India’s green credit scheme needs strong regulation to work

India’s environment ministry has proposed a Green Credit Programme under which individuals, organisations and industries can earn and sell credits for certain environment-friendly activities, which can then be traded.

India has also committed, in its Nationally Determined Contributions (NDCs), to creating a carbon sink capable of absorbing 2.5 to 3 billion tonnes of carbon dioxide through additional forest and tree cover. Image: , CC BY-SA 3.0, via Flickr.

With the aim to incentivise sustainability and environmental protection, India’s environment ministry has proposed a programme to enable individuals, organisations and industry generate “green credits” for voluntary activities deemed beneficial for the environment. But without proper oversight or strong regulatory mechanisms, the scheme could open the door to greenwashing or double counting, experts warn.

The draft Green Credit Programme Implementation Rules, released on June 27 by the Ministry of Environment, Forests and Climate Change (MoEFCC), propose awarding individuals and other entities with credits for undertaking eight “environmental interventions.” These credits can then be “made available for trading on a domestic market platform,” says the draft of the programme.

India has dabbled with similar mechanisms to drive down energy consumption and is now wading into the trade of carbon credits while setting up its domestic carbon market.

But unlike a carbon market – which prices a standard unit of per tonne carbon emitted – the Green Credit Programme (GCP) doesn’t yet have a standard unit of measurement for the benefits accrued across various activities, which range from tree plantations to sustainable infrastructure. The GCP is envisioned to function as a separate market mechanism but may overlap with the carbon market if the “green credit” also results in the reduction of carbon emissions, notes the programme draft.

“Even tracking carbon credits, which focuses on just one gas, is a complex exercise that is challenging to regulate. Extending that same method to other ecosystems and pollution areas creates a strong risk of greenwashing,” Avantika Goswami, programme manager for climate change at the Centre for Science and Environment, told Mongabay India. “It also raises serious questions about how rigorous the monitoring will be and who should take responsibility for pollution reduction and biodiversity savings.”

Trupti Mishra, a professor at the Interdisciplinary Programme in Climate Studies at the Indian Institute of Technology (IIT) Bombay, states, “I believe any programme, regardless mandatory or voluntary, needs robust process, involving technical support, good measurement tools and more importantly proper monitoring at the source level. Since green credit or for that matter carbon market are new programmes for Indian companies, these would work well with process support involving awareness to monitoring.”

The programme aims to propagate the ‘Lifestyle for Environment (LiFE) Movement’ spearheaded by the government, which aims to promote healthy and sustainable living. The LiFE concept was given a boost at COP27 in Sharm el-Sheikh, where it featured in the cover decision text that influences global climate action.

Green credits are supposed to complement the action of companies. Only buying credits and no internal action is a sign of greenwashing. 

Trupti Mishra, professor, Indian Institute of Technology

The draft programme comes at a time when India is hosting the G20 Presidency and will have to walk the talk on its international climate commitments, which include achieving net-zero emissions by 2070. India has also committed, in its Nationally Determined Contributions (NDCs), to creating a carbon sink capable of absorbing 2.5 to 3 billion tonnes of carbon dioxide through additional forest and tree cover.

Who gets the green credits and how?

A wide cross-section of society can participate in the GCP, notes the draft notification. This includes individuals, Farmer Producer Organisations (FPOs), cooperatives, forestry and sustainable agriculture enterprises, urban and rural local bodies, private sectors, industries and organisations of different kinds.

The eight activities that can generate credits include planting trees; harvesting and saving water; treating wastewater; promoting natural and regenerative agricultural practices; improving waste management, segregation and collection; reducing air pollution; conserving and restoring mangroves; obtaining an Eco Mark label for manufacturing and constructing buildings, which is a label that the Bureau of Indian Standards (BIS) gives to environment-friendly products.

“Overall, this is a great initiative. But it will be challenging to implement and requires the establishment of a scientific committee with activity-specific experts, who can frame the requirements for receiving green credits,” said Easwaran J. Narassimhan, an associate professor at the Centre for Policy Research (CPR), a Delhi based think tank. “The administrator must ensure that every credit generated under different categories are not ‘hot-air credits’ (unsubstantial or lacking real value) and are additional to what is already happening anyway,” Narassimhan added.

