Market mechanisms to combat climate change

Published on 03 Apr 2025

Market mechanisms to combat climate change

Market mechanisms use economic incentives to reduce greenhouse gas emissions. Tools like carbon pricing and emissions trading create financial penalties for pollution or rewards for reducing it, encouraging businesses and individuals to adopt greener practices.

• Carbon Pricing:

• Carbon Tax: India has implemented a Clean Energy Cess on coal production, which funds renewable energy projects and aims to reduce carbon emissions.

• Emissions Trading Scheme (ETS): The Perform, Achieve, and Trade (PAT) Scheme allows industries to trade energy efficiency certificates, encouraging improvements in energy use.

• Renewable Energy Certificates (RECs):

• REC Mechanism: India uses RECs to incentivize renewable energy generation. This mechanism supports investments in solar and wind energy projects by allowing traders to buy and sell certificates to meet regulatory requirements.

• Green Bonds: YES BANK has issued green bonds to finance solar and wind energy projects, providing funds for environmentally friendly initiatives.

• Subsidies and Tax Incentives:

• Solar Power Subsidies: The Solar Rooftop Subsidy Scheme reduces the cost of installing solar panels, making renewable energy more accessible.

• EV Incentives: The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) Scheme offers financial support to lower the purchase cost of electric vehicles.

• Environmental Impact Trading:

• National Adaptation Fund for Climate Change (NAFCC): This fund supports projects such as water management to help communities adapt to climate impacts.

• Energy Efficiency Standards:

• Bureau of Energy Efficiency (BEE): The BEE sets energy efficiency standards for appliances, such as the mandatory energy labelling for refrigerators and air conditioners.

• PAT Scheme: The PAT Scheme provides incentives for industries to achieve specified energy savings targets, promoting overall energy efficiency.

• Carbon Capture and Storage (CCS) Credits:

• CCS Mission: Supports carbon capture and storage technologies, exemplified by NTPC’s pilot-scale CCS facility, aimed at reducing CO2 emissions from power plants.

• International CCS Initiatives:

• Norway’s Longship Project: Norway is investing in the Longship project, which aims to capture and store CO2 from industrial sources and is one of Europe’s largest CCS projects.

• Canada’s Boundary Dam: The Boundary Dam in Saskatchewan is one of the first large-scale CCS facilities for coal-fired power plants, capturing approximately 1 million tons of CO2 annually.

• Global CCS Programs:

• Global CCS Institute: This international organization supports and promotes the deployment of CCS technology worldwide by providing guidance and sharing best practices among countries.

U.S. 45Q Tax Credit: The United States offers a significant tax credit for carbon capture projects, providing up to $50 per ton of CO2 stored underground, which has encouraged various large-scale CCS initiatives.

Tags:
Environment

Keywords:
Renewable energy Emission trading Carbon pricing

Syllabus:
General Studies Paper 3

Topics:
Environment and Climate Change