Term Paper

ABSTRACT:
With the rapid advancements in technology and industrial processes the concerns for
environment protection have reached a new pitch all over the world. This is evident with the
signing of the Paris Agreement, 2015 on climate change which blurs the distinction between the
developed countries and developing countries. India, keeping up with the advancing standards of
technology and industrialization, is also focusing on environment protection and for better
regularization is bringing the Energy Conservation (Amendment) Bill, 2022. The Bill aims to
fulfill India’s international commitments by setting up carbon emission norms for the industries
and further introducing a carbon trading scheme. It also specifies that certain players are required
to meet a proportion of their energy needs from non-fossil sources. Energy consumption
standards may be specified for vehicles and ships. Emission standards and emission trading isn’t
a new concept globally. Various developed countries have implemented such concepts as part of
the Clean Development Mechanisms under the Kyoto Protocol.
This term paper will attempt to connect the perspectives of commercial entities, regulatory
bodies with the economic-legal impact of emissions trading. It will compare similar programs
which have been implemented in other jurisdictions and bring out their shortcomings.
Additionally, it will provide the future possibilities upon implementation of emission trading and
what lays ahead highlighting loopholes and raising question at certain issues.
Key Words: Carbon Trading, Kyoto Protocol, Energy Conservation (Amendment) Bill, 2022,
Environment Conservation.
1. INTRODUCTION
2. MARKET COSTS AND SOCIAL COSTS OF NATURAL COMMODITIES
Markets regulate the resources available to the society to generate commodities and services that
meet human wants in a competitive economy. While in most situations, the market economy
works well to provide the socially optimal level of goods and services, in many other situations,
such as the consumption of natural resources, it has led to excessive and unsustainable
extraction. This is because natural resources do not satisfy two requirements that are essential for
an efficient market outcome i.e.: the good or service should be private rather than public, and
there should be no distinction between the economic costs and social costs of producing the good
or service. As a result, they are not traded efficiently in a market economy.
While the market values the economic benefits of using natural resources like coal, the market
does not value the social benefits without some form of regulatory intervention. Nations do not
make up for the disadvantages of burning fossil fuels if they consume them and produce carbon
dioxide.1 There are some expenses that are incurred in the consumption of these goods, such as
the cost of the gasoline itself, but there are some expenses that are not covered by the cost of the
fuel. These are seen as societal costs or externalities.2 These include environmental costs (such as
environmental degradation, deforestation, climate change, and global warming) and health
expenses (such as the connection between using fossil fuels and heart disease, cancer, stroke, and
lung disease). In the 1920s, a British economist, Arthur Pigou, highlighted the social benefits of
making industries pay for the costs of the pollution they caused. This idea was eventually
adopted in a variety of ways, which gave rise to the idea of "carbon pricing."3
In the past, command-and-control or similar regulatory measures have been used to promote the
preservation of natural resources.4 According to a study, the most severe effects of climate
1
G. Heal, Nature and the Market Place: Capturing the value of Ecostate Services (Island Press, 2000).
2
R. Coase, ‘The Problem of Social Cost’ (1960) 3 J. Eaw and Eco. 1-44.
3
Nicholas Stern, What is the Economics of Climate Change? (Stern Review on the Economics of Climate Change
2006).
4
S Pagiola, Selling Forest Environmental Services: market Based Mechanisms for Conservation and Development
(Eartscan 2002).
change can occur in the nations producing the lowest greenhouse gas emissions. The concept is
that a country should pay for its use of fossil fuels if it produces externalities like CO 2 that are
unfavorable to other countries. The Kyoto Protocol, which was signed in 1997 and aimed to
reduce carbon emissions, mitigate climate change and global warming, launched the carbon
credit exchange.5 When it comes to the use of fossil fuels, the majority of these externalities are
detrimental to third parties, who suffer as a result of the usage of the products. The current
climate regulation framework aims to harness market dynamics through voluntary and regulated
markets by enticing people and organizations to take actions that serve both their own interests
and public policy objectives. One such regulatory tool that has evolved in international
environment jurisprudence to strike a balance between individual and collective interests is
carbon trading.
1. THE CONCEPT OF TRADING CARBON
Carbon trading is a method wherein a nation or polluter with higher carbon emissions can buy
the right to emit more, while the nation or polluter with lower emissions can sell their right to
emit carbon to other nations or organizations. As a result, the nations or polluting entities that
produce more carbon meet their carbon emission goals, and the carbon trading market
encourages the implementation of the least expensive carbon mitigation strategy. Each nation is
only permitted to emit a certain amount of carbon dioxide. Businesses that produce less pollution
can sell their unused pollution rights to businesses that produce greater pollution. The objective
is to ensure that enterprises do not collectively exceed a target level of emissions and to give
firms a financial incentive to pollute less.6 Businesses in the developed world can gain greatly
from carbon trading since it offers financial rewards in exchange for carbon credits that allow
these companies buy or upgrade their technology. Eventually, the shift in technology aids firms
in cutting their carbon emissions.
2. CARBON CREDIT AND THEIR EXCHANGE
5
Kyoto Protocol to the United Nations Framework Convention on Climate Change (adopted 10 December 1997,
entered into force 16 February 2005) 37 ILM 22 (Protocol).
6
Change and Forests: Emerging Policy and Market Opportunities (Charlotte Streck et al., Concept Publishing
Company 2009).
Carbon pricing, according to the World Bank, is the value assigned to the external costs of
pollution that a particular company emits.7 External costs are those that do not directly influence
the industry; most industries gain fully from the use of fossil fuels, but they only pay a negligible
portion of the climate cost. Instead, public systems incur a socially catastrophic cost, such as the
price of crop losses caused by impure air or water and the expense of health care due to heat or
cold waves or other extreme weather conditions caused by global warming.
One carbon credit permits the release of one tonne of carbon dioxide or an equivalent amount of
other greenhouse gases into the atmosphere. The global market for carbon trading has been
stimulated by this credit exchange between companies. Through the purchasing and selling of
carbon credits via the carbon trading technique, the amount of global emissions can be regulated.
Like any other financial instrument, buying Carbon Credits from various businesses is quite easy
and straightforward because they are exchanged in a public market. Because of this, global
carbon emissions remain within acceptable bounds, and businesses develop methods of operating
that are environmentally friendly.8 The system also encourages businesses to adopt greener
practices so they can enhance their revenue by trading carbon credits. Carbon credits make it
very simple for businesses to adhere to the scheme because they are widely traded on the market.
Because there aren't any complicated regulations or processes to follow, people are more likely
to accept them, which contribute to the system’s success. 9 Even if you do not belong to any
organization, you can still acquire carbon credits to lessen your own carbon footprint.
Finally, long-term investors might reevaluate their investment strategy and reallocate capital into
low-carbon or climate-resilient activities by using carbon pricing to investigate the possible
impact of climate change policies on their investment portfolios. Different structures and formats
might exist for carbon pricing. A value per tonne of carbon dioxide equivalent can be used to
express it. An emissions trading system (ETS), when taking into account various carbon pricing
methodologies, on the one hand, provides assurance regarding the environmental impact while
7
Susan Park, “The World Bank Group: Championing Sustainable Development Norms?” (2007) 13(4) Global
Governance 535–56. <http://www.jstor.org/stable/27800681> accessed 26 November 2022.
8
Swatanter Kumar, “CARBON TRADING.” (2010) 52(3) Journal of the Indian Law Institute 319–31
<http://www.jstor.org/stable/45148526> accessed 26 November 2022.
9
Satoshi Kojima and Kenji Asakawa, “Carbon Pricing: A Key Instrument to Facilitate Low Carbon Transition”
(2016) Institute for Global Environmental Strategies <http://www.jstor.org/stable/resrep02915> accessed 26
November 2022.
the price remains adjustable, on the other hand, a carbon tax protects the economic system's
carbon price from unpredictability in environmental outcomes.
3. CARBON TAX: AN ALTERNATIVE APPROACH
Governments charge polluters a fee for each metric tonne of CO2 emissions (CO 2 mt) that is
produced. Depending on how much carbon they contain, these taxes are imposed on coal, oil
products, and natural gas. Carbon taxes provide a number of benefits. The tax encourages
enterprises to increase energy efficiency, switch to low-carbon fuels, and use renewable energy
sources by internalizing the externality of pollution costs. Other GHGs and pollutants can be
taxed using the same theory as carbon. Additionally, carbon taxes are quite simple to implement
as additions to the gasoline taxes that already exist and bring in money for governments that may
be used to pay other areas of the sustainable development goals.
However, carbon taxes are not without their own shortcomings. The fact that carbon taxes raise
the price of fossil fuels, which will disproportionately harm individuals in lower income
categories, is one of the principal obstructions against them. In addition, corporations may move
production to nations without carbon fees, which could impede investment and economic
expansion.10 Another concern with carbon taxes relates to how the money raised from them is
spent: should it go toward reducing the tax burdens on workers brought on by rising gasoline
prices or toward reversing environmental damage? Carbon taxes can be challenging due to the
administrative overhead of monitoring and quantifying emissions as well as measurement errors
for the social costs of carbon pollution. When the cost of the tax, which is typically directly
imposed on an industry, trickles down to consumer prices, people and households bear the brunt
of it.
4. NEED FOR CARBON TRADING
When it became clear that businesses were the greatest source of greenhouse gas pollution that
contributed to global warming, the necessity for carbon trading became apparent. The NGOs and
other organizations worked very hard to draw the attention of international community to the
10
Susan Park, “The World Bank Group: Championing Sustainable Development Norms?” (2007) 13(4) Global
Governance 535–56. <http://www.jstor.org/stable/27800681> accessed 26 November 2022.
issue of global warming. However, because this subject was not taken seriously, not much was
done in this area in the past. Thus, it was realized that adding some financial incentives was the
best method to draw attention to these issues. The idea of trading carbon was developed as a
result of this.
A price on carbon emission sends an economic signal to emitters and gives them the option of
changing their activities and reducing their emissions or continuing to emit and being charged for
their emissions, as opposed to mandating who, where, and how to cut emissions. The ultimate
environmental goal is thus accomplished in the most adaptable and economically advantageous
manner for society. In order to incorporate the external cost of climate change in the broadest
spectrum of economic decision-making and to create financial incentives for clean growth, it is
essential to put an appropriate price on GHG emissions. It may also assist in mobilizing the
necessary financial resources to promote market innovation and clean technology, which will
empower new low-carbon economic growth drivers.
