The Great Wall of Carbon: How China’s Carbon Market Could Reshape Global Climate Policy

The Great Wall of Carbon: How China’s Carbon Market Could Reshape Global Climate Policy

by with No Comment Carbon MarketSustainability

The largest GHG emitter is attempting a breakthrough in the global carbon market… what should the world expect?

China, the world’s largest emitter of greenhouse gases – responsible for 31.1% of the world’s total in 2023 [6] , has recently drawn international attention with major updates to its carbon credit system. Supported by several pilot programs and policy reforms, this ambitious carbon market, often dubbed the “Great Wall of Carbon”, could reshape carbon trading globally. This article delves into the structure of China’s carbon market, recent developments, challenges, geopolitical implications, and what lies ahead. [2], [3]

Understanding Carbon Markets

Carbon markets enable the trading of carbon credits, with each credit representing one tonne of CO₂ or an equivalent reduction in greenhouse gases. There are two main types of carbon markets: compliance markets, where participation is required by law, and voluntary markets, where organizations offset emissions on their own initiative. Companies and individuals can purchase these credits to offset their emissions by supporting projects that reduce or avoid emissions elsewhere. Once a credit is used, it becomes a credit that cannot be traded again.
The European Union pioneered this approach with the launch of its Emissions Trading System (ETS) in 2005. China introduced the world’s largest ETS in 2021, covering roughly one-seventh of global fossil fuel emissions. Today, numerous countries and regions have developed or are developing similar systems.

The Evolution of China’s Carbon Market & CCER

China’s national ETS builds on seven regional pilot schemes that experimented with various approaches to emissions trading. These pilots helped inform the design of a unified system with broader geographic and sectoral reach. It aims to complement China’s traditional administrative policies with market-based tools to meet energy-saving and carbon intensity goals.The Chinese commitment to peak emissions by 2030 and to be carbon neutral by 2060 the country recognized the “need for an effective market mechanism to drive emissions reductions”; this is where CCER comes in.
The CCER(China Certified Emission Reduction) program runs alongside the ETS, enabling voluntary carbon credit generation and trading. Unlike the ETS, which sets mandatory limits, CCER incentivizes projects that reduce emissions or adopt clean energy technologies. Administered by the Ministry of Ecology and Environment, CCER relies on third-party verification to maintain transparency.[4][2]
In January 2024 the China National Offshore Oil Corporation (CNOOC) purchased 250,000 tonnes of carbon credits, marking the first major voluntary market transaction since CCER’s revival is a very remarkable achievement for a novel organization.

Regulatory and Legal Framework

In early 2024, the State Council issued the “Interim Regulations for the Management of Carbon Emissions Trading,” which provide a clearer legal foundation for China’s ETS. These regulations enhance enforcement and establish stiffer penalties for non-compliance.[3][4]
Plans are underway to expand the ETS to include heavy industries such as cement, steel, and aluminum smelting. The first phase (2024-2026) focuses on familiarizing companies with the system and improving emissions data quality, while phase two (starting in 2027) aims to tighten controls and improve system effectiveness. This expansion could bring 1,500 additional companies into the market, increasing emissions coverage by 3 billion tonnes of CO₂ equivalent.[3][4]

Market Design and Technical Standards

The latest allocation plans refine benchmarks, exclude indirect emissions (like purchases electricity, employee commuting), and limit allowance banking and borrowing. Compliance reporting cycles are also moving from two years to one, encouraging more timely accountability.
Although free allowances based on carbon intensity will initially be granted, this expansion sets the stage for stricter regulation in the future. Technical standards such as the “Guidelines for Accounting and Reporting of Greenhouse Gas Emissions in the Cement Industry” improve data reliability and market transparency.[2]
To avoid double counting, coordination between Renewable Energy Green Power Certificates and the voluntary carbon market has been strengthened through information sharing between the National Energy Administration and the Ministry of Ecology and Environment.

Challenges Ahead

China’s rapid economic development, combined with its heavy reliance on coal, makes cutting emissions especially difficult. Unlike developed countries like Germany or the UK, where economic growth has slowed and emissions are now falling, China still focuses on lowering emissions intensity rather than making deep, absolute cuts. That means it’s trying to produce more with less carbon, rather than simply producing less carbon overall.
In Germany, for example, carbon emissions are capped under the EU’s trading system, and the government has used market-based tools to push utilities away from fossil fuels. Because electricity prices respond to market forces, carbon pricing makes coal and gas more expensive and renewables more attractive. As a result, emissions have fallen even as the economy has grown. But in China, the power sector is still tightly controlled by the government. Prices are often fixed, and power producers don’t always respond to market signals. So even though China has launched a national carbon market, it’s currently designed to cut emissions per unit of output, not total emissions. That means if demand grows, overall emissions can still rise, even if each power plant becomes more efficient.
Moreover, with no absolute cap on emissions which can lead to carbon leakage, limited environment impact, weaker market signals ,reduced credibility and an initial reliance on free permits, near-term emissions reductions may be limited. Monitoring, reporting, and verification systems still need to mature to boost market confidence.

Geopolitical Implications

The EU’s Carbon Border Adjustment Mechanism (CBAM), which taxes carbon-intensive imports, pressures China to strengthen its carbon pricing policies. China has called for multilateral dialogue at the World Trade Organization to address CBAM’s impact on developing economies, using its carbon market as a diplomatic tool balancing environmental and trade goals.[1]
Meanwhile, U.S.-China climate discussions highlight both cooperation and competition, especially in carbon pricing and green technology sectors. China’s state-driven approach contrasts with the U.S. market-driven model, fueling tensions over fair competition and technology transfers. Both countries also pledge significant climate finance contributions, though geopolitical rivalries complicate coordination.[5] Compared to the mature EU ETS, China’s system is still evolving, especially in enforcement and transparency. The U.S. lacks a national ETS but operates smaller regional markets, while India is developing its own carbon trading framework centered on intensity targets. Many developing regions closely watch China and India’s models as potentially more adaptable alternatives to the EU’s highly regulated system. [5]
China’s carbon market faces a pivotal moment. Its ability to expand beyond the power sector, raise carbon prices, enforce penalties, and ensure transparent reporting will determine its impact on emissions reductions. Linking with international markets remains a long-term goal. Success would accelerate China’s path to carbon neutrality by 2060 and strengthen its role in global climate governance. Failure could undermine international carbon pricing efforts and climate diplomacy.Much like the historical Great Wall symbolized China’s defense, today’s carbon market represents a critical barrier against climate change. Its effectiveness will shape China’s emission trajectory and influence global efforts to build a sustainable, low-carbon future. The world watches closely to see whether China’s carbon market becomes a fortress of climate ambition or falls short of its promise.

List of references
1) Compare ETS | International Carbon Action Partnership. https://icapcarbonaction.com/en/compare/99/55. Accessed 11th June 2025.
2) China expands carbon market and refines voluntary emissions reduction mechanisms.
https://climatecooperation.cn/climate/china-expands-carbon-market-and-refines-vol untary-emissions-reduction-mechanisms/. Accessed 11th June 2025.
3) Zeng, Shaolong, et al. China’s carbon trading pilot policy, economic stability, and high-quality economic development. Humanities and Social Sciences Communications. https://www.nature.com/articles/s41599-024-03646-6. Accessed 11th June 2025.
4) Zhang, Xiliang, Runxin Yu, and Valerie J. Karplus. The development of China’s national
carbon market: An overview. https://www.sciopen.com/article/10.26599/ECM.2025.9400015. Accessed 11th June 2025.
5) China’s climate diplomacy in a turbulent world. https://dialogue.earth/en/climate/chinas-climate-diplomacy-in-a-turbulent-world/. Accessed 11th June 2025.
6) The changing landscape of Global Emissions https://www.iea.org/reports/co2-emissions-in-2023/the-changing-landscape-of-global-emissions Accessed 11th June 2025
Extra Readings
7) How is China’s energy footprint changing? https://chinapower.csis.org/energy-footprint/. Accessed 11th June 2025.
8) Carbon Sense Foundation. https://www.carbonsensefoundation.org. Accessed 11th June 2025

Discovering the new roadway to climate-resilient & resource-efficient Agriculture for India.

How Will India Feed 1.5 Billion People & Keep it Sustainable?

by with No Comment AgricultureSustainability

Discovering the new roadway to climate-resilient & resource efficient Agriculture for India.

Introduction: Agriculture at the Crossroads

Agriculture is India’s lifeline, feeding over a billion people and employing more than 40% of our workforce. [1] But climate change, falling water tables, and soil degradation are pushing it to the edge. The Green Revolution fed a nation, but its long-term costs are now catching up.

The question we now face is not whether agriculture should be sustainable, but how quickly we can make that transition. Here’s how India can cultivate a climate-smart, resource-efficient future for farming.

Why Sustainability in Agriculture is Urgent

India’s agriculture is increasingly affected by extreme weather, erratic monsoons, unseasonal rains, droughts, and floods, leading to unstable yields [2]. Water availability is falling in key food-producing regions such as Punjab and Haryana due to over-extraction of groundwater [3]. Soil degradation, declining organic carbon, and biodiversity loss further weaken the ecosystem on which farming depends [1].
Emissions from rice fields, fertiliser use, and crop burning add to environmental damage. Rice cultivation produces methane; synthetic fertilisers release nitrous oxide, a potent greenhouse gas [2]. Burning crop residues contributes to regional air pollution. Additionally, India’s food system is exposed to risks like post-harvest losses, market volatility, and input cost spikes, which hurt small farmers the most [2][4].

