Provides an overview of the development of Carbon Markets since Kyoto Protocol with a special focus on the compliance markets. It also explores the various global ETS instruments currently operational and its impact on the economy and corporates. It also examines the regulatory development of India's Carbon Credit Trading Scheme and provides critical analysis of various provisions.

1. Carbon Market
in India
Sounak Mukherjee

2. Historical Development of Carbon
Trading
• Carbon markets have become a dominant part of the policy in the last couple of decades.
• The concept was introduced by Pigou in 1920, who pointed out the social benefits of
forcing companies to pay for the cost of their pollution.
• In 1976, United States EPA began experimenting with pollution offset schemes that laid
the groundwork for the compliance based ETS.
• It was formalized an international framework under the Kyoto Protocol in the 1997 but it
was found to be existing in some form or another since the 1970s.
• International frameworks that have formalized the development of carbon trading-
1. Kyoto Protocol Flexibility Mechanisms
2. Article 6.2 Paris Agreement
2

3. 1. Kyoto
Protocol
Flexibility
Mechanisms
• Three mechanism namely: International Emissions Trading, Clean
Development Mechanism and Joint Implementation.
• Under International Emissions Trading countries could sell trading
units which were emissions permitted but not “used” to countries
that are over their targets in the following trading units:
- Removal unit (RMU)
- Emission Reduction unit (ERU)
- Certified Emission Reduction (CER)
• The Clean Development Mechanism (CDM) allowed countries and
private sector companies to reduce emissions anywhere in the
world-where the cost is lowest.
• Joint Implementation allowed two industrialized countries that had
emission reduction targets to come together for emission reduction
or removal projects.
• ‘Additionality’ was the principal condition for project eligibility, it
meant ‘reduction of GHG emissions below what would have
occurred in the BAU scenario.
3

4. Carbon Credits under CDM
Step
1:
Project
Development
A developing country
creates a CDM project to
reduce greenhouse gas
emissions
Types of projects
RE with max cap. of
15MW.
Energy efficiency
improvement-reduce
energy consumption by
15 GWh/year.
Other projects reducing
and emitting less than
15ktCO2e/year
Step
2:
Verification
The project is validated
by a third-party verifier
to ensure it meets CDM
requirements
An independent auditor
verifies the project's
emission reductions
The auditor issues
certified emission
reduction (CER) credits
for each tonne of carbon
dioxide equivalent
reduced
Step
3:
Registration
The project and its
CER credits are
registered with the
CDM Executive
Board
Step
4:
Sale
and
Use
of
CERs
CER credits can be sold on
international carbon markets
to companies and countries
with emission reduction
targets under the Kyoto
Protocol
CER credits can be used by
developed countries to meet
part of their Kyoto Protocol
targets, as an alternative to
domestic emission reductions
A portion of the CERs
generated by a CDM project
can be used by the host
country to meet its own
emission reduction targets
Delhi Metro Rail Corporation CDM Project Study 4

5. 2. Paris
Agreement-
Article 6.2
• Due to new commitments made by other countries and some gaps
(double counting, etc.) in the Kyoto mechanisms, a need to renew
rules of emission trading was found.
• New mechanism under PA creates an alternative voluntary
cooperative mechanism referred to as ‘Internationally transferred
mitigation outcomes (ITMOs).
• ITMOs allow the transfer of real, verified and additional emission
reductions and removals including mitigation co-benefits resulting
from adaptation actions as well as economical diversification plans as
means to achieve them.
• Parties guided to apply corresponding adjustments to ITMOs traded
in non-GHG metrics by subtracting the quantity of ITMOs
authorized and first transferred from its NDCs.
• Allow for bilateral cooperation between similar schemes nationally
and regionally to allow cross-border carbon market.
5

