In India's Carbon Trading Scheme, Indigenous Groups Shouldn't Become Pawns For Corporate Interests

The Scheme, however, provides an interesting microcosm of politics, corporate interests, and international benchmarking. Through carbon markets, political interests at the global stage can be furthered by appearing as if leading in the fight against climate change while developing the domestic economy's manufacturing capabilities and homegrown firms.

Within it, regulatory requirements on companies to align with global benchmarks, such as the Paris Agreement, are expected to function alongside thriving industries.

In a nutshell, the CCTS 2023 will form the framework for a certain group of obligated entities, i.e. companies in select sectors, to meet targets for emissions reduction or trade carbon credits with other entities in the domain for compliance and the semblance of a balancing act.

The CCTS also has a voluntary carbon market allowing non-obligated entities, companies that don’t have a specified emissions reduction target, will be able to register their projects as well.

Such projects can include carbon reduction, removal, or avoidance impacts and they will then be eligible for issuance of Carbon Credit Certificates in the offset mechanism.

Carbon Trading Policy 101

As per the World Bank, carbon pricing schemes in 40 countries and over 20 cities cover over 13 per cent of annual global GHG emissions. But what does the carbon market entail and how does it impact Indian companies and their relationship with climate change?

India’s CCTS is of the baseline-and-trade carbon market category, as opposed to the cap-and-trade category classically instantiated through the European Union’s Emissions Trading System (EU ETS).

Imagine a power plant that emits 100,000 tons of CO2 annually. Under a baseline-and-trade system, the regulatory authority sets a baseline, say, 90,000 tons. If the plant reduces emissions to 85,000 tons, it wins credits for the 5,000-ton reduction.

These credits can be sold to another plant failing to reduce its emissions below its baseline. This route rewards early adopters of cleaner technologies, encouraging companies to innovate and cut emissions beyond the baseline.

Cap-and-trade schemes, on the other hand, establish a limit on total emissions for all participating entities, wherein a regulatory body issues a limited number of emission allowances (equal to the limit) which companies can trade among themselves.

The limit typically decreases over time to reduce overall emissions and achieve a region’s globally presented decarbonisation targets, such as in its Nationally Determined Contribution or Long-Term Low-Emission Development Pathways submissions to the UNFCCC. 

Within this ecosystem, two kinds of carbon markets can be further distinguished by whether they allow the use of domestic or international carbon offsets, which represent a reduction, avoidance, or sequestration of CO2 or other GHGs. This is then used to counterbalance emissions produced elsewhere, wherein each offset is typically equivalent to one metric ton of carbon dioxide equivalent (CO2e).

Microsoft, Google, Shell, etc. have been investing in carbon offset projects for reforestation, regenerative agriculture, and soil carbon sequestration, so as to achieve their commitments of net zero emissions by a deadline through mitigation of their operational impact on the climate. In sum, carbon offsets have a nullification effect.

Through participation in the carbon market, companies can trade carbon credits they may generate through such offset projects. Most carbon markets, such as the California Cap-and-Trade Program, China’s National ETS, and the Quebec Cap-and-Trade System, permit use of offsets in achieving carbon credits.

Even the EU ETS allowed the use of domestic offsets until 2020, its current Phase 4 strictly disavows the use of offsets in meeting the emissions cap.

Role Of Emission Trading Schemes

Decarbonisation is a pressing need but a difficult path to tread along with pushing industrial growth for a developing country like India with a 2070 net zero target. A Council on Energy, Environment and Water study delves into the varying scenarios projected for 2040 across emission-intensive sectors like electricity, iron and steel, cement, and fertiliser with an emissions trading scheme in place to highlight its significant impact on carbon reduction.

Carbon markets across the globe have evolved due to policy discourse. Such analyses are crucial to refining the CCTS and India’s foray into carbon trading to derive clear and tangible impact. Similar studies for the veteran ETS in the EU have both critiqued the role of ETS in the decarbonisation project and also substantiated how since 2005, the EU ETS has helped bring down emissions from power and industry plants by 37 per cent.  

