Introduction
In 2023, India saw the passage of 3 legislations namely the Green Credit Policy, Compliance Carbon Trading Scheme (CCTS) and the changes to the Environment and Biodiversity Act. India witnessed significant dilutions in its environmental laws, particularly in the penal provisions of key regulations. The Ministry of Environment, Forest and Climate Change (MoEFCC) proposed amendments to laws such as the Environment (Protection) Act, 1986, the Air (Prevention and Control of Pollution) Act, 1981, and the Water (Prevention and Control of Pollution) Act, 1974, aiming to dilute the penal provisions, which include imprisonment of offenders.
These dilutions have raised concerns about the potential impact on environmental protection and the integrity of environmental laws and regulations to ensure sustainable development and environmental justice. The passage of the carbon credit laws, particularly the Carbon Credit Policy, may impact the existing regulatory framework related to environmental compliance and corporate social responsibility.
The introduction of a compliance carbon market and the issuance of Carbon Credit Certificates (CCCs) may lead to a shift in the focus of companies towards carbon mitigation activities, potentially affecting their prioritisation of CSR initiatives and environmental compliance. The absence of a concrete definition of 'carbon credits' and the open-endedness of the carbon trading scheme have raised concerns about regulatory ambiguity and the need for robust oversight to prevent greenwashing and ensure the integrity of the market.
The establishment of a cross-sectoral regulatory mechanism and the empowerment of the central government to specify the carbon credit trading scheme under the Energy Conservation (Amendment) Act, 2022, indicate a significant regulatory overhaul to accommodate the carbon credit market, which could negatively affect industry compliance on paper.
The Indian Constitution contains several provisions for environmental protection that emphasise the importance of preserving natural resources and promoting sustainable development.
Key provisions include Article 48A, which directs the state to protect and improve the environment and safeguard forests and wildlife; Article 51A(g), which imposes a duty on citizens to protect and improve the natural environment and Article 21, which guarantees the right to life, including the right to a healthy environment.
These provisions, along with the Directive Principles of State Policy, form the foundation for environmental laws and policies in India, aiming to ensure environmental sustainability and the well-being of citizens.
Emergence of compliance carbon markets
The passage of the Carbon Credit Policy may impact the existing regulatory framework related to environmental compliance and corporate social responsibility. The introduction of a compliance carbon market and the issuance of Carbon Credit Certificates (CCCs) may lead to a shift in the focus of companies towards carbon mitigation activities, potentially affecting their prioritisation of CSR initiatives and environmental compliance.
Carbon credits are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. Carbon credits create a monetary incentive for companies to reduce their carbon emissions, and they can be sold to other companies that need them. Carbon credits are part of the compliance carbon market, which is a regulatory system that sets a cap on emissions and allows companies to buy and sell permits to emit greenhouse gases.
The voluntary carbon market, on the other hand, is a market where companies and individuals can purchase carbon credits voluntarily to offset their carbon footprint. Green credits, also known as green finance, refer to financial instruments and support aimed at promoting environmentally friendly and sustainable projects, such as initiatives to reduce carbon emissions and invest in renewable energy. Carbon credits are traded in the carbon market.
Green credits encourage financial institutions to consider environmental factors when making lending decisions, thereby contributing to environmental protection and sustainable development. The Green Credit Rules 2023, introduced by the Ministry of Environment, Forest and Climate Change in India, incentivise eight identified environmental activities through a market-based approach.
The Indian Council of Forestry Research and Education (ICFRE) will issue green credits to participants based on parity of scale, scope, and size along with other parameters after registration of an identified activity with them. The Rules define ‘green credit’ as a single unit of an incentive provided for a specific activity. The eligible activities for green credits include waste reduction of air pollution, sustainable agriculture, and infrastructure and eco-mark label development.
The market for green credits is expected to be developed, and private companies are likely to buy these green credits as part of their Corporate Social Responsibility (CSR). The Green Credit Programme presents a significant opportunity for businesses in India to earn additional revenue while safeguarding the planet. However, the absence of a concrete definition of 'carbon credits' and the open-endedness of the carbon trading scheme have raised concerns about regulatory ambiguity and the need for robust oversight to prevent greenwashing and ensure the integrity of the market. There is also less clarity on how the green credit market will operate or is operating.
Indian Green Credit Policy 2023
The policy, as outlined in the Green Credit Rules, represents a significant commitment by India towards sustainable practices and climate change mitigation. The policy aims to incentivise voluntary environmental actions by individuals, organisations, and industries through the issuance of green credits for specific environment-friendly activities, which can be traded.
The enforcement of the Green Credit Policy in India falls under the purview of the Indian Council of Forestry Research and Education (ICFRE), which is tasked with formulating guidelines and regulating the calculation and issuance of green credits, as well as the establishment of a green credit registry and trading platform to foster the trade of green credits. The Green Credit Programme is a market-based mechanism to incentivise voluntary environmental actions by communities, private-sector industries, and companies, and it will be implemented in phases.
