CERC Issues Draft Regulations for Carbon Credit Trading Scheme
CERC's draft regulations for the Carbon Credit Trading Scheme (2023) establish a framework for trading Carbon Credit Certificates on Power Exchanges. They ensure transparency, market oversight, pricing mechanisms, penalties for non-compliance, and fees to manage registry operations, supporting India’s carbon market development.
November 14, 2024. By EI News Network
This initiative marks a significant step towards establishing a structured carbon market in India, facilitating the exchange of CCCs among both obligated and non-obligated entities through the country’s Power Exchanges. The stakeholders can provide their comments on the regulations.
The CERC's draft regulations are designed to create a transparent, efficient, and well-regulated market for the trading of Carbon Credit Certificates. The scheme aims to support India’s environmental goals by enabling entities to trade carbon credits, contributing to the reduction of greenhouse gas emissions in line with national climate commitments.
The regulations lay out a clear framework for CCC exchanges, including the establishment of the Grid Controller of India (GCI) as the official registry for all CCC transactions. This registry will serve as the central point for managing the CCC market, ensuring that all transactions are accurately recorded and compliant with the regulations. The Bureau, appointed as the administrator for the CCCs, will be responsible for the development of detailed procedures covering registration, transfer, and trading of the certificates. It will also ensure that all entities adhere to the relevant laws and regulations in the CCTS.
Under the regulations, CCCs will be divided into two main market segments viz. Compliance Market for obligated entities that are required to meet specific carbon reduction targets and Offset Market for non-obligated entities that can trade carbon credits without the requirement to meet specific obligations.
Trading of CCCs will be conducted exclusively through Power Exchanges, with transactions occurring on a monthly basis or as otherwise specified by the Commission. Entities participating in the market must register with the Power Exchanges and meet the eligibility criteria, including proper registration of their CCCs in the official registry.
The draft regulations also set out a transparent pricing mechanism for CCCs. These prices will be determined through market bidding on the Power Exchanges, with the Commission establishing floor and forbearance prices. This framework is designed to maintain price stability and reduce the risk of market manipulation. In instances of extreme price volatility, the Commission has the authority to step in and impose measures to stabilize the market.
The CERC has introduced stringent provisions for dealing with entities that default on their obligations. If an entity fails to comply with the regulations on three separate occasions within a single quarter, it will face penalties and may be suspended from participating in CCC trading. This approach ensures that all market participants adhere to the rules and promotes a fair trading environment.
Furthermore, entities will be required to report their CCC transactions to the registry, with their accounts updated following each trade. This ensures the accuracy and transparency of the trading process, helping to build trust among participants.
The draft regulations also address the fees and charges associated with CCC exchanges. In consultation with the Bureau, the Commission will determine the fees payable by both obligated and non-obligated entities for participation in the registry. These fees will cover the operational costs of managing the registry and maintaining the software platform used for CCC transactions.
To ensure smooth operation and compliance with the CCTS, the Commission, assisted by the Bureau, will exercise market oversight over CCC transactions on Power Exchanges. This oversight will be in line with the Power Market Regulations, helping to ensure transparency and fairness in the carbon credit trading process.
In recognition of the dynamic nature of the carbon market, the Commission has also been granted the power to relax certain provisions of the regulations when necessary. This could occur through general or special orders, with the Commission required to record reasons for such actions in writing. Affected parties will also be given an opportunity to present their case. This flexibility is intended to address unforeseen challenges or adapt the regulations to changing market conditions.
Additionally, the Commission has the authority to issue directions in cases where difficulties arise in implementing the regulations. These directions will help ensure that the CCC trading framework functions smoothly, contributing to the overarching goals of the CCTS and the development of a robust carbon market in India.
The draft regulations from the CERC are a pivotal step towards establishing a transparent and efficient carbon credit trading market in India. By facilitating the exchange of Carbon Credit Certificates through Power Exchanges, the scheme will support the country’s transition to a low-carbon economy. The regulations also provide the necessary oversight, enforcement mechanisms, and flexibility to ensure that the carbon market evolves in line with India’s environmental goals and commitments under international climate agreements.
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