaviour across a comprehensive range of sectors, curbing environmental pollution on top of reducing carbon emissions,” she said.

“For companies, projects completed under the Green Credit Programme can be an additional source of revenue. Compared to green bonds, green credits could be a more attractive option for corporations that do not wish to incur debt,” she said. 

Efficiency of scheme questioned

But experts have their reservations about the scheme. Agarwal, for example, doubts that the scheme will achieve scale.

“For any trading platform to work, it needs a critical mass of participants to balance the number of buyers and sellers,” he said.  

“As a domestic platform, the market will likely start off thinly populated, which may lead to inefficient transactions,” he added. 

Whether or not the green credits can be sold easily and the payments made readily available without delay are also factors that will determine the success of the programme since they also contribute towards the market’s liquidity.

Environmental activists have taken a “wait-and-see” attitude, saying the effectiveness of the scheme will be difficult to assess until the value of the credits is established — along with a mechanism for awarding them efficiently and with integrity. 

“A robust mechanism is a must-have in India, where corruption is rife and government departments operate with opaque bureaucracy and discretionary powers,” Agarwal said. 

A steering committee that will validate every green credit will also slow down the efficiency of the ecosystem albeit providing greater accountability, Agarwal said.

Other observers have cast doubt over the funding source for the Green Credit Programme — the initiative was not allocated funds in the 2023 union budget

“Taxpayers are likely going to be the ones funding the programme, so the government has to take extra care in administering [it],” Agarwal said. 

Experts suggest that the Green Credit Programme can be implemented as a grant to fund environmental projects, rather than a reward that is disbursed once projects have been completed. 

A grant can allow for more stringent checks to be carried out as the entity will have to apply for the grant before commencing work on the project. 

“It makes more sense that way,” Agarwal said. “Several sectors under the Green Credit Programme comprise long-term activities that could take years to complete, such as tree planting and land restoration.” 

“Once the infrastructure is in place, incentives become less necessary since the entities would already have sunk costs into a project. As a result, they are likely to continue engaging in positive environmental behaviour,” he said. 

Did you find this article useful? Join the EB Circle!

Your support helps keep our journalism independent and our content free for everyone to read. Join our community here.

Most popular

Featured Events

Publish your event
leaf background pattern

Transforming Innovation for Sustainability Join the Ecosystem →