While the program is not mandatory, many companies are likely to participate to earn credits for their environment-friendly practices, which can improve their goodwill and create demand in the market for green credits. The program aims to generate green credits through activities such as water conservation, water harvesting, water use efficiency, and treatment and reuse of wastewater.
The rules define 'green credit' as a single unit of incentive provided for a specific activity that delivers a positive impact on the environment [1]. The program is supported by an inter-ministerial Steering Committee and a dedicated digital platform for registration, verification, and issuance of credits [2]. However, experts have raised concerns about the need for strong regulation to prevent greenwashing and ensure the integrity of the credits [2]. The policy is part of India's commitment to reduce carbon emissions and achieve net-zero by 2070 [3].
The carbon credit policy assigns a carbon credit to each ton of carbon dioxide equivalent (tCO2e) reduced or avoided, which can be bought, sold, and traded. The policy covers approximately 72 percent of India's total CO2 emissions and has far-reaching implications for India's journey to net-zero carbon emissions by 2070. The policy prohibits the export of carbon credits and is expected to have a significant impact on India's compliance with the Paris Agreement and the Kyoto Protocol. The policy operates primarily under the Clean Development Mechanism (CDM) of the Kyoto Protocol, where projects designed to curtail emissions yield tradeable credits.
The policy proposes the establishment of a cross-sectoral regulatory mechanism, under which the Indian Carbon Market (ICM) Governing Board is to be set up, for governing the Indian carbon market. The market shall be administered by the Bureau of Energy Efficiency, also serving as the Secretariat of the board. However, the policy has raised concerns about regulatory ambiguity and the need for robust oversight to prevent greenwashing and ensuring the integrity of the market.
Climate finance and the water sector
Climate finance refers to funding processes for investments related to climate change mitigation and adaptation. It aims to reduce emissions, enhance sinks of greenhouse gases, and increase the resilience of human and ecological systems to negative climate change impacts. Climate finance encompasses various financial flows, including public, private, and alternative sources of financing, and it supports mitigation and adaptation actions that address climate change.
Key areas where climate finance is needed include:
● Transforming the energy and water system
● Building adaptation and resilience
● Coping with loss and damage
● Restoring and protecting natural capital
● Methane abatement
Climate finance can be sourced from various sectors, with the most significant investments in 2019-2020 going to renewable energy (US$336 billion) and agriculture, forestry, and other land use (US$16.5 billion).Packages of funding targeting climate adaptation have been announced, including over $1 billion for climate and health initiatives from philanthropies, donors, and multilateral development banks; $2.6 billion in nature conservation finance from public and private sources; and an additional $2.6 billion for climate-resilient food and agriculture projects. The financial sector plays a crucial role in combating climate change by supporting reductions in climate risk and mitigating its impact.
Financial instruments such as hedging instruments (e.g., catastrophe bonds, indexed insurance), green stock indices, green bonds, and voluntary de-carbonization initiatives can help re-allocate investment to "green" sectors and support climate change adaptation and mitigation efforts. Central banks and financial regulators are also starting to factor in climate change when making financial decisions.
Green credits and carbon credits are both part of climate finance. Green credits, also known as green finance, are financial instruments and support aimed at promoting environmentally friendly and sustainable projects, such as initiatives to reduce carbon emissions and invest in renewable energy. Green credits encourage financial institutions to consider environmental factors when making lending decisions, thereby contributing to environmental protection and sustainable development
Carbon credits, on the other hand, are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. Carbon credits create a monetary incentive for companies to reduce their carbon emissions, and they can be sold to other companies that need them. Carbon credits are based on the cap-and-trade model that was used to reduce sulfur pollution.
Both green credits and carbon credits are part of the broader range of financial mechanisms and resources aimed at addressing climate change, including funding for climate adaptation, mitigation, and resilience efforts.
Potential issues
In simple terms the so-called business friendliness has been interpreted as dilution of environment protection laws. Greenwashing is the deceptive practice of making misleading or false claims about the environmental benefits of a product, service, or company.
In India, several companies have been accused of greenwashing, including Hindustan Unilever Limited (HUL), which has faced criticism for allegedly making misleading claims about the environmental and social impacts of its products such as Dove, Lifebuoy, Surf Excel, and Rin. HUL has been scrutinized over its use of palm oil linked to deforestation and human rights abuses in Southeast Asia.
Other examples of companies caught for greenwashing globally include Volkswagen, Innocent, and IKEA Greenwashing is a prevalent issue in India due to a lack of strict regulations on environmental claims and eco-labeling, allowing companies to engage in greenwashing with little to no consequences. This practice can mislead consumers who are increasingly demanding eco-friendly and sustainable products. It is essential for consumers to be aware of greenwashing tactics and to thoroughly research the environmental claims made by companies
With the dilutions in the Environment (Protection) Act, 1986 which is a key legislation in India aimed at protecting and improving the environment, the companies are no longer liable for prosecution as per the penal code. It had empowered the central government to set new standards for emissions, regulate the location of industries, devise procedures for handling hazardous substances, safeguard against accidents causing environmental pollution, and collect and disseminate information.
