Why in the news?

  • The Ministry of Environment, Forest, and Climate Change has announced a ‘National Designated Authority (NDA)’ to enable a carbon emissions trading regime.

National Designated Authority (NDA) for Carbon Markets

  • Formation: It is a mandatory requirement under the provisions of the 2015 Paris Agreement (Article 6).
  • Composition: A 21-member committee headed by the Secretary of the Environment Ministry.
    • Includes officials from the Ministry of External Affairs, the Ministry of Renewable Energy, NITI Aayog, and the Steel Ministry.
  • Functions:
    • Modifying them from time to time, keeping in view national sustainable goals, country-specific criteria, and other national priorities. 
    • Receive projects or activities for evaluation, approval, and authorisation.
    • Authorise the use of emission reduction units from projects for use towards the achievement of Nationally Determined Contributions (NDC).

Carbon Trading  

  • Definition:
    • Carbon trading (also called emissions trading) is a market-based mechanism to reduce greenhouse gas (GHG) emissions.
    • It allows countries, companies, or entities to buy and sell carbon credits/allowances, thus putting a price on carbon emissions.
  • Background:
    • Rooted in the Kyoto Protocol (1997) under the UNFCCC, which created three flexible mechanisms:
      • Clean Development Mechanism (CDM)
      • Joint Implementation (JI)
      • International Emissions Trading (IET)
    • Strengthened under the Paris Agreement (2015) – Article 6 provisions allow for carbon markets and international transfer of mitigation outcomes (ITMOs).
  • Global Examples:
    • EU Emissions Trading System (EU ETS) – World’s largest carbon market.
    • California Cap-and-Trade Program (USA).
    • China’s National ETS (2021) – Covers the power sector, world’s largest by volume.
  • Carbon Trading in India:
    • Earlier: India was a major beneficiary of CDM projects under Kyoto Protocol.
    • Energy Conservation (Amendment) Act, 2022: Provides a legal framework for a domestic carbon market.
    • National Designated Authority (NDA) notified in 2024 to oversee Article 6 compliance.
    • Perform, Achieve, Trade (PAT) Scheme & Renewable Energy Certificates (RECs) already function like carbon trading.
    • India is developing a Carbon Credit Trading Scheme (CCTS) to integrate with global markets.
  • Significance:
    • Incentivises industries to cut emissions.
    • Mobilises finance for climate-friendly projects.
    • Supports India’s net zero by 2070 pledge.
    • Encourages global climate cooperation.