Current Efforts and Progress in India

Several government schemes promote sustainable farming. The Paramparagat Krishi Vikas Yojana (PKVY) supports organic clusters and farmer groups [1]. The National Mission for Sustainable Agriculture (NMSA) focuses on integrated farming, rain-fed agriculture, soil health, and efficient water use [5]. The PM-KUSUM scheme helps farmers adopt solar-powered irrigation systems, reducing diesel dependence. The Soil Health Card initiative enables farmers to apply inputs more precisely based on nutrient availability [4].

At the state level, Andhra Pradesh has piloted natural farming with low input costs and improved soil health outcomes [1]. In Maharashtra, climate-resilient farming practices are being mainstreamed into dryland regions [2].

Meanwhile, agri-tech start-ups are helping farmers adopt drip irrigation, precision sowing, and sensor-based crop monitoring—making sustainable practices easier to manage and
scale [3].

Challenges in Scaling Sustainable Practices

Adoption of sustainable agriculture remains low, especially among small and marginal farmers. Risk aversion, lack of awareness, and initial transition costs make it harder for them to shift from conventional farming [2][6].
Extension systems are weak in reaching farmers with tailored knowledge and support. Most subsidies still go to chemical fertilizers and free electricity, which encourage groundwater overuse and excessive input application [1].
There is little price support or market access for sustainable produce. Organic or naturally grown food often struggles to reach consumers or receive a premium. Certification processes are expensive and poorly understood. Policies remain fragmented, with overlapping schemes from different ministries and limited coordination [2][6].

Envisioning the Future: What Must Change

India’s agricultural system needs a reset. Five key shifts can help build a more
sustainable future:

  1. Climate-Smart Agriculture
    Use of climate-resilient crop varieties, localized weather forecasts, and crop insurance can reduce climate risks and support farmer income stability [2].
  2. Agroecological Approaches
    Natural farming, intercropping, and regenerative practices like cover cropping and minimal tillage can improve soil health and reduce chemical use. Organic methods have shown promising results in crop yields and long-term soil fertility across India [1].
  3. Water and Soil Conservation
    Expanding micro-irrigation, rainwater harvesting, and restoring organic matter through composting and mulching are critical. Managing inputs based on soil test data can reduce fertilizer waste and improve productivity [5].
  4. Digital and Technological Innovation
    AI, IoT, and satellite imagery can guide planting, irrigation, and pest control more efficiently. Traceability tools like blockchain can strengthen consumer trust in sustainable food systems [3].
  5. Market and Financial Reforms
    Public funds must shift from blanket subsidies to outcome-based support tied to sustainable practices. Farmers should be rewarded for services like carbon sequestration and water conservation. Access to green credit, carbon markets, and payment for ecosystem services (PES) should be widened [2][6].

The Role of Policy and Institutions

Policy coherence is essential. Ministries like Agriculture, Environment, and Rural Development must align their schemes under a unified sustainability framework [2][5]. Research institutions such as ICAR and Krishi Vigyan Kendras (KVKs) need to update their training and demonstration models to focus on agroecology and climate-resilient methods [2].
Public-private partnerships can help build infrastructure like decentralized storage, cold chains, and processing for sustainable produce. Expanding Minimum Support Price (MSP) to include crops like millets, pulses, and oilseeds, which use fewer resources, will send the right market signals [4].

Conclusion: Sowing the Seeds of Sustainability

India’s future in agriculture must balance productivity, ecological limits, and rural livelihoods. Climate-smart and sustainable farming is not an ideal, it is a necessity. The tools and models already exist. What’s needed is clear policy direction, stronger institutions, and engagement across stakeholders, from farmers to consumers.

India’s agriculture can thrive without exhausting its soil and water. It can become a global model for low-input, high-resilience farming with the right push.

Carbon Mandal supports this transition by offering expertise in GHG accounting, decarbonization strategies, and sustainable supply chain solutions. If you’re a policymaker, business, or farming community looking to reduce your carbon footprint, we can help you
take the next step.

List of references

[1] CSE, State of Organic and Natural Farming in India
(2022)https://drive.google.com/file/d/1GO4PKdbl0tnkfVDkZuHcLyEFwAvBA-4i/view?usp=sharing
[2] CEEW, Sustainable Agriculture in India (2023)Sustainable Agriculture & Eco-Friendly Farming Practices in India
[3] IBEF, Agriculture 4.0: Future of Indian Agriculture www.ibef.org/blogs/agriculture-4-0-future-of-indian-agriculture
[4] PIB, PM-KUSUM and Soil Health Card Initiatives https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/aug/doc202482738070
1.pdf
[5] National Mission for Sustainable Agriculture, https://nmsa.dac.gov.in/
[6] Carbon Mandal, https://carbonmandal.com/services/
[7] Down to Earth, Regenerative Agriculture and Water Saving https://www.downtoearth.org.in/agriculture/restore-by-use-regenerative-agriculture-can-helpsave-water-here-is-how-86065
[8] FarmersStop, Terrace and Urban Farming in Indian Communities

Key Developments in India’s Renewable Energy Sector Over the Past Year

Advancements in Renewable Energy in India: A Year of Progress

by with No Comment Green EnergySustainability

Key Developments in India’s Renewable Energy Sector Over the Past Year

India, with a population of 1.4 billion and one of the fastest-growing economies, is rapidly emerging as a global leader in renewable energy. By 2023, its installed renewable capacity reached 176 GW, making it the fourth largest globally. Renewable electricity generation more than doubled from 2012 to 2023, signaling a strong shift toward clean energy. Despite still relying heavily on coal and oil, India is aggressively transitioning to renewables through policies subsidies, and incentives like production-linked incentives and tax credits.
Looking ahead, India plans to invest over $35 billion annually by 2030 to advance clean energy technologies, including hydrogen, energy storage, carbon capture, and sustainable aviation fuels. It aims to develop 47 GW/236 GWh of battery storage by 2031-32, 110 times its current capacity, and produce 5 MMT of clean hydrogen by 2030. The country also targets 30 MMT of carbon capture and 2 MMT of sustainable aviation fuels by 2030. While challenges remain in scaling these technologies, India’s ambitious energy transition is set to be a key player in the global shift to a low-carbon future. [1] [2]

Expansion of Solar Power Capacity

India’s energy landscape is rapidly transitioning, with solar and wind set to drive two-thirds of power generation growth by FY 2032, moving away from coal. The National Electricity Plan (NEP14) forecasts a 1,174 TWh rise in annual electricity generation between FY 2022 and FY 2032, with solar contributing 593 TWh and wind 189 TWh. Solar energy, in particular, is poised for accelerated growth, increasing from 5% of the power mix in FY 2022 to 25% by FY 2032.
Key initiatives like the National Solar Mission, Solar Park Scheme, and Grid-Connected Solar Rooftop Scheme are boosting India’s solar potential. The National Institute of Solar Energy (NISE) estimates that using just 3% of wasteland could generate 748 GW, helping India achieve 50% non-fossil fuel energy by 2030. With 100% FDI in solar and incentives like the Green Energy Open Access Rules 2022, India is positioned as a global solar leader, ranking 5th globally with 70.10 GW of solar PV capacity by June 2023. However, the intermittent nature of solar and wind energy necessitates increased storage capacity, with NEP14 targeting solutions like pumped hydro and battery storage to shift 15% of renewable generation to non-solar hours by FY 2032. As battery costs decline, solar with storage is set to become more cost-effective than coal. [3] [4]

Growth of Wind Energy Projects

India is the fourth-largest wind power producer globally, with an installed capacity of around 15,000 MW annually. Government support includes fiscal incentives like Accelerated Depreciation, customs duty exemptions, and a Generation-Based Incentive (GBI) Scheme. Other measures such as the Wind Renewable Purchase Obligation (RPO) trajectory until 2030, waiver of Inter-State Transmission System (ISTS) charges for projects commissioned by June 2025, and competitive tariff bidding aim to streamline procurement, boost private investment, and reduce costs. India’s wind energy potential is vast, with 695.5 GW at 120 meters and 1,163.9 GW at 150 meters, concentrated in states like Gujarat, Rajasthan, and Maharashtra.
On July 5, 2024, the Union Cabinet approved INR 7453 crore (~USD 0.89 billion) for offshore wind energy, including INR 6853 crore for 1 GW of capacity off Gujarat and Tamil Nadu and INR 600 crore for port upgrades. This initiative supports India’s 2030 target of 500 GW non-fossil fuel capacity and leverages its 70 GW offshore wind potential. The funding aims to advance technology, create jobs, attract investment, and complement India’s National Hydrogen Mission and decarbonization efforts. [5] [6]

Challenges in ensuring the adoption of renewable energy and Future Prospect

India’s electricity sector faces several challenges in its transition to renewable energy. The country is experiencing a surge in electricity demand and remains heavily reliant on coal, which accounts for 72% of total electricity generation. While political shifts have reduced the construction of new coal plants, solar and wind energy’s intermittent nature creates the need for reliable storage solutions. However, the high cost of storage technologies and the lack of sufficient grid infrastructure to handle renewable energy and storage create barriers. Although the government has introduced initiatives like the ‘Round-the-Clock’ tender to integrate renewable energy with storage, delays in implementation are slowing progress. Additionally, economic barriers, knowledge gaps, and the need for stronger policy frameworks complicate adopting decentralized storage solutions. Overcoming these challenges will require technological innovation, enhanced policies, and capacity building among key stakeholders. [7]

