Mr. DLN Sastri, Director (Oil Refining & Marketing), FIPI began the session with the opening remarks. He spoke about the rising importance of sustainability and carbon markets in oil and gas industry and acknowledged the initiative of S&P Global in providing their insights on the same. He said the urgency of addressing climate change is reshaping industries worldwide and the hydrocarbon sector stands at forefront of this transformation. He also mentioned that as we move towards a more sustainable future, carbon markets offer a critical pathway, not only for offsetting emissions, but also for generating new revenue streams & prompting greener business practices.

Ms. Agamoni Ghosh, Managing Editor for Global Compliance Carbon Markets at S&P Global Commodity Insights talked about the significance of carbon markets in the light of net zero emission targets announced by various countries including China, US, and India. She talked about three approaches of decarbonisation in the commodity sector- ‘Replacement approach’ which talks about replacing conventional fuels with low-to-negative emissions ‘fuels of the future;’ ‘Attribute approach’ which talks about carbon intensity becoming an attribute of the product itself; and ‘Offset approach’ which talks about buying carbon credits to offset emissions in the production & transportation process.

Talking about the global carbon market landscape, she said that there are 4 broad categories namely- Voluntary credits which includes voluntary participation, and is project – based driven by methodologies & overseen by private standards. Compliance markets which are mandatory markets with emission reduction markets being set up, and are very popularly known as emissions trading schemes. Compliance Allowances which are applicable in Korea or New Zealand; are traditional cap and trade schemes, and lastly Article 6.2 which talks about Paris agreement credits and the climate related commitments made by each country.

She then talked about Voluntary Credit Markets (VCM) which is the international VCM market that allows government, companies & investors to purchase carbon offsets to lower their emission footprint on a voluntary basis. Talking about Compliance system, she said that regulators set targets or emission caps; where emission permits are issued and participants can reduce their emissions, buy, and sell allowance or purchase offsets.

She highlighted the new carbon system called the ‘Baseline & Credit System’ which is important in respect to countries like India or other growth-oriented economies, because emissions have not yet peaked in these countries, and it is also very difficult to gauge the exact time when emissions will peak. Here, baseline levels are set in tune with the economic growth targets and production targets for each industry. Therefore, this system recognizes that not all industrial activities which produce emissions are at the same level. The intensity is what should be looked at when setting these baselines, and that is crucial for a country like India.

Further, she mentioned that there are 2 broad categories under VCM. One is reduction and avoidance credits, and other is removal credits i.e. credits that reduce or avoid emissions for one metric and dioxide of carbon and removal of credits that actively capture Ghg emissions. Within reduction and avoidance credits, the project can be technology-based (which includes renewable energy household devices which are cookstove projects, industrial pollutants, landfill, and gas waste etc) and nature based which includes- avoided deforestation, red plus wetland management. Under removal credits, direct air capture, mineralization, Biochar are some of the popular ways for technology based; and reforestation, soil sequestration, wetland restoration are methods under natured based projects.  India is currently looking at developing a lot of Biochar projects on the removal side.

Mr. Abhijeet Thakkar, Senior Analyst within the Environmental Markets team at S&P Global Commodity Insights talked about annual credit issuance in the Voluntary Carbon Market by different project types. Since 2010, issuances of credits from 4 main registries, such as Verra, Gold Standard, ACR and CR have reached over 2 billion tons credits from renewable energy and nature-based avoidance projects which have dominated the supply with shares of around 35% and 30% respectively. Further, he mentioned that issuances of carbon credits were noticeable from 2017 onwards, and then peaked in 2021, however, there was a 21% decline in 2022, and a further 29% drop in 2023, due to low carbon prices. He said that the United States was the top credit issuing country, considering that the Voluntary Carbon Market is often presented as an instrument to channel climate finance to less developed countries.

Talking about the credit retirements by volume in the global voluntary carbon market in 2023, he said that retirements of carbon credits peaked at 164 million credits with December 2023 setting a record for 37 million credits, which alone accounted for 30% of the total retirements for the year.

He further said that as emissions continue to rise, the countries need to adopt effective strategies to mitigate them, particularly through carbon pricing mechanisms. ETS system sets inclusion thresholds generally meaning only facilities exceeding certain emission levels participate in carbon pricing. Additionally, these systems often have a limited sectoral scope, so not all emissions or industrial processes within a sector are subject to carbon pricing. He highlighted the example of Korea ETS which covers 74% of emissions across sectors, including power, industry, buildings, transport, aviation, and waste. In contrast, the EU ETS covers about 38% of emissions from sectors, such as power, industry, aviation, and shipping.

He said that India is also working towards introducing a carbon pricing instrument. In December 2022, India's Rajya Sabha passed the Energy Conservation Amendment Act laying the groundwork for a national carbon market. By March 2023, the Bureau of Energy Efficiency introduced a draft carbon credit trading scheme which was finalized in June 2023. This enhanced the role of the Indian carbon market and further promoted the Green Credit program. In December 2023, the voluntary segment of the Indian carbon market was launched, which would allow non-obligated entities to earn and trade carbon credit certificates. He also said the National Steering Committee for Indian Carbon Market has recommended 10 sectors for the offset mechanism, with 6 included in phase one and 4 in phase two. India already has projects in most of these sectors generating credits for the global voluntary carbon market, making India one of the largest VCM.

Lastly, Ms. Ghosh talked about Carbon Border Adjustment Mechanism (CBAM) that is basically EU Commission’s plan to equalize the carbon cost of businesses outside of EU with what businesses pay within EU.  This means that any imports that come into EU for certain sectors would be charged a carbon levy. The main aim of this policy is to protect the interest of the domestic producers. She talked about the various countries that are trade exposed in terms of the sectors that are importing into the EU- mainly, from Canada, South Africa, Brazil, Turkey, India etc and mentioned that the iron and steel sector is by far the biggest sector targeted. She concluded by mentioning the significance of emissions reporting especially by many industries in India in order to be more focused towards climate change and ensure environmental sustainability.

The presentations were followed by a Q&A session wherein various queries posted by participants were well addressed by panellists making the webinar a very engaging session.

Lastly, Mr. Vivekanand, Director (Finance, Taxation & Legal), FIPI in his vote of thanks, complimented the S&P Global team for making a comprehensive presentation on varied topics viz- voluntary and compliance markets, carbon allowances, carbon pricing mechanism in various geographies, India’s carbon pricing scheme, CBAM and Article 6. He said that as environment is a critical issue globally, the role of carbon credit becomes a valuable tool in the global fight against climate change.  He thanked the participants from the energy industry for their active and interactive participation during the event.