Mr. Vivekanand, Director (Finance, Taxation & Legal), FIPI began the session with the opening remarks. He spoke that the effects of global warming and climate change are significant in terms of increase in temperatures, and this compels the world to take stringent steps to combat climate change collectively. He mentioned that many countries are committing their net zero emission targets to help prevent the harmful impacts from climate change. During COP 2026 (‘UN Climate Change Conference’), Government of India with vision of our Prime Minister, Shri Narendra Modi, has also set the net zero emission targets by 2070. Further he mentioned about India’s Nationally Determined Contributions (NDC) commitment of reducing its emissions intensity of its GDP by 45 per cent by 2030 (up from 33-35 per cent), and commitment of achieving 50 per cent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 (up from 40 per cent). He then talked about the green credit programme, which was announced during the Union Budget 2023, aligning with India’s climate goals under the Paris Agreement.  He welcomed the notification on Carbon Credit and Trading Scheme and said that the scheme is crucial in governing the Indian carbon and greenhouse gas emissions scenario in the coming few years.

Ms. Apurba Mitra, Partner in ESG practice of KPMG in India, talked about the carbon offset schemes that allow companies to invest in environmental projects in order to balance out their own carbon footprints. She said that various types of carbon offset projects exist such as – energy efficiency, fuel switch, afforestation, agricultural land management, Carbon Capture, Utilization and Storage (‘CCUS’) etc. She mentioned that hard-to-abate sectors like cement, steel, etc. can utilize carbon credits in order to offset their CO2 emissions in the medium term till technology matures and cost of decarbonization within these industries comes down. She further highlighted that as more nations and businesses commit to achieve net zero emissions, as per a study, the global carbon credit market is expected to be worth USD1.6 trillion by 2028 growing at a CAGR of 31 per cent. She then talked about two kinds of carbon market[1]- Voluntary Carbon Market (VCM) like Gold Standard, Verra, GCC (Global Carbon Council’) etc. and Compliance Carbon Market (CCM) like EU-ETS (‘EU Emissions Trading Systems'), UK ETS (‘United Kingdom’s Emissions Trading System'), etc. and said that these trading systems are instrumental in reducing GHG emissions by providing a financial incentive for businesses to reduce their emissions. In terms of pricing, she mentioned that according to a study[2], the cost of offsetting carbon emissions is expected to surge tenfold over the next decade with carbon offset prices reaching between USD20 and USD50 a metric ton of CO2 by 2030.

Mr. Ajoy Gupta, Associate Director in ESG practice of KPMG in India, talked about the recent Government of India notification of carbon credit trading scheme. He mentioned that the government has proposed to begin with a domestic carbon market considering 2070 net zero announcements made on behalf of the Government of India. The main feature of the scheme is the “cap to trade” mechanism where industries are given emission targets. He then talked about the relevance of carbon credits for oil and gas sector players. Some of the potential GHG emissions avoidance interventions (specifically methane emissions management) for upstream include, flare reduction, utilization of gas from oil wells as a feedstock, etc.; for midstream- recovery of methane-rich vapors from hydrocarbon storage tanks, etc. and for downstream- recovery and utilization of waste gas in refinery or gas plant. He mentioned that many oil and gas companies have recognized the essential role of carbon credits to drive their climate strategies. These companies have adopted diverse interventions in terms of natural carbon capture projects, forest preservation, generating carbon credits etc. to reduce CO2 emissions in their value chain. He then talked about the carbon project registration process in detail and how it can be adopted by various organizations to offset their carbon emissions.

Ms. Nidhi Kansal, Chartered Accountant and Partner in BSR & Co. LLP, talked about the taxation aspects of carbon credit markets. She said that it has been held in various judicial precedents that the income generated out of trading of carbon credit is not an offshoot from the business activity as it is a step to preserve the environment and therefore any income arising out of it is a capital receipt which is not taxable in the hands of the entity which is selling the carbon credits. She then highlighted that under Finance Act 2017, a specific section has been introduced as Section 115BBG to cover taxability of carbon credits which are certified by United Nations Framework on Climate Change (UNFCC). Further she said that any income arising on transfer of carbon credits, which are covered under section 115BBG is now taxable at 10 per cent on the receipts which one gets on selling the carbon credits.

Mr. Koshal Agarwal, Chartered Accountant and Partner in BSR & Company, talked about the GST implications pertaining to carbon credit market. He mentioned that the carbon credit market is subject to 18 per cent GST and thus arises the issue of availing input tax credit as five petroleum products are outside the GST regime. He then talked about other renewable certificates that have been issued by the banks based on GST council regulation, and said that all of them are taxable.

The presentations were followed by a Q&A session wherein various queries posted by participants were well addressed by panellists.

Lastly, Mr. DLN Sastri, Director (Oil Refining & Marketing), FIPI in his vote of thanks, emphasised the role of carbon credit as a very valuable tool in the global fight against climate change. He said that they help in incentivising emission reductions and promoting sustainable practices across industries and nations. Since the carbon credit market is at a very nascent stage, it is therefore critical to understand the nuances of deriving benefit of carbon credit management. He complimented KPMG in India team for an elaborative presentation on the topic. He also thanked the participants from the energy industry for their active and interactive participation during the event. 

[1] Source: State of voluntary carbon markets, 2021 (a Special Ecosystem Marketplace COP26 Bulletin (November 2021)); Gold Standard Market Report, 2020, Verra Registry Portal, Perspectives Climate Group GmbH Report 21 June 2021       

[2] State of the Voluntary Carbon Markets 2021, By Stephen Donofrio, Patrick Maguire, Kim Myers, Christopher Daley, and Katherine Lin, Ecosystem Marketplace Insight report, September 2015