6. Global Perspectives on Carbon Trading
SCHEME APPLICABILITY YEAR SCOPE (ENTITIES/CAP) ALLOCATION SECTORS
EU ETS Covers 30 nations in EU and
Iceland, Liechtenstein and
Norway.
2005 More than 10,000
installations in power
sector
Free allocation
(benchmarking)
Domestic Aviation, Industry, Power
UK ETS UK 2021 1,006 entities Free allocation and
auctioning
Domestic Aviation, Industry, Power
China ETS National 2017 (launched in
2021)
2162 entities (2020 &
2021)
Free allocation Power sector
Korea ETS National 2015 684 of the countries’
largest emitters
Free allocation
(grandparenting,
benchmarking)
Waste, domestic aviation, buildings,
industry and power
California Cap-
and-Trade
Regional 2013 450 entities Free allocation and
auctioning
Large industrial facilities, electrical
distribution and natural gas facilities.
Tokyo ETS Regional 2010 1232 entities (2015),
new trial started by
METI
Free allocation
(grandparenting)
Office buildings, district heating and
cooling plants, factories, water and
sewage facilities and waste processing
facilities.
More ETS 6

7. Working of the Carbon Market
Source: https://icapcarbonaction.com/en/compare/99/43 7
UK ETS EU ETS
Start of operation 2021 2005
Total revenue from start
(USD billion)
12.9 158.4
Total revenue (2022)
(USD billion)
7.6 40.8
Avg auction price
(USD/MtCO2e)
92.96 83.10
Avg secondary market
price (USD/MtCO2e)
- 85.11
Use of revenue Not
earmarked
separately
50% for climate and
energy related
purposes

8. India’s
National
Carbon
Market
By 2070, the potential economic gain from decarbonization in 1.5˚C
scenario is USD 11 trillion. However, failure to take appropriate measures
may cost the economy to the tune of USD 6 trillion by 2050 and USD 35
trillion by 2070.
To reduce long term GHG emissions, considerable focus has been placed
on the demand side energy efficiency programs and creation of mass
rapid transport infrastructure.
For larger participation of businesses and industry, continuous
development in mitigation and adaptation related opportunities is
required.
Therefore, Energy Conservation (Amendment) Act, 2022 was passed to
provide legal framework for carbon trading.
8

9. Energy
Conservation
(Amendment)
Act, 2022
Energy Conservation (Amendment) Act, 2022, provided the statutory
framework for the concept of Carbon Trading in India.
Under section 14 of the Act, the central government is mandated to
develop and specify a “Carbon Credit Trading Scheme” for reduction of
carbon emissions.
Under section 14AA, the central government or any agency authorised by
it can issue “carbon credit certificate” for the reduction of carbon
emissions to the registered entity which complies with the requirements
of the carbon credit trading scheme. These entities will be entitled to
purchase or sell carbon credit certificate in accordance with the scheme
In accordance with the provisions, the BEE released a draft blueprint for
establishing National Carbon Market which will be loosely based on
European ETS.
9

10. CCTS 2023- Institutional Framework
National Steering
Committee
• Governance
and functional
oversight
• Secretary,
MoP and
Secretary,
MoEFCC- ex-
officio
Chairperson
BEE
• Administrator
• Issue
certificates
• Recommend
targets
Grid Controller of
India
• Registry of all
obligated and
non-obligated
entities in
ICM.
• Maintain
database and
transaction
records
CERC
• Regulatory
authority
Power Exchanges
• Trading
platform
As per section 14 of Energy Conservation (Amendment) Act, 2022, the Government of India launched
the Carbon Credit Trading Scheme (CCTS) in June 2023.
10

11. Procedure for certificate issuance
Purchase of certificates
Obligated entities which are short fall in achievement of targeted reduction must purchase Carbon Credit Certificate (CCC) from the Carbon Market.
Issue of certificates
Upon achievement of emission reduction and exceeding the set target, Carbon Credit Certificate (CCC) will be issued.
Other targets
Obligated entities to meet other targets such as use of non-fossil fuel energy consumption, etc. as per notification of MoP.
Notification
Obligated entities to achieve Emission targets as published by MOEFCC.
MOEFCC
MOP to recommend Emission Targets to MOEFCC under the EPA, 1986.
Targets
BEE to recommend targets in terms of tCO2e per unit of equivalent product to
MoP
Parameters like available tech. and implementation cost to be
considered.
11