5. WHAT IS THE PRICE OF CARBON CREDITS?
As of April 2021, the global carbon pricing schemes range from less than $1 to as much as $137
per mt of CO2, according to the data from The World Bank's Global Carbon Pricing Dashboard. 11
In 45 different national jurisdictions, there are currently 65 carbon pricing proposals. These
programmes would cover 11.65 Gmt CO2 in 2021, or 21.5% of the world's GHG emissions. The
least projected social cost of carbon, which is 75 USD per mt CO 2 according to the IMF, is now
priced at or above less than 1% of the total world emissions (5 out of 65 schemes). 12 If climate-
economy feedbacks and temperature variability are taken into consideration, the societal cost of
carbon is estimated by the journal Environmental Research Letters to be astronomical more than
3000 USD per mt CO2. The average weighted price of carbon as of November 2021 was 3.37
USD per mt CO2.13
6. PARTICIPATION OF INDIVIDUALS IN CARBON TRADING
11
‘Carbon Pricing Leadership Coalition: Realizing the Full Potential of Carbon Pricing in a Sustainable Recovery’
(World Bank 22 June 2022) < Event | Carbon Pricing Leadership Coalition: Realizing the Full Potential of Carbon
Pricing in a Sustainable Recovery | World Bank Live> accessed 17 November 2022.
12
Ibid.
13
Ibid.
Households and individuals are unable to actively participate in carbon trading at this time
because it is difficult to accurately calculate emissions at such small sizes. The carbon emissions
of a region, such as an entire city, are quantified and used as indicators to identify changes in
carbon emission profiles. Households may be a part of this broader trading network. The primary
problem with the current carbon credit system, particularly for small businesses or individual
landowners, is the extremely high fees charged by the organizations that provide credentials to
evaluate carbon credit generation. These fees may not be covered by the money made from
selling the carbon credits themselves.
7. JURISPRUDENCE SURROUNDING CARBON TRADING
1. KYOTO PROTOCOL
In order to counteract "dangerous human interference with the climate system," the United
Nations Framework Convention on Climate Change (UNFCCC) established a global
environmental treaty that included stabilizing greenhouse gas concentrations in the atmosphere. 14
The Earth Summit, also known as the United Nations Conference on Environment and
Development (UNCED), which took place in Rio de Janeiro from June 3–14, 1992, had 154
Nations sign it. It came into effect on March 21st, 1994, and formed a Secretariat with its
headquarters in Bonn, Germany. To strengthen the commitments of developed countries under
the convention, the parties to the UNFCCC adopted the Kyoto Protocol, by which they agreed to
"Quantified Emission Limitations or Reduction Commitments." 15 The objective of the UNFCCC
is "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent
dangerous anthropogenic interference with the climate system." However, it has been
demonstrated that the developed countries, who make up the industrialized minority, are abusing
the planet's capacity to rid the atmosphere of extra carbon and other greenhouse gases. Therefore,
the current pressing issue is the reallocation of the carbon space available in the atmospheric
commons between countries with varying current rates of emissions and growth on the basis of
14
United Nations Framework Convention on Climate Change (adopted 29 May 1992, entered into force 21 March
1994) 1771 UNTS 107 (UNFCCC).
15
entered into force 16 February 2005) 37 ILM 22 (Protocol) art 3.
the fundamental principle of "common but differentiated responsibilities." 16 These reduction
commitments seek to reduce net greenhouse gas emissions below 1990 levels by 5.2 percent over
the period of 2008–12 and are expressed as levels of allowed emissions or "assigned amounts."17
By achieving two particular goals, the Clean Development Mechanism 18 established under
Article 12 of the Protocol hopes to reduce the amount of greenhouse gases in the atmosphere:
1. Encouraging sustainable development in underdeveloped nations, and
2. Aiding developed nations financially by making it easier for them to fulfill their
pledges to reduce emissions.
Thus, industrialized nations can avoid their domestic emission reduction obligations by funding
designated, UN-approved "greenhouse gas or carbon-saving" initiatives abroad. The CDM, on
the other hand, establishes the flow of money and technology to the developing countries so that
they can lessen their expanding environmental impact while still advancing economically. These
carbon-saving initiatives fall into two groups:
1) Clean Development Mechanism (CDM) initiatives are implemented in nations not

subject to the industrialized nations' emissions "cap" and result in certified
emission reductions (CERS).
2) JI initiatives, which are similar to CDM but are implemented in other

industrialized nations like Eastern Europe, produce emission reduction units
(ERUs).
Thus, the CDM enables industrialized countries to economically shift away from their highly
polluting industries while enabling developing countries to develop in a manner that is
environmentally sustainable and uses new, clean technologies. The first objective must be
16
17
18
achieved in significant part through investments made by industrialized nations under the CDM;
therefore both groups must actively participate in order to reduce greenhouse gas emissions.
The Kyoto Protocol places restrictions on emissions for six major GHGs: sulphur hexafluoride
(SF6), nitrous oxide (NO), perfluorocarbons (PFCs), hydrofluorocarbons (HFCs), methane (CH),
and carbon dioxide (CO2).19 These GHGs are not equal in terms of benefits from emissions
reduction since they do not pose the same environmental harm and have different potencies and
lifespans. For instance, just one tonne of HFC-23 released into the atmosphere has the same
impact on global warming as 11,700 tonnes of CO, so that reducing just one tonne of HFC-23
results in the earning of 11,700 CERS. In the CDM market, the reduction of one tonne of HFC-
23 would therefore be given priority and received higher remuneration. This guarantees that
initiatives focusing on the strongest greenhouse gases are given top priority.
Fortunately, it is quite cheap to remove the negative effects of HFC’s, including HFC-23.
Therefore, non-annex I countries also emphasize on the reduction of HFC-23s through the CDM,
in addition to, many annex I industries choosing to voluntarily capture and destroy them under
their own domestic regimes. Market theory would imply that projects involving the
decomposition of HFC-23 have become very profitable and desirable investments in the CDM
market because of the low cost of HFC’s capture and destruction as compared to significant
CERS revenues per tonne eliminated. 7,645 CDM project activities have been registered as of
June 30, 2015, and 2,587 of those have already issued around 1.6 billion CERS. Between 2004
and 2015, China hosted more than 49% of all these projects, followed by India with 20.6% and
Brazil with 4.4%.
2. EMISSIONS TRADING PROGRAMMES IN OTHER COUNTRIES:
2.1.2 NEW ZEALAND
In 2008, New Zealand put in place an emissions trading system. There was a first transition
phase from July 2010 to December 2012. As there is no set emission cap, the New Zealand
19
Jon C. Lovett, “1997 Kyoto Protocol.” (2005) 49(1) Journal of African Law 94–96
programme is not a full cap-and-trade programme like that of the EU ETS. 20 Firms are forced to
give up credits under the Kyoto Protocol, such as ERUS, CERS, AAUS, or Removal Units, or a
new unit, the New Zealand Unit (NZU). NZUs are freely distributed to businesses based on
criteria that vary by industry and depend on factors including average global emissions levels,
trade exposure, and emissions intensity. There is no permanent cap and it can change with
overall production because allocation is based on average industry production, with enterprises
receiving permits in response to their production. Firms are only need to surrender one NZU for
every two tonnes of emissions during the first phase of the programme, and there are an infinite
number of NZUs available. The price of NZUs is capped at NZ$25 per tonne during this time.
Forestry is included in the programme and agricultural followed in 2015.21 In several aspects,
New Zealand's ETS is different from the EU ETS. Any emissions trading programme must
include these sectors since they account for a significant portion of New Zealand emissions
comes from forestry and agriculture. Since these sectors are not included in the EU ETS, New
Zealand's experience is helpful in understanding how to include these sectors. Additionally, New
Zealand adopted a different strategy to secure the early buy-in required to implement carbon
trading regimes. While New Zealand employs a "buy-one-get-one-free" capped pricing level to
allay initial cost concerns, the EU ETS used free allocation.
2.2.2 AUSTRALIA
Carbon emissions trading programme has been attempted to be implemented by several

Australian administrations since 2007. Attempts to implement the Carbon Pollution Reduction
Scheme (CPRS), the initial idea, were unsuccessful in 2010 due to major political obstacles.
Following its passage, Australia's Upper House of Parliament introduced and approved a new
Clean Energy Bill in November 2011.22 In the Bill, there are provisions for a fixed-price system
that will eventually transition to full trading. Compared to the EU ETS, the plan in this bill
would encompass trash, industry, fugitive emissions, and electricity. 23 Beyond the trading
20
B Buchner and A. D. Ellerman, ‘Over-allocation or Abatement? A Preliminary Analysis of the EU ETS Based on
2005 Emissions Data’ (2006) 41 Environmental and Resource Economics 267-287.
21
MACLAREN J. PIERS, “New Zealand’s Planted Forests as Carbon Sinks” (1996) 75(1) The Commonwealth
Forestry Review <http://www.jstor.org/stable/42607281> accessed 29 November 2022.
22
Mohammad Salahuddin and Shahjahan Khan, ‘EMPIRICAL LINK BETWEEN ECONOMIC GROWTH,
ENERGY CONSUMPTION AND CO2 EMISSION IN AUSTRALIA” (2013) 47 The Journal of Developing Areas
81–92 <http://www.jstor.org/stable/23612284> accessed 29 November 2022.
23
Ibid.
component of the Bill, some transportation fuels would also be subject to an additional carbon
price via excess duties. Land-based emissions would not be included in the plan, and farmers
would have a separate plan. The programme began in 2012 with a fixed pricing period during
which allowances were acquired from the government for AUS$23 per tonne, with real-terms
increases of 2.5% annually. Full trading with auctioning was implemented in 2015 as a result of
the bill, however, a portion of free allocation remained accessible to generators who would have
suffered substantial losses under a carbon price provided they met system security standards and
submitted Clean Energy Investment Plans.
The plan includes a 5-year cap with rolling 1-year extensions. Regulations for setting caps must
put them at least 12 Mt CO2 below the actual emissions from the previous year. There will be no
cap on the number of licences that can be banked from one year to the next. Free allocation will
be used for energy-intensive industries. In the first fixed-price term, no foreign offsets are
permitted, however local offsets are permitted for 5% of compliance obligation. Once free
trading has been implemented, Kyoto compliant credits from both local and foreign sources are
permitted, up to a maximum of 50% of compliance responsibility. During the first three years of
free trading, a price cieling and floor were implemented, with a price cap of AUS$20 above the
anticipated international permit price and a floor price of AUS$15 per tonne that increased
annually.
The political challenges in the implementation of such systems are exhibited by the Australian
experience regarding the implementation of carbon trading schemes. The plan has seen
numerous changes in shape over the course of many years of development. Due to its location
that cuts across national borders, the EU ETS may avoid some political challenges. In Australia,
the mining and agricultural industries' strong lobbying groups have had a significantly stronger
impact on the discussion. Australia adopted a fixed price system before transitioning to a free
trading framework in order to facilitate the scheme's admission. The adoption of price controls,
including a floor and a collar, may have been motivated in part by the unstable and low price
levels of the EU ETS. As the programme evolves, it will be vital to determine how these
instruments affect decisions about how much money to spend in low-carbon technologies.
