The global supply chain industry is nearing the Paris Climate Agreement goals and as countries come closer to their respective ‘target’ years, driving sustainability is becoming all the more crucial for the supply chain industry. Apart from the environmental impact of the greenhouse emissions, not practicing sustainable operations can lead to loss of economic and social benefits for companies as well.
Plus, considering that consumers are increasingly aware of sustainability issues, and companies that demonstrate a commitment to sustainability are more likely to attract customers and build brand loyalty. By driving sustainability, companies can also ensure that their operations do not have a negative impact on communities, workers, and other stakeholders. This can help to build trust and support for the company’s activities.
What are carbon credits?
Carbon credits are a market-based mechanism that incentivizes companies to reduce their greenhouse gas emissions by investing in emission reduction projects. These credits can be bought and sold on the international market and are a crucial tool in combating climate change. The supply chain and logistics industry is an integral part of the economy and plays a crucial role in the implementation of carbon credit programs.
How does it work?
Under the carbon credits program, the government sets the cap across a given industry, or ideally the whole economy. It also decides the penalties for violations. The total amount of the cap is split into allowances, each permitting a company to emit one ton of emissions. These allowances are then either provided free of cost or through an auction to the companies. The gradual reduction of this limit works as an incentive for the companies to invest in increasing their sustainability as it becomes more economical than purchasing credits.
So basically, GHG emitting companies are awarded these credits that allow them to emit up to a certain limit, which is gradually reduced. Meanwhile, the company may sell any unneeded credits to another company that needs them. How are the incentivised? First, they must spend money on extra credits if their emissions exceed the cap. Second, they can make money by reducing their emissions and selling their excess allowances. Third, these credits get costlier by the year.
Have you heard about ‘emissions trading’? Emissions trading allows countries that have emission units to ‘spare’ to sell this excess capacity to countries that are over their targets. With this, a new ‘commodity’ was created – since carbon dioxide is the principal greenhouse gas, people speak simply of trading in carbon, and carbon is now tracked and traded like any other commodity. This is known as the ‘carbon market’.
The Indian scenario
In India, the Clean Development Mechanism (CDM) program was established under the Kyoto Protocol of the United National Framework Convention on Climate Change (UNFCCC). It is a popular carbon credit program that has contributed significantly to sustainable development. The program has been successful in attracting investment in various sectors such as renewable energy, energy efficiency, waste management, and afforestation.
The CDM program in India is administered by the National Clean Development Mechanism Authority (NCDMA), which is the designated national authority under the UNFCCC for implementing the CDM in India.
In India, there are many CDM projects across various sectors such as renewable energy, energy efficiency, waste management, and afforestation. These projects have contributed to reducing greenhouse gas emissions in the country and have also helped in promoting sustainable development.
India is a significant exporter of carbon credits. It issued 278 million credits in the voluntary carbon markets between 2010 and 2022, accounting for 17% of global supply, according to analysis by S&P Global. However, carbon trading is not currently active in India. As per latest reports, India is on course to announce the details of a national carbon market scheme in June, and trading could start by 2025. The Bureau of Energy Efficiency (under the Ministry of Power) released a draft blueprint in 2021 that proposed a phased introduction of a domestic carbon market for both compliance and offset participants. Other aspects of the mechanism, notably a market stabilization fund and integration of existing Renewable Energy Certificates and Energy Saving Certificates into Carbon Credit Certificates, would also be finalized in the run-up to 2025.
It has been predicted that following the implementation of a carbon market in India, carbon prices may rise towards USD 80/mt CO2 by 2050. Globally in 2023, the carbon prices range between USD 40 to USD 80 per million tonne of CO2.
One of the significant challenges in implementing carbon credit projects is the availability of financing. The supply chain and logistics industry has stepped in to fill this gap by providing financing solutions for these projects. Many logistics companies have started investing in renewable energy projects, which has helped in reducing their carbon footprint and also generates carbon credits.
Another crucial role played by the supply chain and logistics industry is in the transportation of goods. The industry has a significant impact on greenhouse gas emissions due to the use of trucks, ships, and planes for transportation. Carbon credits can be earned by reducing emissions from transportation through the use of cleaner fuels, energy-efficient vehicles, and optimizing routes. The industry can benefit from these credits by reducing their carbon footprint and generating additional revenue.
Globally, carbon credit programs have been instrumental in driving sustainable development. The United Nations Framework Convention on Climate Change (UNFCCC) has set up various carbon credit programs such as the CDM, the Verified Carbon Standard (VCS), and the Gold Standard. These programs have helped in promoting sustainable development by reducing greenhouse gas emissions and supporting sustainable projects.
In conclusion, carbon credit programs have been instrumental in promoting sustainable development in India and globally. The supply chain and logistics has a significant impact on greenhouse gas emissions and can benefit from carbon credits by reducing their carbon footprint and generating additional revenue. The implementation of carbon credit programs is crucial in achieving the goal of reducing greenhouse gas emissions and combating climate change.