12. BEE “National Carbon Market”
The draft blueprint proposes to introduce Carbon market in three phases eventually towards the
adoption of Cap-and-Trade System
Phase 1
(Short term)
Increased demand in VCM
• ESCERTs and RECs to
Indian Carbon Credits
• SBTi and CDP compliant
companies to participate in
VCM
• SDAs and airlines as
participants
Phase 2
(Medium term)
Increased supply in the
VCM
• Incorporating project-based
registration (based on
globally accepted principles)
Phase 3
(Long term)
Towards Cap-and-Trade
system
• Evolution to an emissions-
based cap and trade system
wherein sectors, and specific
companies are earmarked for
a specific amount of
emissions
12
No specific timeline has been proposed in the draft framework.
Source: BEE; https://beeindia.gov.in/sites/default/files/publications/files/NCM%20Final.pdf

13. Phase 1 (Increasing demand in VCM)
VCM demand
Voluntary buyers
DCs (PAT
scheme)
SDAs
DISCOMs (RPO
obligation)
Airlines
Changes required
• Change in trading unit
fungibility (Escerts and RECs)
• Allowing voluntary buyers
• Change in trading period
Market regulator- CERC
Administrator- BEE
Trading platform- Power
exchange
13

14. Emission abatement in airline sector
SAF
65%
Propulsion
tech
13%
Operation and
Infra
3%
Offsets and
carbon
capture
19%
• The International Air Transport Association (IATA) approved a
resolution for the global air transport industry to achieve net-zero
emissions by 2050.
• By 2050 the air passengers would rise to 10 billion and the
cumulative carbon emissions that must be abated is 21.2 GT with 1.8
GT of carbon in 2050.
• Abate emissions from in-sector solutions such as sustainable fuels,
new aircraft and propulsion technology, more efficient operations
and infrastructure, and through offsetting options such as carbon
capture and storage as shown in the chart.
• Sustainable Aviation fuel- Currently used commercially and
results in average 70% reduction of emissions.
• New technologies and propulsion- New propulsion technologies
such as hybrid electric, fully electric and hydrogen fuel, and
advanced designs may become viable from mid-2030s.
• Operations and infrastructure- Measures such as retrofitting
winglets, light weight cabin, congestion management, etc. will
result in improvement in fuel consumption per passenger.
• Offsetting- To mitigate the remaining emissions offsetting
mechanisms such as carbon capture technologies may be adopted
14
Source: IATA; https://www.iata.org/en/pressroom/pressroom-
archive/2021-releases/2021-10-04-03/

15. Phase 2 (Increasing supply in VCM)
• The critical supply side push would come from project registration, proper validation, verification,
and issuance of Emission Reduction Units (ERU).
• A project specific reference case is established for emission reduction activities using performance
benchmarks. Once implemented, the performance will be monitored, and respective amounts of
credit will be issued by the regulatory body
Project idea
note
Project
design
document
Validation Verification Issuance
Issuance of a carbon credit
International standards for issuance of carbon instruments
There are 4 major groups that take part in standards and process guidance: ART, Verra, Gold
Standard and American Carbon registry for the issuance of carbon instruments traded across various
markets. Post Project design phase, these bodies validate the plans and assumption for emission
reductions and monitor over a period. Another audit process called “verification” assesses the
delivery of greenhouse gas mitigation. Post this, tradeable offsets are handed out to the developers to
be traded. 15

16. Phase 3 (Cap and Trade system)
An entity-specific GHG-emissions intensity factor is determined for the current
situation
The expected sectoral growth for the next years will be used to determine
“business as usual (BAU) emissions
In order to achieve alignment with the Indian NDC, an NDC-alignment
coefficient (NAC) will be introduced
In order to participate, each entity needs to set up a GHG emissions
inventory and MRV scheme. It would allow large companies to address
their entire value chain with a comparatively simple, high-level approach
16