The Act also focuses on the prevention, control, and abatement of environmental pollution, laying down standards for the quality of the environment, as well as for the emission or discharge of environmental pollutants from various sources. It restricts areas in which any industries, operations, or processes shall not be carried out or shall be carried out subject to certain safeguards
Furthermore, the Act includes provisions for the protection and improvement of the environment, safeguarding forests and wildlife, and the duty of every citizen to protect and improve the natural environment, including forests, lakes, rivers, and wildlife [2].
The Act has been complemented by other legislations such as the Water (Prevention and Control of Pollution) Act 1974, the Air (Prevention and Control of Pollution) Act 1981, and the Biological Diversity Act 2002, all aimed at safeguarding the environment [3]. The Act is a crucial component of India's environmental legal framework, providing the government with the necessary authority to protect and improve the environment and regulate various aspects of environmental pollution
Regulation and over regulation
The main reason for green credit program implementation is to incentivise industries and local bodies to adopt environmentally and socially sustainable practices across different sectors, including water management. The programme aims to generate green credits through activities such as water conservation, water harvesting, and water use efficiency, including treatment and reuse of wastewater.
In addition to the National Green Credit Programme, India has several other schemes and policies for sustainable water resources management, such as the second phase of the Atal Mission for Rejuvenation and Urban Transformation (AMRUT 2.0). The country also has a strong microfinance infrastructure and increasingly digitised lending environment, which has been leveraged to increase affordable access to safe water and sanitation.
The Water Credit initiative has been launched in India to provide individuals and communities with small loans for water connectivity. This initiative has been funded by the organisation, Water.org, and has increased access to clean, safe water by partnering with MFIs and NGOs. The Water Credit initiative has been successful in India, with the Water Credit program expanding to 14 microfinance institutions (MFIs) operating in 12 states. There is no clarity on the implementation of the green credit program and the policy with respect to additionality of the green credits i.e. new projects must aid the existing credit generators.
Conclusion and recommendations
- The issues arising from the haphazard green credit and carbon credit policy implementation along with the dilution of the environment act pose new challenges.
- The simple yet concrete solution would be to include the feature of additionality in the green and carbon credits and penalise non compliance.
- In addition to this ,all industrial projects must be having a proportion of their carbon credit generation within the prescribed area of operation.
- Unless the local population sees any benefit from industrial projects, it is difficult to imagine a supportive environment for business or industries to set up. The race to increase the ease of business ranking must not come at the cost of the environment.
- Hence it is clear that the carbon credit policy which was designed to generate climate finance can be weaponised by industries to escape their local commitments on tree plantation and pollution reduction through buying carbon credits at another location.
- Also the quality or veracity of the carbon credits themselves tend to be suspect. Hence the large potential for green washing.
- The issues arising out of this analysis are yet avoidable and solvable due to the rolling timeline for implementation of the policies.
References
[1] Green Credit Rules 2023 - Underpinning India’s climate pledge - ET EnergyWorld https://energy.economictimes.indiatimes.com/news/renewable/green-credit-rules-2023-underpinning-indias-climate-pledge/105352394
[2] Green credit scheme encourages ‘environment-friendly’ behaviour, but needs strong regulation to work https://india.mongabay.com/2023/07/green-credit-scheme-encourages-environment-friendly-behaviour-but-needs-strong-regulation-to-work/
[3] COP28: India calls for focus on 'green credits' as alternative to carbon offsets https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/energy-transition/120123-cop28-india-calls-for-focus-on-green-credits-as-alternative-to-carbon-offsets
Bibliography
[1] Unboxing India’s ‘Green Credit’ Rules 2023 https://www.lexology.com/library/detail.aspx?g=
[2] New environmental laws in India: The next chapter of change | Enhesa https://www.enhesa.com/resources/article/new-environmental-laws-in-india-the-next-chapter-of-change/
[3] ENVIRONMENTAL LAWS IN INDIA https://www.linkedin.com/pulse/environmental-laws-india-apurva-agarwal
[4] Environmental Laws in India. https://www.clearias.com/environmental-laws-india/
[5] Decoding the Green Credit Rules 2023 - India Water Portal. https://www.indiawaterportal.org/articles/decoding-green-credit-rules-2023
Soomrit Chattopadhyay (https://orcid.org/0000-0002-
Vivekanand A (https://orcid.org/0000-0002-
Utkarsh Singh (https://orcid.org/0009-0002-
/articles/green-credits-and-dilutions-environment-act-recipe-greenwashing