2.3.2 UNITED STATES OF AMERICA

Despite unsuccessful attempts to implement a government cap-and-trade system in the USA,
culminating in the Waxman-Markey Bill, GHG emissions trading is still practiced there. 24 The
three main instances of emission trading below the federal level are discussed henceforth.
California enacted a climate policy that, among other things, focuses on raising vehicle standards
and improving energy efficiency and includes a cap-and-trade component. The Californian
programme has a long-term goal to progress toward a single focus of emissions trading and has
survived a referendum to halt it in 2010. Starting with state-owned electrical generation facilities,
imported electricity, and sizable industrial facilities, the programme has a tiered entrance. The
program's upstream treatment of fuel for combustion was added in 2015. It currently accounts for
85% of state emissions.25 Allowances were distributed at random until 2015, when auctions with
a floor price went into effect. For industries that produce a lot of emissions and are vulnerable to
trade, free allocation was kept. Allocation was based on benchmark rates, with allocation starting
at 90% of output and decreasing over time.26 The programme initially permitted offsets in four
categories: ozone depletion, forestry, urban forestry, and livestock manure digestion.
The California concept was supposed to be a part of a larger initiative under the Western Climate
Initiative (WCI). There were 11 state and provincial members of the WCI in both Canada and the
US, but six US members resigned in November 2011. The remaining participants remain
dedicated to collaborating to create emissions trading systems. California, British Columbia,
Ontario, and Quebec are the four members of the Emissions Trading Group (WCI 2010), which
is working to create laws and rules that will allow their individual schemes to be linked. With
auctions and offset regulations spanning the schemes, compliance started in 2013.
The growth of California and the WCI in general highlights an important trend of emerging sub-
national trading schemes. The proposed design has a few intriguing elements when compared to
EU experience. In sub-national schemes where electricity import and export are common, the
24
Julius J Andersson, “Carbon Taxes and CO₂ Emissions: USA as a Case Study” (2019) 11(4) American Economic
Journal: Economic Policy 1–30 <https://www.jstor.org/stable/26817911> accessed 29 November 2022.
25
JASON CORBURN, “Emissions Trading and Environmental Justice: Distributive Fairness and the USA’s Acid
Rain Programme” (2001) 28 Environmental Conservation 323–32 <http://www.jstor.org/stable/44519927>
accessed 29 November 2022.
26
Michael Grubb et al., “Emissions Trading Schemes in Other Jurisdictions” (Analyses of the Effectiveness of
Trading in EU-ETS Climate Strategies 2012) 35–40 <http://www.jstor.org/stable/resrep15948.8> accessed 29
November 2022.
provisions for including imported electricity are particularly crucial. However, they also contain
intriguing elements that could be expanded to other regions to address leakage concerns. The
restrictions on the use of offsets have an impact on prices and domestic abatement effects; the
rules for the use of domestic offsets may offer an intriguing illustration of how to expand ETSS
beyond electricity and industry.
The US already has a functioning emissions trading system for carbon dioxide, in addition to the
California and WCI schemes that are in development. The Regional Greenhouse Gas Initiative
(RGGI) covers CO2 emissions from electrical generation over 25 MW in ten states in the
northeastern United States.27 The plan relies almost entirely on auctioning, with state
governments investing the proceeds in a range of initiatives, including energy efficiency. This
draws attention to a key advantage of emissions trading schemes with auctions: the capacity to
mobilize funding for use in other mitigation efforts, which can encourage further reductions.
Although the scheme has seen very low prices, with auctions reaching the reserve price of $1.86
per tonne in December 2010, offsets are permitted up to 3.3% of facility emissions. 28 These low
prices can be attributed to a number of factors, including the global economic downturn, low gas
prices, and improved plant efficiency. With a programme review about to start and one of the
participating states, New Jersey, committing to leave the programme at the end of 2011, the
scheme's future is somewhat uncertain.
The US experience demonstrates that emissions trading can be effective at the sub-national level
even in the absence of federal action. In terms of emissions trading, the US has gone in a
fundamentally different direction than the EU. Regions with enough political clout to make their
own plans have implemented their own schemes as a result of the top-down structure's failure to
be implemented so far. This presents an intriguing model for those jurisdictions lacking the
overall political clout necessary to put a plan into action. It also offers a number of learning
opportunities prior to the introduction of a plan at the federal level. The Californian scheme
would extend the scope to include upstream fuel, while the REGGI experience highlights the
possibilities for introducing schemes with much narrower scopes than the EU ETS, which are
27
SOPHIE L’HÉLIAS, “Capping Carbon-Trading Risk.” (2013) 12(3) Corporate Knights 70–71
28
JASON CORBURN, “Emissions Trading and Environmental Justice: Distributive Fairness and the USA’s Acid
Rain Programme” (2001) 28 Environmental Conservation 323–32 <http://www.jstor.org/stable/44519927>
also highlighted by the US experience.29 The REGGI experience also emphasizes a lesson related
to the EU ETS: the risk of excess credits and the weakened incentives that result. These
experiences emphasize the significance of both creating strong caps up front and including
flexibility in plans to deal with unforeseen economic events.
2.4.2 JAPAN
Japan has created both mandatory city-level programmes and a national voluntary emissions
trading scheme (JVETS). Over 200 companies are included in Japan's voluntary emissions
trading scheme, which was launched in 2005 and covers a wider range of industries than the EU
ETS, but it has only attracted a small number of participants. The Ministry of the Economy
(MoE) and the Ministry of the Environment (MoE) each have different proposals for a
mandatory national programme (METI). In addition to these national voluntary programmes,
interconnected mandatory city-level programmes have been established in Tokyo and Saitama.
In April 2010, Tokyo launched a ground-breaking city-level programme aimed at reducing
energy-related CO in commercial, public, and industrial buildings. Based on a baseline
established by the average emissions from any three consecutive years between 2002 and 2007,
targets are set at the facility level (World Bank 2010). There are three categories of reductions:
8% for office, public, and commercial buildings, 6% for buildings whose district cooling or
heating contributes for above 20% of energy usage, and 6% for other factories. Permits are
grandfathered based on previous emissions, as determined by compliance period.
The Japanese systems provide intriguing models, exhibiting both striking contrasts and parallels
to the EU ETS. In contrast to the EU ETS, the scheme's scope is drastically different, bringing an
emissions trading method down to the local level. In addition, they include emissions from
office, public, and commercial buildings, which are excluded in Europe. The grandfathering of
emissions is conceptually comparable to the free allocation of the EU ETS, which exposes the
programme to the same concerns of windfall profits and diminished incentives observed in the
EU.
29
Susanne Droege, “Carbon Leakage and the EU ETS: Sectors at Risk and the International Context of Emissions
Trading, Trade Flows and Climate Policy.” (2009) Research Highlights: A Selection of Climate Strategies 19–22
<http://www.jstor.org/stable/resrep15553.4.> accessed 29 November 2022.
2.5.2 CHINA
In a number of its provinces, China is beginning to implement obligatory trade programmes.

Guangdong, Hubei, Beijing, Shanghai, Tianjin, and Chongqing have pilot trading programmes
planned. These regions account for around 16% of China's total emissions, or approximately
1167 Mt CO2 in 2009 (Meng et al., 2011), which is just slightly less than Germany and the
United Kingdom combined. These programmes were created to help China accomplish its 2020
goal of decreasing its carbon intensity by 40-45% compared to 2005 levels. With entities able to
exchange energy savings, the trading systems targeted energy use rather than emissions
explicitly.
Given the magnitude of China's overall emissions and the magnitude of the emissions covered by
the proposed schemes, China's decision to start the transition to emissions trading with pilot
schemes is a significant worldwide step. The prospective transition of Chinese sub-national plans
to national schemes might be compared to conceivable American developments. The initial
emphasis on energy usage as opposed to emissions is another significant distinction between the
Chinese approach and the EU ETS and other programmes. This trend is also happening in non-
Annex 1 nations, and it demonstrates the potential for market-based mechanisms to combat
climate change that do not directly target emissions.
2.6.2 KOREA (SOUTH)
South Korea planed to initiate an emissions trading programme in 2013. Due to objections from
industry, the date was pushed back to 2015. In the most recent version of the law, the plan has
evolved into a system that is not a complete trading scheme. The targets are "voluntary" in nature
and are set at the corporate level; and if they are not fulfilled there are two levels of action. If
they are not met once in place, an improvement order will be issued. If they are missed a second
time, a monetary penalty will be levied. However, foreign offsets are expressly excluded.
The South Korean experience exemplifies the political problems associated with the
implementation of emissions trading scheme, as well as the propensity of industrial lobbyists to
water down plans during their legislative passage. This underscores once more the lessons
learned from the EU ETS on the necessity of incorporating measures to encourage buy-in to the
system, as well as establishing mechanisms to remove them in order to evolve to a true emissions
trading scheme.
3. CARBON TRADING IN INDIA
In the worldwide market for carbon credits, India is becoming a major player. This has motivated
the investors, developers, and traders of carbon credits to establish their presence in India. As
India's greenhouse gas emissions are below the set objectives, it is permitted to sell surplus
credits to the wealthier countries. India is anticipated to account for around 31% of the global
carbon trade in 2010, which was valued at $25bn. According to the Ministry of Environment and
Forests of the Government of India, Indian enterprises have earned $7.9 million through carbon
credit trading despite the 2008 world economic recession. 30 Due to its comparatively cheap
abatement and transaction costs, it is anticipated that India would move swiftly in the future to
grab a major portion of the carbon credit market. Companies are able to sell their excess credit to
the foreign firms that cannot meet the requirements. Numerous Indian corporations have been re-
evaluated on the stock exchanges based on the windfall gains they would receive when carbon
trading begins.
India is regarded as the dark horse in this race due to the fact that over 200 Indian firms have
sought to register their CDM Projects in order to receive carbon credits. The 800 million strong
farming population in India has a unique chance to offer Carbon Credits to the affluent
countries.31 Using a regenerative braking technology on its rolling stock, the Delhi Metro Rail
Corporation (DMRC) in India has become the first rail project in the world to earn carbon
credits. DMRC has earned carbon credits by utilizing a regenerative braking technology on its
trains, which cuts power use by 30%.32 It is considered that the incentives and recognition
offered to green companies are what make this system so popular and exclusive, as opposed to
the system of imposing penalties on companies that violate the rules.