Conclusion

India’s renewable energy sector is growing rapidly, driven by rising energy demand and the need to reduce reliance on fossil fuels. With energy requirements expected to grow at 5.6-6.4% annually, renewable energy is seen as a key solution. India ranks globally in wind, solar PV, and biogas, with 13.2 GW of renewable capacity, accounting for 8% of total electricity. The transition to renewables brings economic and social benefits, including rural electrification, job creation, and local industry growth through solar, wind, and biomass projects.
Favorable government policies make India the third most attractive country for renewable energy investment. With increasing collaborations in hydrogen fuel technology and growing educational opportunities in renewables, India is well-positioned to achieve a sustainable and energy-secure future by leveraging its renewable resources and supporting innovation. [8] [9] [10]

List of References

  1. Jaganmohan, M. (no date) Topic: Renewable energy in India, Statista. Available at: https://www.statista.com/topics/9608/renewable-energy-in-india/#topicOverview
    (Accessed: 22 December 2024).
  2. How India is emerging as an advanced energy superpower (no date) World Economic Forum. Available at: https://www.weforum.org/stories/2024/05/india-emerging-advancedenergy-superpower/ (Accessed: 22 December 2024).
  3. Lolla, A. (2024) Solar adoption in India entering ‘accelerating growth’ phase, Ember. Available at: https://ember-energy.org/latest-insights/india-solar-uptake/ (Accessed: 22 December 2024).
  4. Solar overview: Ministry of new and renewable energy: India (no date) MINISTRY OF NEW AND RENEWABLE ENERGY | India. Available at: https://mnre.gov.in/en/solaroverview/ (Accessed: 22 December 2024).
  5. Wind overview: Ministry of new and renewable energy: India (no date) MINISTRY OF NEW AND RENEWABLE ENERGY | India. Available at: https://mnre.gov.in/en/windoverview/ (Accessed: 22 December 2024).
  6. Alex (2024) India sets course for new era of wind energy with viability gap funding approval for Offshore Wind, Global Wind Energy Council. Available at: https://gwec.net/india-sets-course-for-new-era-of-wind-energy-with-viability-gap-fundingapproval-for-offshore-wind/ (Accessed: 22 December 2024).
  7. Energy Storage for Renewable Energy Integration in India. Available at: https://www.giz.de/en/downloads/giz2024-en-energy-storage-for-renewable-energyintegration-in-india.pdf (Accessed: 22 December 2024).
  8. Future prospects for renewable energy in India (2022) ICRIER. Available at: https://icrier.org/publications/future-prospects-for-renewable-energy-in-india/ (Accessed: 22 December 2024).
  9. Evolving energy landscape in India – deloitte insights (2024) Deloitte India. Available at:
    https://www2.deloitte.com/in/en/pages/energy-and-resources/articles/the-evolvingenergy-landscape-in-india.html (Accessed: 22 December 2024).
  10. Global Renewable Energy Trends (2019) Deloitte India. Available at: https://www2.deloitte.com/in/en/pages/public-sector/articles/energy-trends-global.html (Accessed: 22 December 2024).
From green bonds to impact investing, sustainable finance is transforming the global market by prioritizing environmental, social, and governance considerations

Sustainable Finance: Integrating ESG Factors for a Better Future

by with No Comment Carbon CreditsSustainabilityUncategorized

From green bonds to impact investing, sustainable finance is transforming the global market by prioritizing environmental, social, and governance considerations

Understanding Sustainable Finance and its Surge in Today’s Economy

According to the World Bank, sustainable finance involves considering environmental, social, and governance (ESG) factors when making investment decisions, which encourages more long-term investments in sustainable projects and activities. Environmental factors include mitigating climate change and using sustainable resources, while social factors encompass human rights, consumer protection, and diverse hiring. Governance factors focus on management practices, employee relations, and compensation. It has grown into a major movement driven by regulators, institutional investors, and asset managers worldwide. Sustainable finance includes instruments such as sustainable funds, green bonds, impact investing, microfinance, and active ownership. It also involves providing financing for sustainable projects and transforming the financial system to support long-term environmental and social goals. [1], [2] 

The financial sector plays a pivotal role in driving sustainability by funding research, alternative energy sources, and businesses with fair labour practices. As mentioned above, sustainable finance involves incorporating ESG factors into investment decisions.  With climate change becoming more evident, shifting towards a lower-carbon economy is essential. Sustainable finance supports these efforts, funding renewable energy projects like wind farms and electric vehicle infrastructure. Furthermore, as ESG factors gain importance, investors are increasingly seeking opportunities that align with sustainability goals, pressuring businesses to adapt.

Governments and financial institutions are also fostering sustainable growth, especially in developing countries, by offering innovative financial instruments. For instance, the Global Impact Investing Network reported that impact investing exceeded $1 trillion in 2022, and this upward trend is anticipated to persist into 2023 and the future. [3]

Sustainable finance also encourages transparent reporting, collaboration among policymakers, and private sector efforts to decarbonize industries. By integrating ESG criteria, sustainable finance helps manage risks and seize opportunities, ensuring businesses remain at the forefront of a rapidly changing global economy. [4], [5]

From Billions to Trillions: The Growth of Sustainable Finance

The global sustainable finance market is experiencing rapid growth. In 2021, borrowing through green bonds, loans, and equity funding for green projects surged to $540.6 billion, a 100-fold increase since 2012. 

Sustainable assets under management increased from $30.7 trillion in 2018 to $35.3 trillion in 2020, with expectations to surpass $41 trillion by 2022 and reach $50 trillion by 2025, representing one-third of total global assets under management. [6]

By the end of 2023, outstanding corporate and government sustainable bonds totaled $4.3 trillion, up significantly from $641 billion just five years earlier.  This growth highlights sustainable finance as a crucial funding source for governments and companies aiming to transition to a low-carbon economy. The corporate sector accounts for over half of the total issuance in the sustainable bond market. The market is projected to expand from $3.6 trillion in 2021 to $23 trillion by 2031, emphasizing the need for financial institutions and investors to adapt and align with sustainable investment strategies. [7], [8]

Investing in Change: Drivers Towards Sustainability in Finance

By the nature of the projects supported by sustainable finance, it encourages businesses to adopt sustainable practices, improve performance, and minimize their ecological footprint. Additionally, funding green startups and sustainability research fosters innovation to address environmental challenges. For example, The EU Commission leverages these benefits through its EU Sustainable Finance Agenda, which supports the EU Green Deal and integrates sustainability into financial policy. [9]

The growth of sustainable finance is driven by changing investor preferences, especially among millennials set to inherit $68 trillion over the next two decades. Nearly half of millennials prioritize investments that align with social responsibility, while 90% of women investors also aim to make a positive societal impact. This generational shift, coupled with institutional investors integrating ESG factors into long-term investment models, is fuelling demand for sustainable financial products. [10]

Institutional investors are also key players, for instance, large asset managers like BlackRock and Amundi are increasingly incorporating ESG principles into their portfolios. The market for sustainable investments is expected to accelerate as institutional investors respond to regulatory pressures and growing awareness of climate risks. As a result, public markets and corporate valuations are likely to reflect the shift toward sustainable finance, making it a powerful force in driving the low-carbon economy transition. [11]

Sustainable Finance in India and the Way Forward

Sustainable finance in India is experiencing significant growth due to rising awareness of environmental, social, and governance (ESG) factors. Regulatory bodies, such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), have implemented measures to support this sector, including sustainability reporting guidelines for banks in 2015 and a green bond framework in 2018. SEBI also introduced ESG-focused frameworks for mutual funds in 2020. 

Alongside regulatory measures, both public and private investors and financial institutions are increasingly integrating sustainability into their investment strategies, leading to heightened demands for transparency and accountability regarding ESG performance. Sustainable finance aims to channel funds into initiatives that foster a more equitable and sustainable future. In India, investments in sustainable finance by private equity and venture capital firms are projected to reach USD 125 billion by 2026, with a compound annual growth rate (CAGR) of 46%. This rising interest in sustainable finance is essential for driving economic and social change. [8]

In conclusion, sustainable finance offers multiple advantages for businesses, including improved access to capital as investors increasingly favour companies with strong ESG (environmental, social, and governance) performance. It promotes proactive risk management, particularly concerning climate change, enhancing a company’s long-term resilience. Additionally, it drives innovation, unlocking opportunities in emerging markets like renewable energy and circular economy models. Aligning with sustainable finance helps businesses meet rising stakeholder expectations, improving both reputation and trust. Finally, transparency and robust ESG reporting are critical for ensuring accountability and attracting informed investment.