The Many Critiques Of Voluntary Carbon Markets

India’s CCTS and its turn towards a global USD 2-billion voluntary market is already hit by their lack of credibility, vast ambiguity, and the current large-scale controversies marring the concept of voluntary carbon trading in general.

A Centre for Science and Environment (CSE) report highlights that the most important aspect of this scheme is its acceptance of carbon offsets, and how it encourages a foray by private entities into compensatory activities through incentives and participation in the domestic carbon market.

This comes when critical investigations have scruffed the rose-tinted sheen of the voluntary market along with political shifts in key regions such as Africa, where such activities are focused globally.

A nine-month investigation by The Guardian, the German weekly Die Zeit, and SourceMaterial revealed that Verra, the leading global standard for VCM, had issued credits to players like Disney, Shell, Gucci, etc. for such projects and 90 per cent of their rainforest offset credits were useless with no value in genuine carbon reduction.

The CSE report, as well as widespread questions on the credibility of the voluntary carbon trade, beg a pertinent question on India’s new CCTS. How will this be tackled in the red tape of India’s ecosystem that affects marginalised caste and class groups the most in forestry and agricultural landscape where the potential for carbon sequestration and thus carbon offset projects is significant?

The impact of such projects has been a mixed bag — people’s livelihoods in regions where such offset projects are funded can be improved upon, but local community's relationship with its own landscape is then mediated via corporate entities.

Experts warn of this as a grave threat since a majority of such projects exposed harm to the rights of local communities. For context, projects like the one by Livelihoods Fund and financed through Danone in Andhra Pradesh for Araku coffee have benefited tribal farmers through training to enhance their lives on the one hand, but they can't access the revenue raised through carbon credits — the farmers have no clue what it even entails.

Scholars refer to this as a form of modern colonialism, which can have adverse effects as characterised by Jess Wang, who now works as a corporate sustainability strategy consultant:

“When the new norm that people with power want Indigenous people to adopt conflicts with how Indigenous groups usually interact with their own land, it can potentially lead to displacement and even violence.”

Comprehensive Policy Packages Beyond Emissions Trading

When such projects are further incentivised through voluntary markets in India and related sustainable offering marketing, there is a need to build and strengthen robust mechanisms to safeguard local tribals and farmer groups.

In India’s case, the detrimental impact is most likely to be suffered by Scheduled Castes (SC) & Scheduled Tribes as data shows 71 per cent SCs  work as agricultural labourers with only 9.5 per cent SC households owning land. 

As of June 2024, India’s CCTS has no framework and has not established any committees or consultation groups to tackle this fundamental drawback of carbon offsets in the market. Apart from these mechanisms, other checks and balances on carbon emissions by corporations through incentivisation and taxation are the need of the hour.

Models such as the EU ETS exemplify the route for policymakers and legislators to come up with other policy agendas that help industries decarbonise. 

In mature economies such as those in the EU, measures to avoid carbon leakage, for instance, were put in place to satisfy the concern that EU firms might move production to countries where they don’t have to pay for their emissions. Civil society organisations have been at the forefront of ETS criticism as well. 

India must take note that dependency on a carbon trading scheme without protecting its marginalised indigenous groups from offset project harms, or implementing packages for development of renewables, improvement in energy efficiency, and carbon taxation will render it ineffective.

Any marriage between corporations and their claim to sustainability needs to be scrutinised by policymakers. This cautionary tale has been succinctly put by Christopher Wright and Daniel Nyberg in their seminal book, Climate Change, Capitalism, and Corporations: Processes of Creative Self-Destruction: “...As we continue to shamble towards a tipping point from which any meaningful return will be utterly impossible, a familiar message rings out from the corporate world: ‘business as usual’.”

It is now up to India's political leaders and policymakers to decide if they let business as usual run rampant, or step in with the clear aim to fill the loopholes of corporate sustainability and phantom promises of decarbonisation.

(The author is a Bengaluru-based climate and sustainability researcher at the Boston Consulting Group, with a focus on policy and regulations. Views expressed are personal.)