30
Esther Duflo et al., Towards an Emissions Trading Scheme for Air Pollutants in India (MIT Center for Energy
and Environmental Policy Research, 2010)
31
A. Ekka, “Effective Carbon Management for Carbon Market Compliance by the Rural Sector in India.” (2016)
111 Current Science 1780–86 <http://www.jstor.org/stable/24911538> accessed 29 November 2022.
32
Nandakumar Janardhanan, “Climate Mitigation and Energy Transition Measures” (2012) Transition to Energy
Secure Future: Policies Enabling Energy Transition in India, Institute for Global Environmental Strategies 21–26
<http://www.jstor.org/stable/resrep00778.13. > accessed 29 November 2022.
During the COP-26 meeting in 2021, India made the following promises that may be pertinent to
energy efficiency efforts:
 Reducing overall anticipated carbon emissions by one billion tonnes by 2030
 Reducing the carbon intensity of the economy by 45 percent by 2030, relative to levels
in 2005. The definition of carbon intensity is the quantity of carbon emissions per unit
of GDP.
 In addition, India plans to have 500 GW of non-fossil energy capacity and fulfill 50% of
its energy demand using renewable energy by 2030.33
At this time, foreign markets are the only forum for carbon trading for Indian players. China
leads the globe in terms of the number of projects registered with CDM for the production of
carbon credits in the form of CERs, while India ranks second globally. According to the CDM
Registry, as of 30 June 2022, the percentage of Indian CERs to overall CERs created under the
CDM is anticipated to be about 11%.34 In addition, the involvement in worldwide voluntary
marketplaces is exceptional. According to the worldwide VCM Dashboard, India has the most
quantity of non-retired credits, followed by China. India's voluntary carbon credits equate to
about 108,110,266 tonnes worth of CO2 emission offsets.35
How does India's carbon tax work?
India lacks explicit carbon pricing and cap-and-trade systems at present. Instead, it has a variety
of mechanisms that impose an implied carbon trading. BEE's (Bureau of Energy Efficiency)
Perform Achieve and Trade (PAT) strategy is its flagship initiative. It is a market-based system
for reducing the energy consumption of high energy intensive enterprises within the specified
sectors (13 sectors selected across 6 cycles).36 The designated consumers (DCs) within the
33
Courtney Weatherby and Brian Eyler, “REGIONAL ENERGY TRADE: ENERGY INTERDEPENDENCE AS A
SUSTAINABLE PATHWAY TO ENERGY SECURITY” (MEKONG POWER SHIFT: EMERGING TRENDS IN
THE GMS POWER SECTOR, Stimson Center, 2022) 33–38.
34
Esther Duflo et al., Towards an Emissions Trading Scheme for Air Pollutants in India (MIT Center for Energy
and Environmental Policy Research, 2010).
35
Guoyi Han, Chinaʹs Carbon Emission Trading: An Experiment to Watch Closely (Stockholm Environment
Institute 2012) <http://www.jstor.org/stable/resrep00429> accessed 29 November 2022.
36
Vijay Joshi And Urjit R. Patel. “India and a Carbon Deal.” (2009) 44 Economic and Political Weekly 71–77
defined sectors are assigned Specific Energy Consumption (SEC) objectives, and upon
exceeding the targets (i.e., using less energy than authorized), Energy Saving Certificates
(ESCerts) are awarded. The ESCerts can be exchanged at the power exchanges of India, like the
Power Exchange of India Limited (PXIL) and the Indian Energy Exchange (IEX). According to
a statement issued by the Ministry of Power on June 8, 2021, energy savings amount to around
17 MTOE (Million Tons of Oil Equivalent), resulting in annual CO 2 emissions reductions of
approximately 87 million tonnes.37 Nevertheless, ESCerts prices continue to decline because of
an ongoing oversupply of credits and a lack of demand. These and other low-carbon technologies
may generate a market in India worth up to $80 billion by 2030.38
Renewable Purchase Obligations (RPOs) and Renewable Energy Certificates (RECs) are
intended to promote the expansion of India's renewable energy sector. All electrical distribution
companies are mandated to obtain a minimum percentage of their electricity needs from
renewable energy sources. The State Electricity Regulatory Commission for each state
establishes and regulates the RPO.
Renewable Energy Certificate (REC) is a market-based instrument designed to encourage the

generation of electricity from renewable sources of energy, commonly known as clean energy.
The primary governing legislation is the Electricity Act of 2003, which delegates to the State
Electricity Regulatory Commission (SERC) the responsibility of specifying a percentage of total
electricity generation to be sourced from renewable energy, also known as renewable purchase
obligations (RPO). The Central Government created the REC system in order to ease the trade of
renewable energy. Additionally, RECs can only be exchanged on India's power markets.39
Internal Carbon Pricing is another method used by the private sector in India to decrease
emissions voluntarily in order to channel investments towards cleaner and more energy-efficient
technology in order to achieve corporate sustainability objectives. 40 Many of the largest Indian
37
L. Lohmann, ‘Carbon Trading- A Critical Conversation on Climate Change, Privatization and Power,
Development Dialogue’ (2006) 48 JIJL 87, 109.
38
Payal Aggarwl, ‘Emission law amendments: Laying the framework for Carbon trading in India’ (Vinod Kothari
Consultants, 31 August 2022) <Emission law amendments: Laying the framework for Carbon trading market in
India – Vinod Kothari Consultants> accessed 29 November, 2022.
39
Neng Shen and Rumeng Dend, ‘A review of carbon trading based on evolutionary prospective’ (Emerald Insight,
9 december 2020) < A review of carbon trading based on an evolutionary perspective | Emerald Insight> accessed
29 November 2022.
private enterprises, including Mahindra & Mahindra, Tata, Infosys, and Wipro, employ ICP to
reduce their carbon footprints.
Instances of Carbon trading in India:
 Jindal Vijaynagar Steel: Jindal Vijaynagar Steel has announced that it will be able to
sell $225 million worth of conserved carbon during the next ten years. This is feasible
because of their steel plant's usage of the Corex furnace technology, which prevents the
emission of 15 million tonnes of carbon dioxide into the environment.
 Powerguda in Andhra Pradesh: This hamlet in Andhra Pradesh sold 147 tonnes of
carbon dioxide equivalent credits saved. It was accomplished by the extraction of
biodiesel from 4,500 Pongamia trees in their community.
 Handia Forest in Madhya Pradesh: In Madhya Pradesh, it is anticipated that by

recovering 10,000 hectares of degraded community forests, 95 extremely impoverished
rural communities will earn at least $300,000 year in carbon payments.41
The 2022 Amendment will enable India to establish its own carbon credit market.
The Energy Conservation (Amendment) Bill 2022,42 which was passed by the Lok Sabha (Lower
House of the Indian Parliament) on August 10, is pending before the Rajya Sabha. It
recommends increasing the use of non-fossil fuel energy, such as green hydrogen and green
ammonia, to decrease imports of fuels required to power the nation. The proposed legislation
will replace the Energy Conservation Act, which was established by the Indian Parliament in
2001 and cleared the path for energy conservation with an emphasis on energy-efficient
appliances and technologies. The legislation also resulted in the establishment of the Bureau of
Energy Efficiency (BEE), the government agency in charge of energy conservation problems
such as the establishment of regulations, standards, and specifications, among others. 43 Experts in
40
Change and Forests: Emerging Policy and Market Opportunities (Charlotte Streck et al., Concept Publishing
Company 2009).
41
William F. Laurance, “Can Carbon Trading Save Vanishing Forests?” (2008) 54 Bio Science 286–87
<https://doi.org/10.1641/b580402> accessed 29 November 2022.
42
Energy Conservation (Amendment) Bill, 2022.
43
‘Energy Conservation (Amendment) Bill, 2022’ (PRS India 2022) < The Energy Conservation (Amendment) Bill,
2022 (prsindia.org)> accessed 26 November 2022.
the energy sector applauded the decision, but argued that consumers who are eager to switch to
greener energy sources should be incentivized.
Among other provisions, large residential and commercial buildings, with a minimum of 100
kilowatts of connected load or contract demand to 120 kilovolt Ampere (KVA), are required by
the most recent legislation, to utilize a minimum proportion of clean energy for their energy
requirements. Previously, buildings with a minimum connected load of 500 kW were required to
comply with the regulation.44 In addition, the measure grants states the authority to alter
construction codes to make these structures sustainable and energy-efficient. This measure grants
the states the authority to enact these supplemental regulations. In addition, the statute stipulates
a maximum penalty of Rs. 10 lakh for noncompliance.
Due to the greater cost of renewable energy installations such as solar panels and modules, this
will certainly increase the cost of erecting these structures, according to industry experts. India,
which is still a net importer of oil, natural gas, and fuels to fulfill its energy needs, plans to
manufacture and utilize green hydrogen and green ammonia within the nation to lessen its
reliance on imports for fuels under this law. While the amendment itself does not define green
hydrogen and ammonia, the modified bill proposes revisions to the meaning of the word 'energy'
to include all forms of energy originating from fossil fuel, non-fossil fuel, and renewable energy.
Even during the bill's presentation, the government claimed that it would open the way for an
increase in the production and use of green hydrogen and green ammonia.
The proposed amendment also advocates for raising the number of ex-officio members on the
Governing Council of BEE by adding more representation from other ministries. In addition, the
bill proposes establishing a domestic "Carbon Credit Trading market" and authorizing Indian
government entities to issue Carbon Trade Certificates in order to maintain a seamless carbon
trading process in the country.
In the past, India has invested in the production of carbon credits and sold them to foreign
enterprises by exporting these credits. Now, however, the government intends to prohibit
exports, in order to promote the development of a domestic carbon credit market, and increase
44
Sartori, Nicolò and Margherita Bianchi, “Indiaʹs Institutional Governance and the Energy Transition” (2022)
Istituto Affari Internazionali (IAI) <http://www.jstor.org/stable/resrep19679> accessed 29 November 2022.
domestic commerce. The Minister of New and Renewable Energy, R.K. Singh, announced the
prohibition on carbon credit exports in his speech in the Lok Sabha when he proposed this law,
though it is not included in the bill. The Act mentions a mechanism for trading carbon credits,
but the public, companies, and politicians have yet to be provided with specific instructions and
rules on this scheme and on carbon credit certificates.