References

  1. Swiss Sustainable Finance. What is Sustainable Finance. https://www.sustainablefinance.ch/en/resources/what-is-sustainable-finance-_content—1–1055.html . Accessed 1st October 2024
  2. World Bank Group (2021). Sustainable Finance. https://www.worldbank.org/en/topic/financialsector/brief/sustainable-finance . Accessed 1st October 2024
  3. Dean Hand, Ben Ringel, and Alexander Danel (October, 2022). GIINsight: Sizing the Impact Investing Market 2022. GIIN. https://thegiin.org/publication/research/impact-investing-market-size-2022/ . Accessed 3rd October 2024
  4. Rebecca Bakken (May, 2023). What Is Sustainable Finance and Why Is It Important? Harvard Extension School. https://extension.harvard.edu/blog/what-is-sustainable-finance-and-why-is-it-important/ . Accessed 3rd October 2024
  5. Infosys BPM. What is sustainable finance and why is it important? https://www.infosysbpm.com/blogs/financial-services/what-is-sustainable-finance-and-why-is-it-important.html . Accessed 4th October 2024
  6. KPMG. Defining sustainable finance. https://kpmg.com/us/en/articles/2023/defining-sustainable-finance.html . Accessed 4th October 2024
  7. OECD. Sustainable finance. https://www.oecd.org/en/topics/sub-issues/sustainable-finance.html . Accessed 4th October 2024
  8. CII (March 2022). The Rise of Investment in Sustainable Finance. https://ciiblog.in/the-rise-of-investment-in-sustainable-finance/ . Accessed 7th , 8th, October 2024
  9. European Environment Agency (July 2024). Why is sustainable finance important? https://www.eea.europa.eu/en/about/contact-us/faqs/why-is-sustainable-finance-important . Accessed 7th October 2024
  10. Alex Nicholls (). Sustainable Finance: A Primer and Recent Developments. Asian Development Bank. https://www.adb.org/sites/default/files/institutional-document/691951/ado2021bp-sustainable-finance.pdf . Accessed 4th October 2024

David Uzsoki (2022). Sustainable Investing. International Institute for Sustainable Development (IISD). https://www.jstor.org/stable/pdf/resrep22000.5.pdf . Accessed October 8th 2024

ESG Reporting

Cultivating Resilience: The Crucial Role of Climate Risk Disclosure for Businesses

by with No Comment SustainabilitySustainability Reporting

Climate risk disclosure is essential for businesses amid growing climate challenges. India improves ESG reporting with SEBI regulations.

Understanding the Business Impact of Climate Change: The Growing Significance of Climate Risk Assessment and Disclosure

Amidst the rising temperatures, erratic monsoons, and the ever-increasing spectre of climate-related disasters, businesses face an imminent threat that transcends geographical boundaries. Failing to grasp the profound implications of climate change, companies risk not only disruptions in their supply chains but also face potential shifts in policies, damage to brand reputation, and a myriad of other challenges that may prove insurmountable without proactive climate risk assessment and disclosure.

Climate risk refers to the potential adverse impacts and consequences that climate change and extreme weather events pose to various aspects of society, the economy, and the environment. These potential risks are mainly linked to the shifting climate patterns and the disruptions they may generate. According to the Task Force on Climate-related Financial Disclosures (TCFD), climate risks can be divided into two categories – risks related to the transition to a lower-carbon economy and risks related to the physical impacts of climate change. Transition risks include policy and legal risks, technology risks, market risks and reputation risks. Physical risks on the other hand include acute risks (event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods) and chronic risks (longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.) [1] In order for companies to be well informed of the risks posed to their business, climate risk assessment and climate-related disclosure are of urgent importance. Based on a business priorities, there are various frameworks that can be used to disclose climate-related information. The widely used ones are TCFD, Global Reporting Initiative (GRI), CDP, SASB Standards (Sustainability Accounting Standards Board), and the India-centric Business Responsibility and Sustainability Reporting (BRSR).

As nations approach their Net Zero goals, the significance of non financial disclosures has heightened in the contemporary business landscape. The increasing emphasis on these disclosures is driven by investors and stakeholders urging companies to provide more comprehensive information regarding their sustainability and environmental, social, and governance strategies. Several legislative measures mandating non-financial disclosures are currently in preparation or have already taken effect, including:
● Regulation (EU) 2020/852 of the European Parliament and the Council, implemented in July 2020, establishes a framework for promoting sustainable investment (EU Taxonomy Regulation).
● The Corporate Sustainability Reporting Directive (CSRD) and the Directive onCorporate Sustainability Due Diligence Directive (CSDDD).
● SEBI mandated BRSR for the top 1000 listed companies in India [3]

India’s Evolving ESG Reporting Landscape: Progress, Regulation & Rising Global Recognition

According to a report by EY, Indian companies are trailing behind in both coverage and quality of reporting compared to global averages. Nevertheless, the number of Indian companies responding to disclosure platforms such as CDP is increasing. Notably, 2020 was the first year Indian companies were featured on the CDP A-List. A report by EY recorded a significant year-on-year improvement in coverage, which was up to 65% in 2022 from 49% in 2021 [4]

The rise in reporting is undoubtedly connected to recent regulations issued by the Securities and Exchange Board of India (SEBI). These regulations mandate the top 1,000 companies in the country to generate a business responsibility and sustainability report starting from the financial year 2022-2023. For the preceding financial year (2021-2022), companies were encouraged to voluntarily create these reports.[5]

As of July 2023, SEBI mandated the top 150 listed companies to seek assurance for their BRSR Core reporting. BRSR Core comprises key indicators across the 9 ESG principles. Mandatory assurance will gradually be required by the top 1000 listed companies by 2026-27. Further, listed companies must include value chain disclosures in their Annual Report, following the BRSR Core. The value chain should cover the major partners both upstream and downstream of the listed entity, accounting for 75% of its purchases and sales by value. This positions India in a good place with respect to the assurance of ESG reporting [10]

S&P Global ESG Scores raw data, based on the 2022 S&P Global Corporate Sustainability Assessment (CSA) reports about one-quarter of Indian companies (24%) have a plan to adapt to the physical impacts of climate change, compared with the global average of 21%. Further, nearly 40% of India-headquartered companies conduct physical risk assessments.[6]

Navigating ESG and Climate Disclosure Challenges In India: Strategies, Barriers and Opportunities

Companies are grappling with challenges in establishing effective systems for tracking and reporting crucial metrics, with regulatory mandates often necessitating collaboration with various protocols or frameworks to ensure meaningful disclosures. Carbon emission disclosures, for example, require expertise in GHG protocols and carbon accounting mechanisms. However, many Indian businesses lack the required expertise and capacity for these demanding processes, which can lead to reporting fatigue. Nevertheless, innovative approaches and strategic partnerships can facilitate sustainability integration, ultimately enhancing long-term growth prospects. India faces a multitude of hurdles in embracing Environmental, Social, and Governance (ESG) principles due to factors spanning regulatory, economic, cultural, and infrastructural realms. These challenges encompass gaps in ESG awareness and education, difficulties in aligning ESG with business strategies, a short-term financial focus, concerns about data quality and availability, issues related to materiality assessments, regulatory fragmentation, financial
burdens linked to ESG adoption, cultural and social factors, supply chain complexities, and
the risk of “greenwashing.” However, despite these challenges, India is witnessing growing interest in ESG adoption, with businesses increasingly recognizing the potential benefits, including improved reputation and better access to capital. To overcome these hurdles, businesses must set clear ESG
goals, develop comprehensive ESG strategies, gain stakeholder support, provide ESG training, and collaborate with ESG experts. These efforts can position Indian businesses for long-term success and align them with global sustainability goals and frameworks. Moreover, ESG practices offer advantages such as alignment with sustainable development goals, access to green finance, enhanced innovation and efficiency, positive societal and environmental impact, and improved brand value.

Efforts to mitigate and adapt to climate change can produce opportunities in the form of resource efficiency and cost savings, low-carbon energy transition, new products and services, and supply chain resilience. According to CDP in 2021, 87% of the responding companies identified climate-related opportunities as having the potential to make a substantive financial or strategic impact on their business performance.[7]

India’s commitments to net-zero targets require more companies to come forward and set climate goals supported by adequate disclosures for transparency and accountability. Businesses are a very important part of climate action efforts and need to emerge as active collaborators in this conversation. Progress is visible, but the pace is very slow and thus the targets are at risk of being too ambitious and not being achieved in the given timeframe.

Reach out to Carbon Mandal by writing to us at info@carbonmandal.com to start your ESG reporting journey!

List of references:

  1. Task Force on Climate-related Financial Disclosure. (2017) Recommendations of the Task Force on Climate-related Financial Disclosures.
    https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf .
    Accessed 11th October 2023
  2. PricewaterhouseCoopers. (2022) Task force on climate-related financial disclosures – 2022 Status report.
    https://www.pwclegal.be/en/news/task-force-on-climate-related-financial-disclosure
    s—2022-statu.html.     Accessed 11th October 2023
  3. PricewaterhouseCoopers. ESG reporting and preparation of a Sustainability Report.
    https://www.pwc.com/sk/en/environmental-social-and-corporate-governance-esg/es
    g-reporting.html.     Accessed 12th October 2023
  4. Ernst & Young. (2021) Global Climate Risk Disclosure Barometer.
    https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/assurance/ey-if-the-climate-disclosures-are-improving-why-isnt-decarbonization-accerlerating.pdf
    Accessed 12th October 2023
  5. Ernst & Young. (2022) Global Climate Risk Disclosure Barometer.
    https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/climate-change/e
    y-global-climate-risk-barometer-report-v2.pdf    . Accessed 18th October 2023
  6. Jennifer Laidlaw, S&P Global. (2023) With Physical Climate Risks Increasing in India, Adaptation Strategies Take Priority.
    https://www.spglobal.com/en/research-insights/featured/special-editorial/look-forw
    ard/with-physical-climate-risks-increasing-in-india-adaptation-strategies-take-priority .
    Accessed 13th October 2023
  7. CDP. (2022) Disclosure: Imperative for a Sustainable India.
    https://cdn.cdp.net/cdp-production/cms/reports/documents/000/006/164/original/
    CDP_AnnualDisclosureReport2021_V7.pdf?1663682392 .     Accessed 17th October2023
  8. European Financial Reporting Advisory Group. How To Improve Climate-Related Reporting.
    https://www.efrag.org/Assets/Download?assetUrl=/sites/webpublishing/SiteAssets/
    European%20Lab%20PTF-CRR%20%28Supplement%201%29.pdf&AspxAutoDetectCo
    okieSupport=    1 . Accessed 18th October 2023
  9. KPMG. (2022) Challenges and opportunities in ESG reporting and assurance.
    https://kpmg.com/xx/en/blogs/home/posts/2022/12/challenges-and-opportunities-i
    n-esg-reporting-and-assurance.html .     Accessed 19th October 2023
  10. Security Exchange Board of India. (July 2023) Circular No. – SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122.
    https://www.sebi.gov.in/legal/circulars/jul-2023/brsr-core-framework-for-assuranceand-esg-disclosures-for-value-chain_73854.html . Accessed 26th October 2023.
Decarbonization of the Indian Steel Industry

