In our world, carbon intensive activities have resulted into the Climate change posing severe and irreversible impact on the ecosystem. Now it is a challenge to the sustainability of the human civilization. The Government of India is working day and night to mitigate the effects of climate change and has made an impressive progress by strengthening the on-going initiatives and bringing in new energy reforms.

Our Honorable Prime Minister Shri Narendra Modi has described the climate change as the biggest challenge we humankind are facing and it is only natural to draw a corollary that our country India is ready to step up its efforts under climate discussions, reflecting a need for long-term strategy for development that is low on greenhouse gas emissions.

Globally, Carbon Market have been very successful in reducing green-house emissions by setting a cap on emissions and enabling their trading. This market place makes entities enabled to reduce emissions at lower cost to be paid to do so by higher cost emitters, which in result lower economic cost of reducing emissions. 
But currently, India does not have voluntary carbon trading market to provide information of price accurately, to provide standard contract pledge and manage arrangement for long-term offtakes. In absence of domestic marketplace for this, in India there is chance of high reputational risk because of absence of due diligence resulting to high WACC, non-realization of Net-Zero AUM and no standard reporting.  Considering this immediate requirement, the Government of India is taking necessary steps to create domestic carbon market in India. 
 

Carbon Trading better known as Emissions Trading or ‘Cap and Trade is a market-oriented mechanism articulated to reduce greenhouse gas (GHG) emissions in commerce and industry by creating an economic incentive to attract the sensibility of GHG emitters. 

Firstly, this Emissions Trading was defined as a flexible mechanism for the mitigation of global warming in Article 17 of the 1997 Kyoto Protocol. A national limit is set on GHG emissions for every participating country, which decreases year-on-year based on agreed targets.

The Governments of participating countries issue or auction carbon credits to companies in participating industries based on projected levels of emissions. The gainer in this market is those Companies that emit less than their quota can sell and potentially profit from their remaining credits, while those that emit more than their quota are required to buy credits to make up the deficit. 

As credits are getting scarcer, so the price of carbon are going up as markets are regulated by free market forces. The Global idea of Kyoto Protocal is to allow companies to decide for themselves whether it is more economical to reduce emissions in actual terms, develop cleaner production technologies, or simply buy credits.