17. GPCB ETS
The Gujarat Pollution Control Board launched India’s first ETS—and the world’s first cap-and-trade market in
particulate pollution in 2019.
Limit or cap on the total quantum of pollution that industries may emit. The cap on the total mass of suspended
particulate matter emissions was set at 280 tons in 2019 which was gradually reduced to 176 tons by 2021.
Industries participating in the scheme can comply either by installing technology that cuts pollution or by
purchasing “emissions permit” to emit more than their limit for a specific pollutant.
For compliance, permit holdings must be equal to or greater than actual emissions. An environmental damage
compensation of Rs. 200/kg is imposed for every kg of emissions over and above permit limit
Outcome-
• In most compliance periods, no plants exceed their permit holdings. Most plants hold permits at the end of
period almost exactly equal to their emissions and a very few plants had permits in excess.
• The mean particulate emission level of plants participating in the market was reduced by 24% relative to the
control plants. The cost of reducing emissions is also lower and rise slowly as the emission cap is reduced.
• Industries with high abatement cost can save money by buying permits instead of installing expensive
equipment. This flexibility allows plants to pay 36% less than if they were to install a cyclone and bag-filter
17

18. Carbon pricing and its impact
Carbon pricing works by setting a uniform price for greenhouse gas emissions and is a measure to combine both
the actual costs with the non-economic costs of their impact
Carbon price
Govt carbon
pricing
Explicit carbon
price
Implicit carbon
price
Pvt carbon
pricing
Voluntary
internal carbon
price
• Explicit Carbon price- A measure to price GHG gases in proportion
to their emissions - applicable to carbon taxes and emission trading
schemes.
• Implicit Carbon price - Imposes indirect emission reduction prices
on consumers and producers, including energy taxes, regulations,
subsidies, etc.
• Voluntary Internal price- Price of carbon is estimated internally by
a company
Impact of carbon price
ESG impact and cost of
financing
Economic impact of
carbon tax
18

19. ESG impact and Cost of financing
Indirect Carbon price risk
• Rising supply chain costs &
pass-through of carbon prices
• Reduced demand & rising
product use cost
• Rising logistics and travel cost
Direct Carbon price risk
• Regulatory costs, taxes and
emission permits
• Rising electricity and energy
prices
Value chain
Operations
Purchased
energy
Financial
risks of
carbon
price
regulation
Impacts on revenue and operating expenditure
• Carbon pricing is likely to play a leading role within the evaluation of companies from an “ESG” perspective.
• The Task Force on Climate-related Financial Disclosure and CDP Climate Change guidelines recommend the
companies to include items related to internal carbon pricing in their disclosures.
• In recent years, sustainability-linked loans/bonds and the like have been introduced. Therefore, it is likely that
financial instruments linked to carbon pricing, such as bonds, stocks, derivatives, etc. will be introduced.
19

20. Importance of ESG Score
An ESG score is a measure of how well a company
addresses risks with respect to environmental, social, and
governance issues in its operations
Institutional investors such as Blackrock, Parnassus, etc.
believe that societal and environmental forces have a
financial impact on the short- and long-term performance
of companies
Companies prefer to highlight the positive impact of their
sustainability initiatives and demonstrate their
investments for the same
Investors prefer companies with better ESG scores as they
have fewer liabilities, making it easier to acquire capital
and hire top talent. Better ESG scores leads to about 10%
lower cost of capital on an average.
Along with lower financing cost, high-ESG-scoring
companies also have benefits from the competitive
advantage that stems from better management of
resources.
6.55%
8.70%
6.16%
7.80%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
Developed Emerging
Cost of capital for different markets
Low ESG High ESG
20
Source: MSCI; https://www.msci.com/www/blog-posts/esg-and-the-cost-of-
capital/01726513589

21. Economic impact of carbon tax
• The effects of carbon tax on the economy would depend on the revenue uses of the policy as without accounting
for how the tax revenue would be utilized, such tax would have negative impact on the economy.
• Sectoral impacts would depend on their carbon intensity and the degree to which industries would be able to
substitute lower-carbon fuels for higher-carbon ones, among other factors.
• The power sector would be expected to be most responsive to a carbon price as it is both cheaper
and more straightforward to reduce emissions there than in some other sectors.
• Unlike the power sector, the transportation sector does not offer relatively easy opportunities for
fuel switching. Hence, it is not expected to be highly responsive to a carbon price.
• Certain industries would be more affected than others depending on the variability in fuel use
ability to substitute higher-carbon fuels for lower-carbon ones.
• European countries that have implemented carbon taxes indicate a zero or modest positive impact
on GDP and total employment growth.
21