Decarbonization of the Indian steel industry: An Opportunity

by with No Comment DecarbonizationSteel IndustrySustainability

Decarbonization of one of the major GHG emitting industries using technological innovations to reduce CO2 emissions

Decarbonization has become an imperative aspect of mitigating the effects of climate change. Industrial activities are responsible for 1/3rd of the greenhouse gas (GHG) emissions and among this sector, the Steel industry contributes around 9% of the total GHG emissions (Zhang, Jiao, Zhang, & Guo, 2021). A report by the World Steel Association states that in the year 2020, 1.89 tonnes of CO2 emission was contributed from each tonne of steel manufactured (World Steel Association, 2022). The rising values of GHG emissions are leading to climate change and are greatly affecting countries in the global south. India is no exception, the changing patterns of monsoon, reduced glaciers in the Himalayas and many more impacts are observed as a result of climate change (Mallett & Pal, 2022).

Steel is an integral input material in industries like construction, automobile manufacturing etc. The steel industry due to its high dependence on carbon-based technologies is considered a hard-to-abate sector in terms of sustainability due to its high requirement of energy and resources (Mallett & Pal, 2022). The steel industry in India contributes to nearly 2% of its GDP making it a significant sector in economic development (Sun, 2023). India being the second largest producer of steel is committed to decarbonization with a short-term focus on reducing carbon emissions by FY 2030 through the use of renewable energy and promoting energy and resource efficiency. The medium and long-term focus areas for 2047 and 2070  are utilising green hydrogen for steel manufacturing, Carbon capture utilisation & storage (CCUS) and alternative innovations which could assist in achieving the transition to net zero respectively (PIB Delhi, 2023).

Decarbonization Technologies for the Steel Industry

Before we dwell on the de-carbonization technologies for the steel industries, let us understand the key processes prevalent in the industry. The dominant processes for the production of steel are Blast furnace-basic oxygen furnace (BF-BOF), Direct reduced iron (DRI) and Electric arc furnace (EAF). BF-FOF involves reducing iron ore to pig iron in a blast furnace using coal products. The steel is then made from the hot iron which is charged to a basic oxygen furnace. The DRI process reduces solid iron ore by reacting at a temperature below the melting point. Coal or natural gas are the sources of reducing gas. DRI sponge iron requires additional processing, generally EAF. EAF uses an electric arc to heat charged pig iron, steel scraps or sponge iron with electricity (Fan & Friedmann, 2021). 

Studies suggest that traditional energy-efficient measures can only reduce around 25-40% of average CO2 emission per tonne of crude steel produced. Hence, technologies like using hydrogen or biomass as reducing agents, and carbon capture utilization and storage (CCUS) are needed to further reduce the emissions (Muslemani, Liang, Kaesehage, Ascui, & Wilson, 2021). Production of green steel using direct hydrogen reduction involves reducing iron ore in a hydrogen-based shaft furnace and EAF is used to cast the reduced iron. Green hydrogen produced via electrolysis i.e., Hydrogen separated from oxygen in water using electric current and electricity required for electric arc casting should be from renewable resources to produce Green steel (Conejo, Birat, & Dutta, 2020).  Tata Steel recently initiated the use of hydrogen in their blast furnace and JSW Steel has plans to commission a green hydrogen-based steel plant by 2025. Another innovation is the usage of biomass integrated with blast furnace-basic oxygen furnace. The biomass could be used as a replacement for fossil fuels at the coke-making stage, sintering process or directly in blast furnaces. A study estimated that the use of biomass could reduce around 58% of CO2 emissions (Mandova et al., 2018).

India – A Potential Green Steel Leader

Decarbonization technologies have the potential to impact the emission trajectories significantly and could help in mitigating the higher costs of climate change. The steel manufacturing sector is on the threshold of change with new innovations like green hydrogen and India, one of the top steel producers, has the potential to be a green steel leader. Several industries have already begun initiatives to produce green steel and with the support of regulatory authorities, the green steel industry would develop successfully. Decarbonizing technology to produce green steel with less greenhouse gas production would build a cleaner production roadmap for the steel industry.

Learn how India, a major steel producer, is poised to become a global leader in green steel production and how you can contribute to this transformative journey by contacting Carbon Mandal. Take action now to support green steel initiatives and advocate for regulatory support that will accelerate the transition to cleaner and more sustainable steel production.

References

  1. Zhang, X., Jiao, K., Zhang, J., & Guo, Z. (2021). A review on low carbon emissions projects of the steel industry in the world. Journal of Cleaner Production, 306, 127259. doi:10.1016/j.jclepro.2021.127259
  2. Mallett, A., & Pal, P. (2022). Green transformation in the iron and steel industry in India: Rethinking patterns of innovation. Energy Strategy Reviews, 44, 100968. doi:10.1016/j.esr.2022.100968
  3. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1944386
  4. Sun, S. (2023). Topic: Steel industry in India. Retrieved from https://www.statista.com/topics/5585/steel-industry-in-india/#topicOverview
  5. World Steel Association, A. (2022). Retrieved from https://worldsteel.org/publications/policy-papers/climate-change-policy-paper/
  6. Fan, Z., & Friedmann, S. J. (2021). Low-carbon production of iron and Steel: Technology Options, Economic Assessment, and policy. Joule, 5(4), 829–862. doi:10.1016/j.joule.2021.02.018
  7. Muslemani, H., Liang, X., Kaesehage, K., Ascui, F., & Wilson, J. (2021). Opportunities and challenges for decarbonizing steel production by creating markets for ‘green steel’ products. Journal of Cleaner Production, 315, 128127. doi:10.1016/j.jclepro.2021.128127
  8. Conejo, A. N., Birat, J.-P., & Dutta, A. (2020). A review of the current environmental challenges of the steel industry and its value chain. Journal of Environmental Management, 259, 109782. doi:10.1016/j.jenvman.2019.109782
  9. Mandova, H., Gale, W. F., Williams, A., Heyes, A. L., Hodgson, P., & Miah, K. H. (2018). Global assessment of biomass suitability for ironmaking – opportunities for co-location of sustainable biomass, iron and steel production and supportive policies. Sustainable Energy Technologies and Assessments, 27, 23–39. doi:10.1016/j.seta.2018.03.001
Exploring the role of Green Externalities Accounting in ensuring a sustainable Present and Future

Quantifying the Unseen: Assessing the Economic Impact of Hidden Green Externalities

by with No Comment EducationSustainabilitySustainability Reporting

Exploring the role of Green Externalities Accounting in ensuring a sustainable Present and Future

Abstract

Accounting, as a critical language of finance, plays a pivotal role in shaping modern economies. This research article delves into the multifaceted accounting world, specifically focusing on Green Externalities Accounting in India. It explores the impact of green accounting toolkits and standards on economic development, state relations, and businesses. The article concludes with a call to action for a more sustainable future.

Introduction to Green Externalities

Anthropogenic climate change poses a significant threat, capable of engulfing us in one fell swoop, and its impacts extend far beyond a sudden wipeout. The cumulative acts of degradation have prompted various organisations to develop action plans and indices, such as the Climate Risk Index [1] aimed at addressing the threats of climate change. As determining forces, how can human-run organisations position themselves within the shell of nature’s resources and contribute to a more sustainable narrative?

While there is plenty we can do to keep our activities in check, accounting remains at the forefront in offering a structured process of recording, summarising, and analysing financial transactions among and across leading organisations, businesses, and states. It provides stakeholders with essential information to make informed decisions, influencing business strategies and socio-economic landscapes. Highlighting the pivotal role of finance in climate policy, Article 2 of the Paris Agreement emphasises the necessity of aligning financial flows with a trajectory aimed at reducing greenhouse gas emissions and enhancing resilience to climate change.