What India stands to lose under a policy of "no export" for carbon credits
Countries such as Papua New Guinea, Indonesia, and Uruguay have likewise outlawed the
export of domestically created credits in the recent past. 45 This is due to the fear of non-
compliance with the Nationally Determined Contribution (NDC) outlined in the legally
obligatory Paris Agreement. According to reports, India is the greatest carbon credit exporter in
the world.46 It has generated around 30 million carbon credits, the second-highest amount in the
world. According to an estimate by ICF International, the carbon credit market in India would
experience fast development over the next two years, reaching $10 billion.47
In addition, according to a report titled India's Turning Point issued by Deloitte in August 2021,
India has the potential to generate USD 11 trillion through decarburization exports within a short
period of time.48 The 'Volumes and types of unused Certified Emission Reductions (CERs)'
report by the Perspectives Climate Group and Zurich University of Applied Sciences- School of
Management and Law, published in the second half of 2021 on the international carbon markets,
reveals that India is the second-largest CER-producing nation in the world, after China. 49
Currently, the majority of carbon credits created by Indian participants are exported to other
countries, according to the available statistics. The foreign currency revenues are a crucial
incentive for the business sector to actively participate in decarburization.
Important Bill Features:
45
Trennepohl Natascha and Jeffrey McGee, “Current Developments in Carbon & Climate Law” (2018) 12 Carbon
& Climate Law Review 332–36 <https://www.jstor.org/stable/26554656> accessed 29 November 2022.
46
Leo Jordy, ‘India to Ban Carbon Credit Export Until Climate Targets Are Met’ (Seneca ESG, 10 August 2022) <
India to Ban Carbon Credit Export Until Climate Targets Are Met - Seneca ESG> accessed 29 November 2022.
47
‘Energy Conservation (Amendment) Bill, 2022’ (PRS India 2022) < The Energy Conservation (Amendment) Bill,
2022 (prsindia.org)> accessed 26 November 2022.
48
Ibid.
49
A Ekka, “Effective Carbon Management for Carbon Market Compliance by the Rural Sector in India.” (2016)
111 Current Science 1780–86 <http://www.jstor.org/stable/24911538> accessed 29 November 2022.
Carbon credit trading: The bill authorizes the federal government to designate a carbon credit
trading mechanism. The federal government or any authorized agency may award carbon credit
certificates to enterprises that have registered and complied with the scheme requirements. The
entities will be authorized to deal in the certificates. Additionally, anybody else may acquire a
carbon credit certificate voluntarily.50
Obligation to utilize non-fossil sources of energy: The Act authorizes the federal government to
establish energy consumption requirements. The bill stipulates that the government may impose
a minimum proportion of non-fossil energy use on selected consumers. Various consumption
criteria can be established for various non-fossil sources and consumer groups. Among the
customers designated are:
 Industries including mining, steel, cement, textiles, chemicals, and petrochemicals
 Transport sector which includes Railways, and
 Commercial properties as indicated in the schedule.51
A penalty of up to Rs 10 lakh may be imposed for noncompliance with this requirement. In

addition, it will incur a fine of up to double the price of oil equivalent each unit of energy utilized
in excess of the standard.
Energy conservation code for buildings: The Act authorizes the federal government to prescribe
an Energy Conservation Code for structures. The code specifies minimum area-based energy
consumption requirements. The bill modifies this provision to establish a "Energy Conservation
and Sustainable Building Code." This new code will stipulate rules for energy efficiency and
conservation, the use of renewable energy, and other aspects of green buildings. Under the Act,
commercial buildings are subject to the energy conservation code:
 Constructed after notice of the Code; and
 Possessing either a minimum connected load of 100 kilowatts (kW) or a contract load of
50
A. Bose, “Voluntary Markets for Carbon Offsets: Evolution and Lessons for the LNG Market” (2021) Oxford
Institute for Energy Studies 8–13 <http://www.jstor.org/stable/resrep35987.8.> accessed 29 November 2022.
51
Energy Conservation (Amendment) Bill 2022, s 2.
120 kilovolt amperes (kVA) (kVA).52
Requirements for cars and vessels: Under the Act, energy consumption standards may be
imposed for equipment and appliances that use, produce, transfer, or provide energy. The bill
increases the scope to encompass automobiles (as specified by the Motor Vehicles Act of 1988)
and vessels (includes ships and boats). The inability to comply with criteria would result in a fine
of up to Rs 10 lakh. In the event of vessels, noncompliance will result in a fine of up to two times
the price of oil equivalent for excess energy use. Infringers of fuel usage regulations may be
fined up to Rs 50,000.53
Difficulties posed by the 2022 Amendment:
Who should control carbon credit trading? According to the Act, the Ministry of Power will be
responsible for regulating the programme, and the Bureau of Energy Efficiency under the
Ministry of Power will be the implementing agency. According to the Government of India
(Allocation of Business) Rules, 1961, the Ministry of Power is responsible for: general policy in
the power sector, problems connected to energy policy and coordination, and power sector
energy conservation and efficiency.54 About 75% of India's greenhouse gas emissions in 2016
were produced by the energy sector. 55 However, carbon credit trading might expand outside the
energy industry. Other significant contributors to greenhouse gas emissions include agriculture
(14%) and industrial operations (8%). Moreover, the land use and forestry sector is the primary
sector that provides a net carbon sink, i.e., it absorbs greenhouse emissions. In 2016, this sector
absorbed approximately 11% of the other sectors' net greenhouse gas emissions.
According to the Business Allocation Rules, the Ministry of Environment, Forest, and Climate
Change is in charge of regulating "climate change and associated topics," environmental
standards, and forestry. In countries such as the United States, the United Kingdom, and
Switzerland, the Environment Ministry or Environment Regulator implements systems similar to
the one suggested by the Bill (known as emission trading or cap-and-trade programmes).
52
53
54
Government of India (Allocation of Business) Rules, 1961.
55
R.S. Yadav, “India’s Energy Security Policy.” (2018) 64 India Quarterly 1–27
Who will govern the market for carbon credits is unclear. In general, trading platforms are
governed by sector-specific regulators. For instance, the Securities and Exchange Board of India
(SEBI) regulates stock and commodities trading. The Central Electricity Regulatory Commission
(CERC) regulates electricity trade. In different Acts, the regulatory bodies for commerce have
been outlined. The proposed legislation does not specify how carbon credit certificates would be
exchanged or who will govern such trading. If there were to be a regulator, the question is
whether or not it should be named in the Act. Note that the Energy Conservation Act includes
provisions for energy savings certificates. The Act does not indicate who is responsible for
regulating the trade of these certificates. These certificates are exchanged on power exchanges,
which are governed by CERC. Similar activities may qualify for renewable energy, energy
savings, and carbon credit trading systems.
In the energy sector of India, there are currently two key trading schemes in operation: I
Renewable Energy Certificate under the Electricity Act, 2003 for the promotion of renewable
energy, and (ii) Energy Savings Certificate under the Energy Conservation Act, 2001 for the
promotion of energy efficiency. The bill introduces a carbon credit certificate for decreasing
carbon emissions that may be traded. The same activity may be individually covered by each
scheme. For instance, if a power producing firm generates renewable energy, it will receive a
renewable energy certificate. By creating renewable energy, a company may be able to reduce
carbon emissions and thereby qualify for carbon credits. Similarly, all energy conservation
techniques qualify as carbon emission reduction strategies since they lower the amount of energy
generation required and, thus, cut carbon emissions. The bill does not state if these certifications
would be interchangeable.
Difficulties in fulfilling the duty to utilize non-fossil energy: Electricity is a fundamental kind of
energy utilized by all consumer categories. The majority of users may not be able to purchase
power from a certain provider at this time: supply from a power distribution firm (discom), (ii)
direct purchase from a generator, and (iii) captive generation (producing on their own); all are
potential sources for a customer to satisfy their electrical requirements (generating on their
own).56
56
Nanda Kumar Janardhanan and Institute of Peace and Conflict Studies, “India’s Energy Policy: Energy Needs and
Climate Change” (2017) Institute of Peace and Conflict Studies 3–8 <http://www.jstor.org/stable/resrep09398.4.>
Choice in the energy mix of supply from discom: Typically, commercial enterprises in Delhi,
such as hotels, will purchase energy from the local discom. Under the terms of the bill, it may be
required to purchase power from renewable sources. Typically, a single discom delivers energy
to all users in a region, making the power supply a monopoly. Since the discom determines the
energy mix, the hotel may not have control over or a say in the mix of power it purchases.
Difficulties with open access: Amendments to the Electricity Rules published in June 2022 let
users with a minimum load of 100 kW to get green energy from a generator of their choosing
(called open access). Prior to this, the limit was 1 MW. According to these Rules, green energy
consists of renewable energy sources including sun, wind, and hydro, as well as green hydrogen
and green ammonia. However, the Ministry of Power notified the Standing Committee on
Energy in 2022 that in the majority of states, customers do not have open access because
Regulatory Commissions have mandated exorbitant open access fees.
Consequences of responsibility for emerging technologies: Through the non-fossil energy

consumption duty, the bill intends to enhance the demand for new sources of non-fossil energy,
and therefore their acceptance. The words ‘non-fossil sources’ are not defined in the Bill neither
in the Electricity Act of 2003. Energy is defined in the bill as "any kind of energy obtained from
fossil fuels, non-fossil sources, or renewable sources." Consequently, it differentiates between
non-fossil sources and renewable sources (such as solar, wind, and hydro). According to the
Statement of Objectives and Reasons for the Bill, non-fossil sources include biomass, green
hydrogen, green ammonia, bioethanol, and biomass.
From some of these sources, the user may not be able to get a significant amount of electricity. In
August of 2022, biomass accounted for 2.5% of India's total installed capacity for energy
generation. Green hydrogen and green ammonia technologies are still in their infancy. 57 At this
time, it may not be cost-effective to generate energy from them. In addition, energy is a crucial
input for industrial activity; therefore, such a requirement might have a negative effect on the
competitiveness of the sector. To stimulate the use of renewable energy, the Electricity Act of
2003 takes a distinct strategy. It requires discoms, which are bulk-buyers from generators and
providers to end-consumers, to acquire a set proportion of their energy from renewable sources.
57
Centre for Science and Environment, “What Is on the Agenda at COP 27?” (Centre for Science and Environment,
2022) 7–18 <http://www.jstor.org/stable/resrep44701.4> accessed 29 November 2022.