22. Carbon Border Adjusted Mechanism
(CBAM)
Pay
carbo
n tax
Compliant
with EU
climate
standards
European
factory
Non
European
factory
EU
market
EU climate
standards met?
Yes
No
• Carbon Border Adjustment Mechanism
(CBAM) is part of the EU’s ambitious new
targets to curb climate change.
• Under the proposed policy, importers will be
required to purchase carbon import permits for
each metric ton of CO2 brought into the EU
through particular goods and materials.
• To avoid double taxation, goods imported from
countries that have domestic carbon-pricing
regimes similar to the EU’s will be exempt
from the levy.
• EU’s carbon border adjustment mechanism is
the first-time carbon pricing will be applied to
imports.
22

23. Impact of CBAM
0.00
50.00
100.00
150.00
200.00
250.00
300.00
Russia Ukraine Turkey United
Kingdom
South Korea China India United
States
€
per
metric
ton
Impact of CBAM based on 2019 steel exports
Original cost Impacted cost
• The biggest initial impact will be on the cost of such
high-carbon inputs as steel, cement, aluminium,
chemicals, and electricity.
• This could increase the cost of materials made by more
carbon-intensive producers, such as China, Russia, and
India, by 15% to 30%.
• Supply chains of industrial sectors as automotive,
construction, packaging, and consumer appliances are
expected to be heavily impacted. End consumers are
likely to change their purchasing behaviour, which will
affect the relative competitiveness of non-EU
companies that export such products to the region.
For a carbon price of €75 per metric ton, the impacted
cost of steel imported from India in 2026 would be
approximately €187.5 per metric ton (based on 2022
finished steel export volumes and CO2 intensity of 2.5
mtCO2eq/mt steel).
23
India Turkey
Finished steel export
(2022) (MMT)
2.34 5.7
CO2 footprint
(tco2/mt steel)
2.5 1.4
Impacted cost (€/mt
steel)
187.5 105

24. Challenges of CBAM
0
500
1000
1500
2000
2500
3000
3500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Million
tons
of
CO2
Gross CO2 emissions of import and export of OECD
countries
OECD export OECD import
• The share of non-OECD countries (excluding China) in global
CO2 emissions embodied in global domestic final demand and
in global gross exports is 32% and 16%, respectively which is
much below the OECD countries.
• CO2 emissions in gross exports of OECD countries to non-
OECD countries have grown much faster than the CO2
emissions in their imports from non-OECD countries.
• The principle of carbon border pricing imposes the
environmental standards of developed countries on the
developing countries. This is against the spirit of “Common
but Differentiated Responsibility” as enshrined in the Paris
Agreement.
• The revenue from CBAM is proposed to be integrated into the
EU budget rather than investing it in implementation of clean
energy technologies by the developing countries.
24

25. Way forward
• India is the second largest host country of both used (0.15 billion) and unused (0.1 billion) CERs. Majority of the
carbon credits generated by Indian participants are retired by way of exports to other countries.
• While the proposal for national carbon market in India has been given a fillip by the Energy Conservation
(Amendment) Act, 2022, and the CCTS 2023, some unique features of existing ETS around the world may be
studied and adapted to suit domestic requirements. Some of the recommendations are:
•There is negligible working knowledge of how the ETS scheme functions and can be
leveraged. Sustained engagement between govt., private sector and other stakeholders
on issues related to operational aspects of ETS is required.
Extensive experience in project
based/offset approach
•The units of carbon credits should be easily interchangeable with its
international counterparts. The compatibility will enable credit importing
countries to prefer Indian entities for purchase of carbon credits
International compatibility
•The proposed NCM seeks to revamp the demand of PAT and REC by introducing
rules regarding fungibility. Involving ESCerts and RECs in upcoming carbon market
might prove to be complex and create confusion for long term ETS market.
Fungibility of carbon credits
•Indian ETS linked to global ETS as a seller may result in flow of foreign funds in
India’s mitigation actions. ETS market can also generate significant amount of
domestic finance in the form of auction revenues
Channelling international finance
•Suitable mechanisms may be put in place ensure certainty of sales to credit
generating companies
Pricing certainty
25