India’s adoption of International Financial Reporting Standards (IFRS) was initially announced by the Securities and Exchange Board of India (SEBI) in 2010. The convergence and adoption, however, were optimal and only applied to a few companies voluntarily. [2] Although limited, we can not discount the role that accounting standards such as the IFRS and the like play in determining GDP standards and broader economic analysis; much of which has come to stand synonymous with progress and development. Amidst the towering skyscrapers and bustling city streets, the relentless pursuit of economic growth often takes centre stage. However, as we marvel at the soaring GDP figures, it’s time to ask a pivotal question: Does GDP capture the true growth of the nation? A World Bank report from a few years ago revealed that India incurred a staggering cost of $550 billion, equivalent to approximately 8.5% of its GDP, as a consequence of air pollution alone. Furthermore, the expenses related to external factors like water pollution and land degradation were potentially even more substantial. India’s practice of exporting commodities effectively results in the depletion of its natural resources, which in turn escalates the risk of desertification and significant land degradation. If these alarming trends persist, it is plausible that India’s food production could experience a decline of 10-40% within a century. Therefore, when celebrating GDP growth, it is imperative that we also take into account the depletion of our nation’s natural capital in our economic assessments. [3]

Taking into account green externalities aims to quantify the environmental impacts of economic activities, such as pollution or resource depletion, makes them visible in economic assessments. It considers factors including but not limited to greenhouse gas emissions, water usage, and land degradation. In the pursuit of development through multidisciplinary approaches encompassing socio-economic concerns and environmental sustainability, it becomes imperative to ensure enduring progress for the future. This is particularly relevant for developing economies like India, where a shift from agriculture to manufacturing and services sectors is underway. The inadequacy of the traditional System of National Accounts (SNA), which measures Gross Domestic Product (GDP) and Gross National Product (GNP), lies in its inability to capture the true essence of a nation’s wealth, income, and performance. It fails to account for the environmental impact via externalities, be it positive or negative. Additionally, the conventional SNA disregards the value of natural resources that remain untransformed into marketable goods or services. The concept of ecosystem services, which denotes the environment’s free services to humanity, remains absent from current national accounting methods. These services, often termed as the ‘GDP of the poor,’ are especially critical for impoverished communities. The absence of ecosystem services in national accounting overlooks their significant contribution. The evolution of Green Externalities accounting has gained substantial urgency in recent years due to the significant losses nations have suffered from neglecting this crucial aspect of economic analysis. Severity has unearthed consequences including habitat destruction, resource depletion, and climate change. These issues have led to ecological crises, natural disasters, and adverse health effects, all of which have imposed substantial economic costs.

As per the United Nations Environment Programme Report, 1997 [4], greening the GDP is one of our major pathways towards a Green Economy. The integration of Green Accounts into traditional accounting systems will not only enable policymakers to analyse the interconnections between a nation’s economic activities and its environmental costs but also quantify these costs at various stages of production processes. This will empower relevant agencies to access precise data for amending industrial practices that surpass established environmental limits. Beyond accounting and assessment, parameters associated with Green Accounting provide a more accurate representation of economic growth by considering environmental costs and holding businesses accountable for their environmental footprint. Finally, it enables governments to tailor policies for regional variations in environmental impact, promoting balanced development.

Tools for Green Externalities Accounting

Creating an effective toolkit for Green Externalities Accounting involves defining clear metrics, establishing data collection protocols, and developing standardised reporting guidelines. It requires encompassing both qualitative and quantitative data to assess environmental impacts comprehensively. To facilitate the development of Environmental Accounts, key international organisations, including the United Nations, European Commission, International Monetary Fund, Organisation for Economic Cooperation and Development, and the World Bank, jointly issued the System of Environmental and Economic Accounts (SEEA-2003) handbook in 2003. Two primary approaches to Green Accounting have been proposed: one involves creating separate ‘satellite’ accounts dedicated to valuing natural resources, while the other advocates for a comprehensive modification of the traditional SNA to fully incorporate environmental accounts. In India, the Green Indian States Trust (GIST) took a significant step by creating environmentally adjusted accounts in 2003 under the Green Accounting for Indian States Project. Nevertheless, Green Accounting in India is in its infancy. The former Minister of Environment and Forests, Government of India, Mr. Jairam Ramesh, advocated for a transition towards incorporating environmental factors into national accounts by 2015. The TEEB India (The Economics of Ecosystem and Biodiversity) Project, initiated in 2011, conducted some standalone studies in this regard but hasn’t sufficiently contributed to the development of a Green GDP due to a fragmented approach.

Among the list of prominent reporting and decision-making tools that businesses and organisations are adopting, this article briefly discusses four of the following: Environmental Impact Assessment (EIA), Life Cycle Assessment (LCA), Carbon Pricing, and Sustainability and ESG Reports.

Environmental Impact Assessment (EIA) happens to be one of the many successful policy innovations of the 20th Century for environmental conservation. In India, it took off in the late 1970s and was first ordered during the early 1980s, on the Silent River Valley hydroelectric project. Since its induction in countries undergoing rapid industrialisation and economic growth-such as India- EIA has served as a vital toolkit in helping entities account for the environmental impact of their operations and decision-making and ensure that progress is aligned with environmental protection.

As for its contemporary, the Life Cycle Assessment (LCA). LCA helps pinpoint environmental “hotspots” and offers insights into reducing the substantial energy and material inputs, emissions, and waste, influencing decision-making at various project stages for improved environmental performance. [5] Energy audits generally encompass a thorough examination of an entity’s energy consumption patterns, encompassing the operation of energy-demanding equipment like HVAC systems, lighting, and industrial machinery. Organisations commonly utilise Life Cycle Assessment (LCA) to pinpoint instances of energy inefficiency and devise conservation-focused approaches. [6] However, LCAs demand a substantial amount of data since they require the inclusion of all inputs and outputs related to the environment across every step of supply chains and throughout the entire life cycle of a product or service. Therefore, the establishment of a comprehensive national LCA database is essential for advancing more comprehensive and scientifically grounded approaches to address sustainability challenges at the national level.

Carbon pricing is a policy mechanism aimed at reducing greenhouse gas emissions by assigning a cost to carbon emissions. It can be implemented through carbon taxes or cap-and-trade systems. Carbon taxes impose a direct fee on carbon emissions, while cap-and-trade systems set a cap on emissions and allow trading of emission permits. The idea is to incentivize companies and individuals to reduce their carbon emissions by making it financially advantageous to do so. This mechanism is crucial in mitigating climate change and transitioning to a low-carbon economy. However, currently, India does not levy an explicit carbon price. In 2021, fuel excise taxes, functioning as an indirect method of carbon pricing, accounted for 54.7% of greenhouse gas (GHG) emissions, maintaining the same level as in 2018. Conversely, fossil fuel subsidies, which remained at 2.5% of GHG emissions in 2021 as they were in 2018, worked in opposition to the advancements made in reducing emissions.”[7]

ESG sustainability reports are documents produced by companies and organisations to communicate their performance and commitment to environmental, social, and governance factors. ESG factors cover a wide range of issues, including environmental impact, and social ESG reporting is essential for transparency, accountability, and assessing a company’s sustainability and ethical practices. It is increasingly important in today’s business world as investors and consumers prioritise socially responsible and sustainable investments and products.

Obstacles and Requisites for Incorporating Green Externalities in India

India is currently positioned as the fifth most susceptible country to the repercussions of climate change, potentially endangering 2.5% to 4.5% of its GDP annually. To address this vulnerability, India has committed to reducing the carbon intensity of its GDP by 33-35% by 2030 compared to its 2005 levels. Nevertheless, achieving this ambitious target requires a substantial investment of $2.5 trillion between 2016 and 2030, as highlighted in a report by the Ministry of Environment, Forest and Climate Change (MoEFCC) in 2015.

Despite the urgency of the situation, there remains a significant shortfall in climate-related investments, stemming from both public and private sources. A forthcoming study conducted by the Climate Policy Initiative (CPI) indicates that India is currently mobilising less than a quarter of the necessary investment to meet this crucial target, as reported in 2020. [8] This includes regulatory changes, data infrastructure enhancement, and capacity building for businesses and government agencies. A robust framework for valuing environmental externalities is crucial for accurate accounting. Stakeholders in this transition include governments, businesses, environmental organisations, and accounting bodies. Governmental responsibility entails enacting policies to incentivise green practices. Businesses need to invest in sustainability initiatives and report their environmental impacts accurately. Environmental organisations can provide expertise and advocacy while accounting bodies must adapt standards to include green externalities. However, the process of such assessment in India faces several deficiencies which include but are not limited to its exclusive application to project-specific issues, and its focus on data presentation over analysis.

To enhance the process, accounting and assessment must aim to encompass private sector projects influenced by economic policy changes. Specific criteria for evaluating environmental impacts must be tailored to each project and its local environmental conditions. Furthermore, public participation, beginning early in project development is crucial, necessitating informal channels and financial support for affected communities. Associated departments must meticulously review projects, recording decisions publicly along with post-project monitoring. In India, the potential exists to implement these improvements with existing scientific resources. [9]

In-store

The research article has attempted to delve into the crucial importance of implementing Green Externalities Accounting, highlighting its pivotal role in reshaping modern economies towards sustainability. It underscores stakeholders’ need to prioritise transparency throughout their operations and be held responsible for the repercussions thereof. Often, minor externalities represent a significant grey area where communities are enduring global environmental impacts that are often overlooked or insufficiently quantified, even when occurring in plain sight. Until we take responsibility for our actions and incorporate them into our accounting practices, we cannot effectively assess or mitigate the consequences these actions have on communities, whether they are directly or indirectly connected to us. Beyond accounting, there will arise a need to assess climate-induced fiscal risks, and changes in the structure of the economy. Now is the moment for action. Connect with Carbon Mandal today to lead your organisation into this essential accounting revolution. Take a bold step with us now to shape a future that’s truly sustainable.