4. THE LEGALITY OF CARBON TRADING IN INDIA
5. PROPERTY
According to the former head economist of the World Bank, Sir Nicholas Stern, the basic
foundation of emissions trading is the assignment of property rights to the emitters and the
subsequent selling of these rights.58 Property rights are important to the concept of "privatizing" a
natural resource in order to facilitate an exchange between the provider of the products or
services and the consumers. In a study of the tax consequences of the EU ETS, Price Waterhouse
Coopers determined that the trade in CO2 emissions is comparable to the transfer of similar
rights, including copyrights, patents, licensing rights, and commercial and industrial
trademarks.59
A thorough analysis of the commodity known as Certified Emission Reductions (CERs),

sometimes known as carbon credits, reveals that it is a certificate with market value. There are
parties eager to sell such certificates, as well as those willing to buy them. Carbon credits are a
viable product due to their inherent worth and transferability. Therefore, the aforementioned
product falls under the definition of "goods" as it appears in paragraph (1) of Section 2 of the
DVAT Act of 2004.60
This permit trading has been essential since the 1997 passage of the Kyoto Protocol, which
attempted to reduce carbon emissions in industrialized nations. For the sake of environment,
India accepted the 2002 Kyoto Protocol despite the fact that, as a developing nation, it has no
duty to make reduction promises. India set a voluntary goal in 2009 to reduce its GDP's emission
intensity by 20 to 25 percent by 2020, with 2005 as the baseline year. India also joined the
historic Paris Agreement in April 2016, along with 180 other members of the United Nations
Framework Convention on Climate Change (UNFCCC), where it promised to limit the global
58
Zhong Xiang Zhang, “THE WORLD BANK’S PROTOTYPE CARBON FUND AND CHINA” (2006) 31 The
Journal of Energy and Development 157–71 <http://www.jstor.org/stable/24812998> accessed 29 November 2022.
59
Ibid.
60
Rita Pandey, “Comparing the Cost Effectiveness of Market based Policy Instruments versus Regulation: The Case
of Emission Trading in an Integrated Steel Plant in India” (2004) 9 Environment and Development Economics 107–
22 <http://www.jstor.org/stable/44378926> accessed 29 November 2022.
average temperature rise to 1.50 degrees Celsius by 2030 by lowering GHG emissions. 61 The
nation submitted its National Climate Action Plan to the UNFCCC on October 1, 2015 in an
effort to cut emissions and promote sustainable energy. All of these demonstrate India's
commitment to resolving the issue.
6. CONTRACTUAL ISSUE RELATED: FUTURE TRADING
Futures contracts are utilized to conduct carbon credit transactions in India. A futures contract is
a standard contract between two parties for the purchase or sale of a defined asset of standardized
quantity and quality at a future date at an agreed-upon price (the futures price) today (the futures
price). On a futures exchange, the contracts are exchanged. Such contracts are only applicable to
items that are in the form of moveable property other than actionable claims, assets, and
securities. Advance contracts in India are governed by the Indian Contracts Act of 1872 and the
Forward Contracts (Regulation) Act of 1952.62
In accordance with the current provision of the Forward Contracts Regulation Act, the trading of
forward contracts shall be regarded null and invalid, as no actual delivery is provided against
these contracts. To rectify the situation, the Union Cabinet passed the Ordinance to amend the
Forward Contracts (Regulation) Act on 25 January 2008.63 However, since the bill could not be
adopted by Parliament, the Ordinance lapsed and the Forward Contracts (Regulation)
Amendment Bill, 2010 is still pending in the House.64 This legislation also modifies the
definition of "forward contract" to include "commodity derivatives." Currently, only physically
delivered products are included in the definition of 'goods'. However, according to a notification
from the Union Government dated 4 January 2008, the requirements of section 15 of the Forward
Contracts (Regulation) Act, 1952 (which governs forwarding contracts in designated products)
would apply to carbon credits. This created the conditions for future carbon credit trading.65
61
Anupam Jha, “Paris Agreement and India: Dalliance or Serious Alliance?” (2018) 33 Natural Resources &
Environment 26–29 <https://www.jstor.org/stable/27010478> accessed 29 November 2022.
62
Forward Contracts (Regulation) Act, 1952.
63
Ordinance Forward Contracts (Regulation) Act of 1952.
64
Forward Contracts (Regulation) Amendment Bill, 2010
65
Tim Laing and Michael Mehling, “Designing an Emissions Trading System: An Overview of International
Practices” (2013) International Experience with Emissions Trading, Climate Strategies 1–7
<http://www.jstor.org/stable/resrep15570.4> accessed 29 November 2022.
The National Commodity and Derivative Exchange launched Carbon Credit future Contracts by
notice and with the consent of the Forwards Market Commission (FMC) in order to increase
market transparency and enable producers to profit from environmental initiatives. 66 Only
possible contracts for carbon loans are traded on the NCDEX in India. Indian businesses have
been able to capitalize on the carbon market's unanticipated growth, making the country a
preferred destination for carbon credit purchasers. India would likely earn between $5 billion and
$10 billion from carbon trading in the future (Rs 22,500 crore to Rs 45,000 crore). 67 It is
noteworthy that India, under the Clean Development Mechanism, is one of the main receivers of
the global carbon trade, accounting for around 31%. India's carbon market is one of the fastest-
growing in the world and has already created about 30 million carbon credits, the second-highest
number of transactions globally. Even areas such as information technology, biotechnology, and
business process outsourcing (BPO) are not expanding as rapidly as India's carbon trading
industry. There are now 850 projects with a total cost of 650 billion rupees. Carbon is now traded
on the Multi Commodity Exchange in India. It is one of the first carbon credit exchanges in Asia.
7. TAX
VAT (Value Added Tax):
In 2009, prior to the implementation of GST legal dispute regarding VAT filing pertaining to the
subject of CER's arose. The former Joint Commissioner (L&J) of the Trade and Tax Department
petitioned the Commissioner's Court to determine the validity of carbon credits.68 He requested
clarification as to whether the sale of CERs is taxed under the Delhi Value-Added-Tax (DVAT)
Act of 2004, and if so, at what rate? Due to the inherent character of carbon credits, the
commission determined that it had acquired commodity status and is now traded on India's Multi
Commodity Exchange (MCX). CER is also certified by the Clean Development Mechanism
(CDM) established by Article 12 of the Kyoto Protocol.69
66
William Chameides and Michael Oppenheimer, “Carbon Trading over Taxes” (2007) 315 Environment Science
67
Ipshita Chaturvedi, ‘The ‘Carbon Tax Package’: An Appraisal of Its Efficiency in India’s Clean Energy Future’
(2016) 10 Carbon & Climate Law Review 194–201 <http://www.jstor.org/stable/44134899> accessed 29 November
2022.
68
Vijay Joshi And Urjit R. Patel. “India and a Carbon Deal.” (2009) 44 Economic and Political Weekly 71–77
The essence of this certificate is to have a transferable market worth. Therefore, CERs fall under
Entry No. 3 of the Third Schedule of the DVAT Act of 2004, 70 and the tax rate is 4%. The
government of Delhi declared that Certified Emission Reductions are to be recognized as
products and, as such, are subject to value-added tax in the city. The Commissioner of Trade and
Taxes has indicated that the essence and elements of carbon credits must be researched and
compared to the notion of goods based on ordinary commodities purchased and sold in the
market; consequently, the sale of carbon credits would be subject to value-added tax.
1.2 Taxation Concerns with CERS
The Income Tax Department has set its eyes on the carbon credits trading industry in the nation
in an effort to combat the estimated Rs 1 trillion in tax fraud in the sector. The income tax
administration has estimated that around 200 small and major Indian businesses trade in carbon
credits and this information has also been included in their yearly reports. However, there are
differing opinions regarding the inclusion of such money in the various income categories. The
tax treatment of credits is a topic that has been the subject of extensive debate. Tax issues may
arise at the time of credit entitlement, as the credit could be viewed as a benefit arising from the
carrying on of a business specifically taxable under section 28(iv) of the Income-tax Act, or on
its sale, where questions may arise as to whether the receipt is on a capital or revenue account
and, if the former, whether there could be taxable capital gains.
2.1 Gains or Profits from the selling of carbon credits are taxed as business income under
section 28(iv).
Section 28 of the Income Tax act, 1961 [hereinafter 'the act'] provides taxable income under
profits and gains from business or profession, with sub-clause (vi) laying forth two conditions:
the assessee must get a benefit or perquisite, and it must originate in the course of business. 71
Carbon credits are the advantages granted to an industry during production for avoiding utilizing
fossil fuels or consuming less than what was allotted.72 The sale of CERs is unquestionably a
benefit since it permits the assessee to transfer a valuable right to emit additional emissions,
69
70
Delhi Value Added Tax Act 2004, schedule 3.
71
Income Tax Act 1961, s 28(iv).
72
D.C. Agarwal, ‘Carbon Credits - Whether taxable or not?’ (2012) 27 taxmann.com 336.
which emerges from conducting business. Consequently, the selling revenues of such CER
reductions emerge in the normal course of business and as a result of conducting business.
The Honorable Tribunal in Rajasthan State Mines & Minerals Ltd. v. Assistant CIT, Circle-6,
Jaipur73 observed the following characteristics of CERs:
 Right to receive CERs arises only if the assessee conducts business,
 Such business is conducted by saving fossil fuel,
 CERs have a market value,
 Quantities of cers assigned by Govt. Vary with the size of the industry or production
target.
Therefore, the honorable court decided that the revenues from the sale of CERs constitute
revenue receipts not only due to the fundamental character of the entitlement, but also due to
their close connection to doing business.74 Henceforth, such sale revenues are subject to taxation
under section 28(iv) of the act, since the industry gets a benefit from conducting business.
In addition, the Income Tax Appellate Tribunal (ITAT) noted in CIT v. Kalpataru Power
Transmission Ltd.75 that CERs are made available to the assessee solely because it conducts its
business in an environmentally friendly manner, thereby allowing other industries to engage in
carbon-emitting business activities. If the assessee did not undertake any commercial activity, it
could never collect carbon credits, according to the Honorable Court. Due to the fact that the
subject of energy savings only occurs in the context of business, the activities of doing business
and obtaining carbon credits cannot be separated. Thus, it is determined that the sale proceeds of
carbon credits satisfy the two conditions outlined in section 28(iv) of the act, have the
characteristics of revenue receipts, have an inextricable link with business activity, and are an
offshoot of a business conducted in an environmentally responsible manner, and are therefore
taxable under the head of Business & Profession income.
73
Rajasthan State Mines & Minerals Ltd. v. Assistant CIT [2020] 116 Taxmann 975 (Jaipur).
74
Ibid.
75
CIT v. Kalpataru Power Transmission Ltd. (2019) 11 SCCOnline ITAT 358.
2.2 CERs are similar to import entitlements in that they are Revenue Receipts.
It is demonstrated gently that CERs are revenue receipts since they are similar to import
entitlements. If an assessee completes a particular number of exports, it earns Import
Entitlement, the permission to import specified goods essential for its manufacturing operation. 76
It functions similarly to the trade of CERs in that the assessee may either import such
commodities or, under the import entitlements, transfer the entitlements to other parties, who
may then import the products in issue for manufacturing purposes.77 Moreover, if the assessee
exploits the IEs by actually importing and selling the commodities mentioned therein, the sale
revenues cannot in any way be considered a capital receipt. The nature of the receipt is
unaffected by the assessee's decision to exploit the IEs in a manner other than real import. 78 The
selling of import entitlements is one method of utilizing import entitlements; consequently, it
will undoubtedly generate income. CERs are also entitled for fossil fuel consumption. If CERs
are saved, the industry can generate revenue by selling them. CER Certificates should therefore
be classified as revenue receipts on par with import entitlements.79
In Indo Asian Switchgears Pvt. Ltd. v. Inspecting Assistant, 80 the ITAT noted that "the import
entitlement authorizes import of items that bestow a right that is susceptible to monetary
valuation and arises immediately in the course of business." By no stretch of the imagination can
it be considered a capital asset or represent one within the meaning of Section 2(14).