The administrative body tasked with implementing the GCP is the Indian Council of Forestry Research and Education (ICFRE), a research and capacity-building organisation that doesn’t typically deal with implementation. As part of the GCP, it will be in charge of granting credits and maintaining a registry of green credits, among other responsibilities.

Guiding the ICFRE will be a Steering Committee, which will formulate guidelines for implementation and verification, make recommendations for which sectors should be included in the programme, and review and monitor it. The central government may empanel auditors to audit the entire system from time to time, says the draft.

Areas of uncertainty    

India’s experience with such market mechanisms has been with mixed results.

The Perform Achieve and Trade Scheme (PAT) launched in 2012 encourages 13 carbon-intensive industries to reduce their energy consumption. Energy saved is certified and can be sold to entities that did not meet their targets. The second cycle of the PAT scheme, which ended in 2019, resulted in emissions reductions worth around 68 million tonnes. A 2021 study by the Centre for Science and Environment, however, found that for the thermal power sector, a major emitter, energy reductions were only 3 per cent compared to the sector’s total energy consumption. “This highlights the fact that the target given to TPPs is very less compared to the overall emission reduction from the sector,” the study said. “Having the option of acquiring energy saving certificates for compliance makes it far less expensive for thermal power plants to demonstrate compliance by installing energy saving measures,” the study found, adding that thermal power plants that didn’t comply weren’t always penalised.

Similarly, another market-based instrument, the Renewable Energy Certificate (REC), allows electricity distribution companies (discoms) and other entities to buy these certificates from generators if they are unable to meet their renewable purchase obligations (RPOs). A 2021 report by Intellecap, an advisory service, found an over-supply of RECs due to poor enforcement of penalties among non-conforming discoms. It also found that demand was overwhelmingly driven by obligated entities with little voluntary participation.

The GCP is ambitious because it covers various activities under several different sectors. But it could also lead to problems when being implemented, say experts.

“The liquidity of these credits for trading in the market is another concern. Are credits generated for specific activities tradable within the activities? If not, there needs to be clarity on how credits generated in different activities are comparable,” said Narassimhan from CPR.

The question of how the credits will be calculated is ambiguous in the draft notification, which says a value will be arrived at after considering “the equivalence of resource requirement (for a project), parity of scale, scope, size, and other relevant parameters.” Measuring the benefit of certain activities should be done carefully, experts say. For example, rewarding a waste-to-energy plant with a green credit might be counterproductive if it processes mixed waste, leading to higher emissions.

While Mishra from IIT-Bombay acknowledges that double counting is not an issue with green credits and carbon credits programmes, she does express concerns about the potential for greenwashing, which is <the practice of making products, activities, or policies seem more environmentally friendly or less environmentally damaging than they actually are.

She explains, “Green credits are supposed to complement the action of companies. Only buying credits and no internal action is a sign of greenwashing. It may be an easier way for the companies to park it under sustainability activities and action for SDG goals. There are possibilities that companies can greenwash by falsely communicating or overhyping their credits, buying unreliable credits and buying credits unrelated to companies’ sectoral activity.”

The draft notification also makes no mention of what will happen if credits are found to be fraudulent.

The GCP also proposes to link with the Accredited Compensatory Afforestation (ACA) scheme under the Forest Conservation Rules (2022), which allows private and public entities to grow plantations on non-forest land and sell them to project proponents looking to “compensate” for the forest diverted to their projects.

While the ICFRE will administer the GCP, the ACA scheme is administered by state and district forest departments. They also fall under two different laws – the former under the Environment Protection Act and the latter under the Forest (Conservation) Act.

“While both these reforms are being pursued under different laws, they have to be understood as a series of reforms that the government has to undertake to reconcile global commitments and national policy requirements. The monitoring, however, is likely to be complex as it will not just be done by different institutions, the compliance will be subject to the legal standards of two different laws. It will be a challenge to reconcile the data generated under both these processes, as there are risks of double counting and other related gaps,” said Kanchi Kohli, an independent legal and policy researcher.

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