List of References

  1. 20-2-01E global climate risk index 2020 – Germanwatch. (n.d.). https://www.germanwatch.org/sites/germanwatch.org/files/20-2-01e%20Global%20Climate%20Risk%20Index%202020_14.pdf
  2. Adoption of IFRS in India: Benefits, challenges, and measures. (n.d.-b). https://www.ijsi.in/wp-content/uploads/2020/12/18.02.012.20190402.pdf
  3. Gandhi, F.V. (2018, May 23). Natural capital in the 21st century. The Hindu
    https://www.thehindu.com/opinion/op-ed/natural-capital-in-the-21st-century/article23971804.ece
  4. UNEP. Governing Council (19th sess.: 1997: Nairobi). (1997). United Nations Environment Programme:: report of the Governing Council on the work of its 19th session, 27 January- 7 February 1997, 3-4 April 1997. United Nations Digital Library System. 
    https://digitallibrary.un.org/record/243368?ln=en
  5. Muralikrishna, I.V., & Manickam, V.(2017). Life cycle assessment. In Elsevier eBooks (pp. 57-75). https://doi.org/10.1016/b978-0-12-811989-1.00005-1
  6. Rahman, Md. M., & Islam, M.E. (2023). The Impact of Green Accounting on Environmental Performance: Mediating Effects of Energy Efficiency.
    https://doi.org/10.21203/rs.3.rs-2604713/v1
  7. Pricing greenhouse gas emissions: Turning climate targets into … – OECD. (n.d.-d).
    https://www.oecd.org/tax/tax-policy/pricing-greenhouse-gas-emissions-turning-climate-targets-into-climate-action.htm
  8. Department for Energy Security and Net Zero. (2019, July 2). Accelerating green finance: Green Finance Taskforce Report. GOV.UK.
    https://www.gov.uk/government/publications/accelerating-green-finance-green-finance-taskforce-report
  9. Evaluation of the environmental impact assessment procedure in India. (n.d.-c). https://www.tandfonline.com/doi/pdf/10.1080/07349165.1994.9725851
India and the Carbon Border Adjustment Mechanism: Paving the Way for Sustainability

India and the Carbon Border Adjustment Mechanism: Paving the Way for Sustainability

by with No Comment PolicySustainability

EU’s Carbon Border Adjustment Mechanism could spell worry for India’s export industries

EU’s Mission to Reduce Carbon Emission: ‘Fit for 55 in 2030 package’

According to IPCC’s sixth assessment report, with the current flow of production and consumption, global GHG emissions in 2030 make it likely that warming will exceed 1.5°C during the 21st century and make it harder to limit warming below 2°C. [1] As a result, carbon reduction pathways have increasingly become the need of the hour. Carbon pricing is one such pathway that curbs greenhouse gas emissions by placing a fee on emitting and/or offering an incentive for emitting less and is the EU’s primary mechanism for incentivizing industry to decarbonize.

Carbon Border Adjustment Mechanism or CBAM is part of the “Fit for 55 in 2030 package”, the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, in line with the European Climate Law. Through CBAM, the EU aims to curb emissions by levying a carbon tax/tariff on its imports. This in turn will affect all countries exporting goods to the EU as exported goods would be imposed a carbon tax.  [2]

Demystifying CBAM: Understanding the Carbon Border Adjustment Mechanism

The Carbon Border Adjustment Mechanism (CBAM) is a critical initiative aimed at equalizing carbon pricing for products within the European Union (EU) and imported goods and is scheduled to launch its transitional phase on October 1, 2023, with the initial reporting deadline set for January 31, 2024. During this phase, importers will be obliged only to report their emissions; actual border taxation will begin in 2026. [3]

This transitional phase serves as a learning period for stakeholders, including importers, producers, and authorities, to gather valuable data on embedded emissions. The collected information will be used to refine the methodology for the definitive CBAM system.

During this initial phase, importers are required to report greenhouse gas emissions (GHG) embedded in their imports, both direct and indirect, without making any financial payments or adjustments. Importers will have the option of reporting through three methods in the first year: (a) following the new EU methodology, (b) using equivalent third-country national systems, or (c) relying on reference values. However, starting from January 1, 2025, only the EU methodology will be accepted. [3]

Several countries, such as Canada and Japan, are considering similar initiatives, underlining the global importance of addressing carbon emissions through mechanisms like CBAM.

The new tax is intended to discourage carbon-intensive operations while encouraging industries to have their processes go “green” as much as possible. To avoid “carbon leakage,” the tax would mimic the EU’s carbon market pricing. This refers to when the EU’s emission-cutting efforts are offset by rising emissions outside the union due to manufacturing relocation to non-EU nations with less ambitious climate regulations or offset by increased imports of carbon-intensive products. This mechanism encourages trading partners to decarbonize their industries. [2]

Unpacking the Impact: How Carbon Border Adjustment Mechanism Affects Exports?

Carbon Border Adjustment Mechanism Affects Exports

The Carbon Border Adjustment Mechanism (CBAM) targets carbon-intensive imports like cement, steel, aluminium, and more, initially covering over 50% of emissions in EU Emissions Trading System sectors. Exporters to the EU, such as steel and aluminium companies, must measure their production’s carbon intensity. Similar to the EU’s Emissions Trading System (ETS), which places a limit on the right to emit certain pollutants but allows firms to trade emissions rights, CBAM will be based on certificates. Companies that import goods into the EU will be required to purchase certificates that represent the amount of emissions generated during the production of these goods. The commission will calculate the price of these certificates, which will mirror the ETS to comply with World Trade Organization (WTO) rules. [4]

This initiative signifies a significant global step in climate mitigation efforts, potentially expanding to other sectors and countries, impacting various industries and exporters, including those from India.

Upon the permanent system’s implementation on January 1, 2026, importers must annually declare the quantity of goods imported into the EU in the previous year and their associated GHG emissions. They will then surrender CBAM certificates, with the certificate price determined by the weekly average auction price of EU Emissions Trading System allowances. [3]

Of a total of USD 74836.52 million, the iron and steel sector account for about USD 4109.08 million (5.49%) and aluminium for about USD 2245.25 million (3%) in terms of India’s export to the EU in FY2022-23. [5] Other major sectors including cement, fertilizers, energy and chemicals and polymers are also set to be affected by the CBAM. The cost of India’s steel exports to the European Union (EU) could rise as much as 17% following the full implementation of the CBAM. [6]

Gearing up for the Implementation of CBAM

The EU plans to expand the levy’s scope, including plastics, chemicals by 2026, and all sectors under the EU Emissions Trading System by 2030, potentially covering finished products like cars. Indirect emissions may also be considered. As free allowances in the EU Emissions Trading System are phased out from 2026 to 2034, this transition poses challenges for certain sectors and exports, as they’ll have to pay full domestic carbon costs, potentially impacting their competitiveness. [2]

Businesses must prepare for the impending changes related to the Carbon Border Adjustment Mechanism (CBAM). The CBAM could increase costs for products from regions lacking strong carbon policies and distant suppliers. Companies should assess their emissions’ geographical composition and consider cost vs. carbon trade-offs. As CBAM expands its scope, more businesses will need to prepare, impacting customs data, sourcing, and supply chains. Staying informed is crucial for EU importers of CBAM goods.

The impact of the Carbon Border Adjustment Mechanism (CBAM) varies among countries based on their export structure and carbon production intensity. India, a significant EU trading partner, has implemented energy efficiency and renewable energy targets. However, India’s hard-to-abate sectors have high greenhouse gas emissions due to the lack of carbon pricing and usage of fossil fuels. Adoption of emerging decarbonization technologies may lag compared to more regulated markets. Considering the evolving landscape of imports and exports, marked by the emergence of market mechanisms such as CBAM, it’s noteworthy that certain Indian businesses have already embarked on their journey toward a low-carbon transition, positioning themselves for the future. These companies have assessed their carbon footprint and set GHG reduction targets. [7]

It becomes imperative for Indian firms to adopt green solutions for businesses and put systems in place for tracking emissions, assessing the effect on their supply chain, calculating the financial cost-benefit of different supply chain and technology options, and planning for competitiveness in the face of increasing carbon border taxes. The government on the other hand should focus on reshaping India’s policies related to climate mitigation. [5]

Connect with Carbon Mandal to gain valuable insights into GHG Accounting and decarbonization. Start your sustainability transition today!