26. Thank you
26

27. Delhi Metro Rail
Corporation
(CDM Projects)
• In 2008, DMRC became the first railway project in the world to
be registered by the UNFCCC.
• Currently four registered projects with UNFCCC which include
regenerative braking, Modal Shift, MRTS Program of Activities
and solar project.
• Regenerative braking- On average 35% of electricity is
regenerated and on a per kilometre basis, 5.26 kWh/km of
energy is regenerated.
• Solar Project- In this, DMRC has implemented a new grid
connected solar power plant in National Capital Region (NCR) at
its metro stations, depot, parking areas, RSS and colonies.
• Over time the DMRC has also been involved in other Energy
Efficiency measures in Phase II under the Gold Standard such as
LED Lighting at the metro stations and Variable Voltage
Variable Frequency Drive which has resulted in a total reduction
of 23.4KWh/sq. m. energy consumption from phase-I to phase-II
.
• For the period 2012-18, combined GHG emission reduction
achieved from all the CDM and Gold Standard projects was 3.55
million carbon credits. The sale of carbon credits accrued from
these projects in this period generated a revenue of Rs. 19.5 crore
to the DMRC.
27
This Photo by Unknown Author is licensed under CC BY-SA

28. DMRC Sustainability initiatives
DMRC projects under CDM- Regenerative braking, Modal shift, MRTS PoA
28
Year GHG Reduction (million
ton of CO2eq)
2011-12 45,501
2012-14 1,054,071
2014-16 1,397,150
2016-2018 1,351,477
Verified by Grutter Consulting AG
The Program of Activities (PoA) project makes
Delhi Metro the managing entity for all other
metros of India for fast tracking the CDM
registration of all the upcoming rail based metro
systems in India.
DMRC projects under Gold Standard- LED Lighting at the metro stations and Variable Voltage Variable
Frequency Drive and other energy conservation measures
IGBC Green Building certifications for 15 metro stations of DMRC phase 3.

29. European ETS
• According to the European Commission, emissions have been cut by 42.8% in the main sectors-
power, heat generation and energy-intensive industrial installations.
• The EU ETS also limits GHG emissions from airlines operating within the European Economic
Area (EEA), it works on the ‘cap and trade’ principle.
• Three phases have completed, Phase I(2005-2007),Phase II(2008-2012), Phase III (2013-2020) and is
currently in the fourth phase(2021-2030).
• Cap for Phase I- 2,096 MtCO2e in 2005 and 2049 MtCO2e in 2009.
• Third carbon leakage rules are adopted in 2019, which included a reduced numbers of sectors
classified at risk of carbon leakage.
• Some big corporation in the oil and gas sector which are covered under the EU ETS are Shell,
Total, BP and steel manufacturing company ArcelorMittal.
Back
29

30. China ETS
• The scheme was introduced in 2017 but officially launched in early January 2021 to limit and
reduce CO2 emissions in cost-effective manner.
• Before this there were ETS pilot projects and other carbon market institutions such as Beijing
Green Exchange, a national trading platform for voluntary carbon credits (VERs).
• One operational cycle completed, a total of 412.05 million tonnes of allowance including those
on regional pilot schemes and domestic CCERs.
• It is not based on ‘cap and trade’, it is based on emission intensity. The average carbon intensity
of key sectors and products is calculated and compared with that of individual emitters.
• As for the total valuation of trading, in the first three months of operation, the China ETS
stood at 210 million yuan (approximately 32.3 million US dollars).
• The initial benchmark price was set at 52.8 yuan (approximately 8.1 US dollars) per tonne
with some fluctuations over time.
Back
30