Furthermore, the sale of this privilege has generated taxable gains or profits under Section 28 of
the act.81 Similarly, CER Certificate permits increased carbon output to the purchaser, which
imparts a right that may be monetized, and such revenues were neither random nor nonrecurring.
Therefore, it should be treated as a capital asset and subject to taxes on earnings and gains.
In Agra Chain Mfg. Co. v. CIT,82 the Allahabad High Court determined that the assessee's
contention that the right to import did not cost the assessee anything prior to its acquisition had
any substance. In addition, the Court noted that any item with no purchase cost might yet have
76
D.C. Agarwal, ‘Carbon Credits - Whether taxable or not?’ [2012] 27 taxmann.com 336 (ART).
77
Ibid.
78
Gedore Tools Pvt. Ltd. v. CIT [1999] 105 Taxman 3 (Delhi).
79
D.C. Agarwal, ‘Carbon Credits - Whether taxable or not?’ [2012] 27 taxmann.com 336 (ART).
80
Indo Asian Switchgears (P.) Ltd. v. Inspecting Assistant [1985] 12 ITD 65 (Delhi).
81
DK Industries v. CIT [1984] 19 Taxmann 399 (Ker.).
82
Agra Chain Mfg. Co. v. CIT [1978] 114 ITR 840.
significant value, as is the case with import entitlements. Similarly, the cost of purchasing
Carbon credits may be $0, but they have a high value, making them a source of money.
Moreover, in Agra Chain Mfg. Co. v. Allahabad High Court,83 the Allahabad High Court ruled
that the issuance of import entitlement was not contingent on the Government's generosity and
benevolence, but rather the exporter was entitled by law to receive the entitlement provided he
met the stipulations. The Court further emphasized that since there is no bounty, gift, or prize
involved in this case, there is no need to examine the assessee's exemption claim. Similarly, the
entitlement to CER Certificates is not a gift, subsidy, or compensation from the government or
any multilateral forum; rather, it is a certificate for conducting business in an environmentally
friendly manner, which creates the right to gain profits by transferring them to other industries.
Therefore, CERs constitute revenue, and the assessee cannot claim an exemption from taxes on
carbon credit sales.
2.3 Revenue from the selling of CERs is not a consequence of environmental concern.
It is demonstrated here that the Madras High Court erred in its conclusion that revenues or
benefits from carbon credits are a result of environmental concerns and not commercial
operations.84 According to the precedents cited in the challenged decision, revenue from CERs is
subsidies given by the government or multilateral institution, i.e., UNFCC, and is thus not
taxable. In the current situation, the assessee does not get subsidies from any government, public,
or global forum, but instead sells them to private firms for a profit, allowing them to release
more carbon.85 Moreover, even if there had been a case of government or UNFCC subsidy,
Section 2(24), while defining income, covers any type of subsidy or remuneration from the
government or other such public entity under sub-clause (a)(xviii).86 The benefit he has gained is
a byproduct of his ecologically conscious company practices.
In addition, by executing the CDM Project, the assessee unquestionably gains efficiency in terms
of emission reduction. In a typical circumstance, the assessee-company would not have bothered
to get the CERs if there had been no additional advantage associated. It is because the assessee
83
Agra Chain Mfg. Co. v. CIT [1978] 114 ITR 840.
84
PCIT v. M/s. Vulcan Energy Pvt. Ltd. TCA 149 of 2021 (Mad.).
85
PCIT v. M/s. Vulcan Energy Pvt. Ltd. TCA 149 of 2021 (Mad.).
86
Income Tax Act 1961, s 2(24)(xviii).
would have received the benefit of any expenses paid for the implementation of the project as a
pollution reduction measure by claiming them in its profit and loss statement, and the revenues
from the sale of CERs are additional income. Since there is more to the story, and since it is
known that certificates issued by UNFCCC have inherent value and there is a ready market for
redemption/trading, it is evident that the assessee sought to get the certificates in question.
In addition, the High Court erroneously determined that the assessee only shifted to CDM due to
environmental concerns, failing to take into account that the globally profitable and well-
established market for the sale of carbon credits is also an attractive element. Carbon credits are
often traded on the London-based European Climate Exchange, presumably over the Internet.
Similar trading occurs on the websites Nordpool.com, headquartered in Norway, Bluenext.com,
based in Paris, and Chicago Climate Exchange, situated in Chicago, Illinois, United States.
Recent reports indicate that trading has begun in India via MCX (Multi Commodity Exchange)
and NCDEX (National commodity and derivative Exchange). Therefore, certificates (CERs) are
comparable to shares or stock traded on the stock exchange. Consequently, the selling profits
resulting from the assessee's sale of CERs constitute taxable income and are appropriately taxed
by the Assessing Officer.
Thus, it may be determined that the sale revenues cannot be deemed subsidies or compensation
from the government or any multilateral forum, as the UNFCC developed the aforementioned
framework for simple trade and profit, and a thriving worldwide market has been formed.
Consequently, it is obvious that the earnings from the sale of CERs are not the result of
environmental concerns, and the assessee is likely to migrate to CDM due to the attractiveness of
the well-established carbon trading benchmark.
3. CARBON CREDITS AS A RESULT OF ENVIRONMENTAL WORRY
In the case of CIT v. My Home Power Pvt. Ltd. 87 of the Hyderabad bench of the ITAT, it was
determined that Carbon Credits are in the nature of "an entitlement" received to improve the
world's atmosphere and environment by reducing carbon, heat, and gas emissions, the source of
which is deemed to be of "world concern." The ITAT further held that: "That due to such global
concern, the assessee receives a benefit in the type of a transfer regarding carbon credits."
87
CIT v. My Home Power Ltd. [2012] 365 ITR 82.
Carbon Emission Reduction, often known as carbon credits, is a byproduct of environmental
concerns; thus, it should not be taxed, and this argument has been the starting point for a
multitude of disputes involving carbon credits. In Japan Chambers of commerce and Industry
India v. Director of Income-tax,88 it was observed that the problem of carbon credits is a
byproduct of environmental protection. This is a worldwide issue that directly relates to the
assessed business’s primary goals. If there were no global environmental concerns, no one would
discuss carbon credits. The sole reason for the debate of carbon credits is worldwide
environmental concern."89 In addition, the carbon credit is akin to a "right" obtained to enhance
the global climate and environment by lowering carbon, heat, and gas emissions. It is neither
developed nor created as a result of conducting business, but rather accumulated owing to
"global concern." Due to global concern, it has been made accessible assuming the nature of a
transferable right or entitlement. The origin of carbon credits is global concern and
environmental protection. Carbon credits are made accessible to the assessee because of energy
consumption reduction, not because of the assessee's company; therefore, it would be incorrect to
state that carbon credits are also a byproduct. 90 It is a credit granted to the assessee in accordance
with the Kyoto Protocol and international agreement. In addition to this comment, reference was
made to the explanation of the Finance Act of 2017 which stated:
"Carbon credits are an incentive granted to an industrial enterprise for reducing its emission of
GHGs (Green House Gases), including carbon dioxide. This can be accomplished in a variety of
methods, including switching to wind and solar energy, forest regeneration, landfill methane
absorption, etc. Certain industrialized nations are obligated by the Kyoto Protocol to cut their
GHG emissions in exchange for carbon credits. A decrease in emissions entitles the entity to a
CER (Certified Emission Reduction) certificate as a credit. The CER is transferable, and its
holder can transfer it to an entity that requires Carbon Credits in order to overcome a negative
position on carbon credits."91
88
Japan Chambers of commerce and Industry in India v. Director of Income-tax (Exemptions), New Delhi [2008]
(4) TMI 350 (Tri).
89
My Home Power Ltd. v. Dy. CIT [2013] 81 DTR (Hyd.) (Trib.).
90
CIT v. Subhash Kabini Power Corporation Ltd. [2016] 385 ITR 0592 (Karn).
91
Explanatory Note to the Provisions of the Finance Act 2017, (Ministry of Finance, Circular 2/2018) <
circular2_2018.pdf (incometaxindia.gov.in)> accessed 20 November 2022.
As there is no element of profit or gain, revenue from the sale of carbon credits should be
considered as a capital receipt and omitted from calculating total income and book profit under
section 115JB of the Act.92 It is important to remember that the notion of carbon credits arose in
response to a growing awareness of the need to regulate emissions. Carbon credits are essential
elements of national and international carbon trading programmes that have been introduced to
address the consequences of global warming. Under the auspices of the United Nations, almost
170 nations ratified the Kyoto Protocol, which capped carbon and greenhouse gas emissions. The
total amount of GHGs emitted into the atmosphere by all nations in a given year was fixed, and
the corresponding number of CERs was calculated and divided among the member nations. In
turn, the member nations gave or awarded these certificates to the chosen industry in their
country. CER gives the tools to reduce greenhouse effect emissions on an industrial scale by
placing a ceiling on total yearly emissions and allowing the market to attach a monetary value to
any emissions deficit through trading. As a signatory to the convention, India actively trades in
carbon emission reduction credits (CER).
The UN Framework Convention on Climate Change does not compensate either revenue or
capital expenditure. In reality, the UNFCCC provides no funding to the business. It just confirms
that the industry released a certain amount of gases compared to the permitted amount.
Therefore, it is not a subsidy offered to compensate for losses. The UNFCCC makes no actual
payment, but rather issues a certificate without regard to profit or loss or the acquisition of
capital assets. The sum cannot be deemed a perquisite since it is neither obtained from a person
with a commercial relationship to the firm nor in the course of conducting business. The
perquisites are additional earnings or perks supplied by the beneficiary. It is characterized as a
secondary compensation in addition to the fixed income. In addition, carbon credits are earned
when the assessee employs effective and sustainable procedures.
In addition, it is essential to note that the second proviso to Section 28(va) of the act specifies the
entries chargeable as income-tax under the head "Profits and gains of business or profession"
which clearly exclude any sum received as compensation from the multilateral fund of the
Montreal Protocol on Substances that Deplete the Ozone Layer under the United Nations
Environment Programme, in accordance with the terms of the agreement entered into with the
92
Dcit Cc 6(1) (Earlier Cc-34) v. Prism Cement Ltd, Mumbai (2019) 22 ITAT 371 (Bom).