List of references

  1. IPCC. AR6 Synthesis Report. https://www.ipcc.ch/report/ar6/syr/resources/spm-headline-statements/. Accessed 13th September 2023.
  2. World Economic Forum. (2022) CBAM: What you need to know about the new EU decarbonization incentive. https://www.weforum.org/agenda/2022/12/cbam-the-new-eu-decarbonization-incentive-and-what-you-need-to-know/. Accessed 11th September 2023.
  3. Taxation and Customs Union. Carbon Border Adjustment Mechanism. https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en. Accessed 8th , 14th September 2023.
  4. Sinan Ülgen (2023). A Political Economy Perspective on the EU’s Carbon Border Tax. https://carnegieeurope.eu/2023/05/09/political-economy-perspective-on-eu-s-carbon-border-tax-pub-89706. Accessed 11th September 2023.
  5. PricewaterhouseCoopers. Carbon Border Adjustment Mechanism (CBAM). https://www.pwc.in/assets/pdfs/tax-knowledge-hub/carbon-border-mechanism-cbam-adjustment.pdf. Accessed 8th , 11th , 14th September 2023.
  6. CRISIL. SectorVector – Carbon coping. https://www.crisil.com/en/home/our-analysis/views-and-commentaries/2023/04/carbon-coping.html. Accessed 11th September 2023.
  7. Policy Brief | the EU’s Carbon Border Adjustment Mechanism: How to make it work for developing countries. https://gsphub.eu/news/brief-cbam. Accessed 8th September 2023.
  8. PricewaterhouseCoopers. EU Carbon Border Adjustment Mechanism (CBAM) – what do businesses in the Middle East Need to know? https://www.pwc.com/m1/en/services/tax/me-tax-legal-news/2023/eu-carbon-border-adjustment-mechanism.html Accessed 8th September 2023.
  9. Shah, A. (2023). How Indian Firms Should Deal With The European Carbon Border Levy https://www.bqprime.com/opinion/how-indian-firms-should-deal-with-the-european-carbon-border-levy. Accessed 8th September 2023.
  10. Ernst & Young. Carbon Border Tax Adjustment (CBAM): Everything but not tax! https://assets.ey.com/content/dam/ey-sites/ey-com/en_in/topics/tax/2021/ey-carbon-border-tax-adjustment-everything-but-not-tax.pdf. Accessed 8th September 2023.
  11. KPMG. EU Carbon Border Adjustment Mechanism (CBAM). https://kpmg.com/xx/en/home/insights/2021/06/carbon-border-adjustment-mechanism-cbam.html. Accessed 11th September 2023.
AI’s Potential in Sustainable Development in India

Artificial Intelligence – A Green Tech Catalyst for A Resilient Future

by with No Comment EducationSustainabilityTechnology

Exploring AI’s Potential in Sustainable Development in India

In a world accelerating towards technological advancements, the embrace of Artificial Intelligence stands as a critical pillar in India’s pursuit of sustainability. With its vast population and burgeoning economy, India faces unique environmental challenges that demand innovative solutions. The dance of AI in this context holds immense promise for the country’s ecological landscape. AI’s ability to process incredible amounts of data, analyse patterns, and make intelligent decisions has the potential to transform our approach to environmental challenges. We explore the likely possibilities of how AI is becoming a vital tool in building a resilient future and highlight its significant contributions to a green tech economy.

Energy efficiency is one of the key areas where AI can make a substantial impact. By leveraging Artificial Intelligence algorithms to optimise energy consumption and distribution, businesses and households can reduce their carbon footprint. For instance, according to a report by the International Energy Agency, AI-driven systems could potentially save up to 10% of global energy consumption by 2030, equivalent to the energy produced by nearly 300 coal-fired power plants [1]. This highlights the enormous potential of AI in curbing energy waste.

Artificial Intelligence Dominion- Possibilities of AI application 

India, a country of rich cultural heritage and breathtaking landscapes, is also home to a blossoming eco-friendly revolution. As the world grapples with the urgent need for sustainable solutions, India, as a developing nation, is striving to leverage the power of artificial intelligence to create a dominion of eco-friendly opportunities.

With a population of over 1.3 billion people, India faces significant environmental challenges. However, it has also embraced the potential of AI to address these issues head-on. The country’s commitment to renewable energy is evident in its ambitious goals of reaching 450 gigawatts of installed renewable energy capacity by 2030 [2]. AI can be instrumental in optimising the use of renewable energy sources, ensuring their efficient integration into the power grid and reducing dependency on fossil fuels.

Another pressing issue that AI is helping to tackle is air pollution.  India’s major cities have long battled with high levels of pollution, posing serious health risks to its citizens [3]. By harnessing the power of AI, air quality monitoring systems have been developed to provide real-time data on pollution levels. This information allows for targeted interventions, such as adjusting traffic patterns or implementing emission control measures, to mitigate pollution and improve public health. The possibilities are plenty!

The potential of AI in India’s journey towards a more sustainable future is immense. According to a report by NASSCOM, the AI industry in India is projected to reach $7.1 billion by 2025 [4]. This growth indicates the increasing adoption of AI technologies across various sectors, including transportation, healthcare, and smart cities, further amplifying eco-friendly opportunities.

Ethical Dilemmas: Artificial Intelligence Potential with Environmental Concerns 

AI algorithms can help optimise resource utilisation and enhance energy efficiency, crucial for India’s sustainable development. By analysing data from smart grids, transportation systems, and industrial processes, AI can identify patterns and recommend strategies for reducing energy consumption, improving waste management, and promoting renewable energy sources. These interventions can contribute significantly to India’s commitment to reducing carbon emissions and combat climate change.

Despite the potential benefits, the deployment of AI in environmental concerns in India raises ethical dilemmas. Privacy concerns arise when data collected by AI systems, such as sensors or surveillance cameras, are used to monitor and analyse individuals’ activities. Striking a balance between environmental monitoring and protecting individuals’ privacy rights is essential. Strict regulations and transparent frameworks should be in place to ensure that data collection and analysis are conducted responsibly and with the consent of individuals. In the context of sustainability, AI models might unintentionally perpetuate existing environmental biases or social inequalities [5]. For instance, an AI-driven carbon credit system might favour large corporations over small businesses, inadvertently favouring established players in the market and further marginalising vulnerable communities. Addressing these biases is not only a technical challenge but also an ethical imperative to ensure that AI solutions in sustainability do not exacerbate societal disparities and environmental injustices.

From Conservation to Consciousness

AI’s integration into sustainability requires a cautious approach. The rising energy consumption associated with data centres and AI hardware, often from non-renewable sources, demands a parallel focus on sustainable energy solutions. Moreover, the rapid obsolescence of AI hardware contributes to India’s mounting e-waste challenge, necessitating responsible disposal mechanisms.

The societal implications of AI demand attention. Job displacement from AI automation raises concerns for vulnerable communities in India’s informal labour sector [6]. To mitigate this, reskilling and upskilling programs must accompany AI implementation, ensuring a just transition to a technology-driven economy. Ethical considerations loom as AI relies on vast data sets for training and decision-making. To prevent biased outcomes and protect privacy, comprehensive regulations and standards for AI systems’ ethical use and data privacy must be established.

India’s journey towards AI and sustainability resembles a symphony where harmony is struck between harnessing AI’s potential for environmental conservation and safeguarding against its potential negative impacts. Embracing ethical AI practices, investing in sustainable energy solutions, and prioritising social welfare will enable India to compose a transformative narrative that propels it towards a greener and more sustainable future. As the conductor of this symphony, India holds the power to orchestrate a unique tale of AI’s role in shaping a conscious and sustainable tomorrow.

AIs transformative capability

AI offers transformative capabilities for building a resilient future. Its applications in energy efficiency, resource management, climate change modelling, and smart grids are reshaping industries and propelling us towards a greener, more sustainable world. By combining AI with innovative green technologies and fostering collaboration between industry, academia, and policymakers, we can leverage its power to mitigate environmental challenges and ensure a resilient future for generations to come. Embracing AI-driven solutions today will pave the way for a more sustainable tomorrow. From reducing waste to conserving natural resources, AI has the potential to revolutionise the way we approach sustainability. But why is this important? Because our planet is at a critical juncture, and we need innovative solutions to address the complex issues facing us. That’s where AI comes in as it offers a powerful tool for creating a more sustainable future

To further explore the possibilities of sustainable methods and eco-friendly solutions, do reach out to Carbon Mandal. As a new-age startup striving to achieve sustainability, we offer expert advice and innovative strategies to build businesses in an eco-friendly nation. Visit www.carbonmandal.com to learn more about our services, read related articles, and join the movement towards a greener future. Together, we can orchestrate a unique tale of AI’s role in shaping a conscious and sustainable tomorrow.

References

  1. IEA (2023), The evolution of energy efficiency policy to support clean energy transitions, IEA, Paris accessed 19 July  2023, https://www.iea.org/reports/the-evolution-of-energy-efficiency-policy-to-support-clean-energy-transitions. 
  1. Buckely, T, India needs a doubling of installs to deliver on PM Modi’s 450gw by 2030 ambition, ET Energy World, 15 December 2022, accessed 18 July 2023 https://energy.economictimes.indiatimes.com/news/renewable/india-needs-a-doubling-of-installs-to-deliver-on-pm-modis-450-gw-by-2030-ambition/96246672 
  1. India’s AI market to reach $7.8 billion by 2025: IDC, The Hindu, 5 October 2021, accessed 20 July 2023, https://www.thehindu.com/business/indias-ai-market-to-reach-78-billion-by-2025-idc/article36846106.ece 
  1. World Health Organization 2022. Ambient air pollution data, The United Nations, accessed 19 July 2023, https://www.who.int/news-room/fact-sheets/detail/ambient-(outdoor)-air-quality-and-health 
  1. Ernst et al. “The Economics of Artificial Intelligence: Implications for the Future of Work.” Future of Work Research Paper Series. International Labor Organization, 2018. https://www.ilo.org/wcmsp5/groups/public/—dgreports/—cabinet/documents/publication/wcms_647306.pdf 
  1. AI Primarily An Enhancer Today, Job Displacement Real, Yet Not Near, Businessworld, 14 March 2023, accessed 18 July 2023 https://www.businessworld.in/article/AI-Primarily-An-Enhancer-Today-Job-Displacement-Real-Yet-Not-Near/14-03-2023-468981/