31. Korea ETS
• The Korea ETS was launched in the year 2015 and became the first nationwide mandatory ETS in
East Asia.
• It covers 684 of the country’s largest emitters, accounting for ~73.% of national GHG emissions in
its third phase (2021-2025).
• Starting from this Phase, domestic financial intermediaries (“third parties”) can participate in the
secondary market and trade allowances as well as converted carbon offsets on the Korean Exchange
(KRX), 20 third parties approved as of December 2021.
• A robust MRV system has been established under the scheme with annual reporting of emissions
submitted within three months from the end of a given year and must be verified by a third-party
verifier.
• Decreased from 669.1 million tonnes of CO2 equivalent in 2015 to 629.9 million tonnes in 2019.
• Trading value of ~1.4 trillion KRW (about 1.2 billion USD), major buyers are the power companies
(466 million tonnes) and industrial facilities (115 million tonnes). Back
31

32. California Cap-and-Trade
• One of the largest multi-sectoral emissions trading systems in the world, launched in 2013.
• The system covered 450 entities including large electric power plants, large industrial plants, and
fuel distributors (e.g., natural gas and petroleum).
• In 2014, California’s program linked with the Québec’s cap-and-trade which allowed businesses in
one jurisdiction to use emission allowances (or offsets) issued by the other for compliance.
• The cap was set below 2 per cent below the emissions level forecast for 2012 thereafter 2 per cent
declines in 2014 and 3 per cent declines annually from 2015 to 2020.
• California allows “banking” of allowances for use at a later time, subject to holding limits.
Back
32

33. Tokyo ETS
• Tokyo emission trading scheme (ETS) is the first regional ETS in the country established in 2010
apart from that Japan has a Voluntary Emission Trading Scheme as well.
• As of 2015, 1232 entities were covered under the scheme under various sectors including office,
commercial and public buildings, district heating and cooling plants.
• The first compliance period began in 2010 for four years and the cap required different emission
reduction targets (compliance factors) among the covered facilities.
• In terms of flexibility and linking banking is allowed only between consecutive compliance periods
and borrowing were not allowed.
• More recently, the country has started a trial of carbon credits trading at the Tokyo Stock Exchange.
A total of 627 CO2-tonnes was traded in the four categories under the J-Credit scheme in the first
trial phase in September 2022 with the most-active renewable energy credit settling at 3,300 yen per
CO2-tonne.
Back
33

34. National/ Regional ETS Schemes
SCHEME APPLICABILITY YEAR SCOPE
(ENTITIES/CAP)
ALLOCATION SECTORS
Canada-Nova
Scotia
Regional 2019 26 entities Free allocation Transport, Building, Industry and
Power
German ETS National 2021 Not available Fixed price phase
(2021-2030)
Transport, Buildings
Kazakhstan
ETS
National 2013 128 (199
installations)
Free allocation
(benchmarking)
Industry and Power
Mexico ETS National 2023 (mandated in
2019)
~282 (SEMARNAT) Free allocation
(Grandparenting)
Industry and Power
New Zealand
ETS
National 2008 2475 of which 2398
have surrender
obligations
Free allocation
(benchmarking)
and Auctioning
(2021)
Forestry, Waste, Domestic Aviation,
Transport, Buildings, Industry and
Power
Back 34

35. Authorization
• An authorization
statement references
the activity for which
the mitigation
outcomes originate,
the standards and
baseline
methodologies
applied, the crediting
period, the maximum
amount of mitigation
outcomes to be
transferred and the
NDC period during
which the ITMOs are
authorized for use.
Monitoring, verification
and examination
• The entity developing
the mitigation activity
in the host country is
responsible for
preparing monitoring
reports. Once
verified, each country
must examine the
verified monitoring
reports to confirm
that all relevant
requirements are met
and there are no
discrepancies
between the reports
and authorization
statement.
Recognition of transfer
• For the transfer of
ITMOs, both
countries issue
domestic units in
respect of the
mitigation outcomes
in their respective
registries. The project
host country cancels
the units in its
domestic registry
system, while the
receiving country will
re-issue the cancelled
units as
"international
attestations" in its
registry.
Corresponding
adjustment
• Once both countries
have issued domestic
units for tradable
mitigation outcomes,
the respective
adjustment is
applied, which is to
be reported by the
countries. This
involves the project
host country
deducting the
transferred GHG
emission reductions
from its own
inventory, so that the
receiving country can
count them in their
own GHG inventory.
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