India is facing a significant funding gap of over $10 trillion in its efforts to achieve net zero emissions by 2070, according to Finance Minister Nirmala Sitharaman. In order to address the financial challenges associated with transitioning to green technologies, Sitharaman stressed the importance of establishing a carbon credit market at Gujarat’s GIFT City’s International Financial Services Centre (IFSC). GIFT City, located in the Gandhinagar district of Gujarat, is India’s first operational greenfield smart city and international financial services center. Sitharaman projected that GIFT City could play a crucial role in India’s development, with a projected GDP exceeding $30 trillion by 2047. She emphasized the need for the IFSC to evolve into a diverse fintech laboratory to support the country’s economic advancement.
Currently, Indian companies are unable to directly list overseas and can only access foreign equity markets through depository receipts like American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) after completing an initial public offering (IPO) in India. Sitharaman announced that Indian companies would now be able to access global capital by directly listing on exchanges at the IFSC, providing them with a platform to raise funds for green initiatives. Prime Minister Narendra Modi also suggested the creation of a platform for trading green credits, facilitating the sale of carbon credits from initiatives such as tree planting. Modi stated that India would need at least $10 trillion to achieve its net zero targets by 2070 and emphasized the importance of making IFSC a global hub for sustainable finance.
Carbon markets play a crucial role in enabling businesses to trade carbon credits and achieve their emissions reduction targets. These markets allow carbon credits to be sold and bought by businesses and other entities. Voluntary carbon markets, which trade carbon credit offsets, are poised to grow rapidly. Carbon credits represent a certain amount of greenhouse gas emissions reduction or removal, with one carbon credit representing one tonne of carbon. These carbon credit markets are gaining traction as more global firms commit to net zero targets and play a pivotal role in curbing India’s emissions.
India, as the world’s third-largest emitter, has made ambitious commitments under its Nationally Determined Contributions (NDCs). These commitments include reducing the emissions intensity of its GDP by 45% from 2005 levels by 2030 and achieving 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030. The Paris Agreement recognizes the principle of common but differentiated responsibilities, taking into account nations’ capabilities and bandwidth for emissions reduction. To bridge the gap between estimated emission intensity and NDC commitment numbers, sector-specific greenhouse gas (GHG) emission targets can be established. Sectors such as steel, aluminum, cement, and thermal power, known for higher emissions, could have quantifiable targets based on global best practices adapted to domestic capabilities.
In recent developments, Gujarat and its forest department have signed various Memorandums of Understanding (MoUs) worth over $266 million for carbon credits from planting mangroves. Agreements have also been made for carbon credits through agroforestry. The Indian Government has taken a positive step by notifying the Carbon Credit Trading Scheme (CCTS) under the Energy Conservation Act, 2001. This scheme outlines GHG emission intensity reduction targets for entities in specific sectors and aims to establish a regulated domestic carbon credit trading market with transparent price discovery. The Bureau of Energy Efficiency (BEE) administers the scheme and sets targets for obligated entities, while the Central Electricity Regulatory Commission (CERC) regulates carbon credit trading. This opens up opportunities for Indian businesses to enter the thriving global carbon trading markets.
As India grapples with its funding gap for net zero ambitions, the emergence of GIFT City and innovative financial strategies offer hope for a sustainable future. From carbon credit agreements to direct listings, the nation is poised for a transformative journey towards a sustainable future.