Government of India.93 In light of the fact that India has already accepted the Kyoto Protocol, the
above-mentioned caveat explicitly specifies that tax exemptions would be granted for
environmentally-friendly programmes recognized by the Indian government. Henceforth, the
amount obtained from the sale of CER is solely attributable to the assessee's use of good and
feasible practices and, most crucially, the environmental concern. Therefore, it cannot be
considered a corporate problem, but rather an environmental concern.
3.1 Carbon credits are not subject to the income tax bracket.
The selling of carbon credits falls beyond the ambit of Sections 2(24), 94 28,95 45,96 and 5697 of the
Act. Section 2(24) of the act specifies the term 'income' that is subject to taxation, whereas
Section 28 defines 'profits and gains resulting from business and profession.' Section 45 specifies
"Capital Gains," whereas Section 56 defines "Income from Other Sources." Section 2(24) of the
act defines the term 'income' 27 that is subject to taxation, whereas Section 28 specifies 'earnings
and gains originating from a trade or profession' Additionally, Section 45 specifies "Capital
Gains" and Section 56 defines "Income from Other Sources."
It is important to notice that the inclusive character of the phrase "Income" in subsection (24) of
section 2 is uncontested. Even though the definition is comprehensive, it must be determined if
the amount received by the firm comes within any of the types of income listed in the subsection.
In the present instance, the contentious issue is whether carbon credits are taxable as income. It is
crucial to notice that carbon credits are not listed as revenue in the aforementioned subsection in
order to emphasize their taxability. The sum does not constitute a payment in the course of its
commercial activities. The sum does not correspond to any of the items listed in Section 2(24) of
the Income Tax Act.98
In addition, it is believed that the certificate provided by the United Nations Framework
Convention on Climate Change (UNFCCC), Kyoto Protocol merely displays the
accomplishment made by any assessed firm in releasing fewer gases than the prescribed quantity.
93
Income Tax Act 1961, s 28(va).
94
Income Tax Act 1961, s 2(24).
95
Income Tax Act 1961, s 28.
96
97
98
CIT v. D.G. Gopala Gowda [2013] 354 ITR 501/34 Taxmann 154.
It makes no reference of either the assessee's operating or capital expenditures. Unless other
businesses have a demand for such certifications, the certificate has no value. The certificate is
not production-dependent. The business process begins with the acquisition of raw materials and
concludes with the selling of completed goods. The gain is not part of any of the intermediate
processes and does not reflect compensation for the loss incurred during the procedure.
Therefore, the sum does not represent any revenue generated in the course of business
operations. Thus, the quantity of CERs transferred does not come within any of the provisions of
Section 2(24) of the Internal Revenue Code.
Arun Textiles (P.) Ltd. v. Assistant Commissioner of Income-tax 99 is an important case that
emphasizes the non-taxability of carbon credits. The court stated that the amount also would not
represent an incentive granted in the course of business activity because it is not received under
any scheme formulated by the government or anyone else to benefit the industry or to reimburse
either the cost of raw materials or the cost of capital. The payment cannot also be regarded a
compensation for the company's revenue loss because it is paid without regard to financial profits
or losses. The payment has no bearing whatsoever on the assessee's financial dealings. There are
no benefits to paying this amount. The sum is paid in the interest of the worldwide community
and not in the interest of Industry as a whole, the assessee firm, or as compensation for business-
related losses or expenditures. Therefore, the sum is a form of reward awarded by the UNFCCC
for the assessee company's accomplishment of emitting fewer greenhouse gases than the
"assigned amount." Therefore, it cannot be considered a source of income under Section 2(24) or
Section 28 of the Income Tax Act of 1961.
It is pertinent to note that the decision of the Hon’ble Supreme Court in Vodafone International
Holdings B.V. v. Union of India,100 in which the Supreme Court held that the treatment of a
particular item differently in the 1961 Act and DTC serves as an important guide for determining
the taxability of said item, is an important factor in determining the taxability of said item. Since
the DTC, by virtue of the deeming clauses, clearly allows for the taxability of carbon credits as
business receipts, although the IT Act does not, the principles articulated in the aforementioned
Supreme Court ruling strengthen our position. Since there is no comparable provision for
taxability in the current legislation, it is evident that the aforementioned revenue is not taxable
99
Arun Textiles (P.) Ltd. v. Assistant Commissioner of Income-tax [2014] 36 ITR (Trib) 300.
100
Vodafone International Holdings B.V. v. Union of India [2012] 341 ITR 1/204 Taxman 408/17 (SC).
under the IT Act of 1961. Also, there is no provision in the tax code to tax carbon credit. The
proposed Direct Tax Code (DTC) clause 33(2)(xi) clearly allows for the taxability of carbon
credits as business payments subject to taxation, although the current IT Act, 1961 contains no
such provision.101
It has been explicitly established in the framework of the CER and DTC law that the certificates
are to be assigned to climate protection, which is not a component of the company. The
UNFCCC initiative is geared toward global pollution prevention and has little bearing on the
assessee's economic operations. Certificates obtained by the assessee are not considered income
under Sections 2(24), 28, 45, and 56 of the Act. An attempt is made to incorporate the same in
DTC in 2010; however, DTC has not yet been established as a law. Although the DTC included
the certificates as income, in its wisdom, Congress did not alter Section 31 of the IT Act.
Therefore, it is argued that the objective of the legislature was not to tax CERs, as there is no
other explanation for why they are not included in Sections 2(24), 28, 45, and 56 while they are
listed as income in the DTC bill. Also, as a fundamental rule for interpreting tax statutes i.e.
nothing is inferred; hence, if an assessee must be taxed under a certain provision, it must be
expressly stated in that law. In this instance, the taxability of CER is not discussed in the
preceding sections, exempting it from the income bracket.
3.2 Legislative purpose is irrelevant for interpreting a taxation statute
The aim of the legislature is immaterial for interpreting a taxation regulation, and this holds true
in the issue at hand as the taxability of Carbon Credits is determined by the nature of the receipts
they generate, i.e. capital or revenue. In the words of Bhagwati, J., the Supreme Court has
articulated the notion of statutory interpretation as follows: “In construing fiscal statutes and in
determining the liability of a subject to tax one must have regard to the strict letter of the law. If
the revenue satisfies the court that the case falls strictly within the provision of law, the subject
can be taxed. If, on the other hand, the case is not covered within the four corners of the
provisions of the taxing statute, no tax can be imposed by the inference or by analogy or by
101
Gujarat Fluorochemicals Ltd. v. Deputy CIT [2018] 97 Taxmann 10.
trying to probe into the intentions of the Legislature and by considering what was the substance
of the matter.”102
Therefore, it is argued that the aim of the legislature should not be investigated, and that the act
should be construed strictly according to its plain language. “There is absolutely no space for
intent. There is no equality in taxation. There is no tax-related assumption. Nothing is to be
interpreted or inferred. One can only see the wording employed.”103
Although implicitly, revenue receipts must be taxed, it must first be established by the
department that the receipt falls within the definition of Revenue Receipt and therefore must be
taxed. In this case, the department failed to establish this, as stated in Cadell Weaving Mill Co. P.
Ltd. v. Commissioner of Income-Tax. "Even if the Department wishes to include such receipts
under the residuary head, the Department must first demonstrate how such a transaction would
qualify as an income item."104
In all tax situations, one must thus rigorously read the taxation legislation. In a comparable case
brought before the Supreme Court, the word 'moneys' in the expression 'moneys payable' in
Section 41(2) of the Act was not interpreted to include 'money's worth.' Also in this case,
interpreting Section 115BBG of the Act would only result in the taxability of the sale of Carbon
Credits and not the type of receipts it generates.105
Although implicitly, revenue receipts must be taxed, it must first be established by the
department that the receipt falls within the definition of Revenue Receipt and therefore must be
taxed. In this case, the department failed to establish this, as stated in Cadell Weaving Mill Co. P.
Ltd. v Commissioner of Income-Tax. "Even if the Department wishes to include such receipts
under the residuary head, the Department must first demonstrate how such a transaction would
qualify as an income item."106 Therefore, it is argued that the purpose of the legislature is
irrelevant for determining the type of receipt that the Carbon Credits would generate, and that the
Revenue Department bears the burden of proving the type of receipt under which a specific
instance falls prior to taxing it as such.
102
AV Fernandez v. State of Kerala [1957] AIR SC 657.
103
Gursahai v. CIT [1963] AIR SC 1062.
104
Cadell Weaving Mill Co. P. Ltd. v. Commissioner of Income-Tax [2001] 249 ITR 265.
105
Commissioner of Income Tax v. Kasturi and Sons Ltd. [1996] SCC Mad 939.
106
Cadell Weaving Mill Co. P. Ltd. v. Commissioner of Income-Tax [2001] 249 ITR 265.
Conclusion
In this era of global warming, the taxability of CERs should be determined from the beginning,
with the government ideally exempting them from taxation to encourage their usage. Due to the
absence of an exemption, the crucial question is whether the earnings from the sale of CERs
should be deemed "capital gains" or "business income" (i.e., whether these are capital rights for
earning income or arising out of normal business operations). Whether CERs must be
acknowledged during verification, allocation, or sale? Additionally, it is essential to identify
whether CERs are regarded as "goods" or "services," and whether VAT or service tax should be
charged. Despite the fact that CERs are traded on global platforms, no standards for valuing
CERs have been created, especially when CERs are acquired for personal use by international
clients. On the regulatory front, there are a number of unsolved issues, notably in the area of
exchange control, the most fundamental of which is whether the transaction is a current account
transaction or a capital account transaction.
It is long past time for authorities to set rules and explain some of the aforementioned concerns
so that taxpayers are not smothered by unjustified fees. A provision similar to that contained in
the Montreal Protocol should be established to exclude revenue from CERs from taxes, given the
reason why these CERs are created and to stimulate future capital investment in the country.
India must also investigate the carbon credit cap-and-trade scheme. The Kyoto Protocol before
stringent carbon credit requirements. Both cap-and-trade and carbon taxes require pricing carbon
emissions. Pricing carbon entails "costing" the environmental harm caused by CO2 emission, a
contentious issue. The carbon tax is costly for fossil fuel interests, but the money may be
returned to the public to balance the rising cost of electricity incurred by consumers. A carbon
tax is one of the main financial instruments for combating climate change. The government
imposes a carbon tax to place a direct price on greenhouse gas emissions produced by businesses
and industry. It functions as an economic incentive for polluters to reduce emissions or use more
efficient processes or cleaner fuels.
Even while the trading of carbon credits is designed to benefit the global environment, it is not a
purely philanthropic Endeavour. Perhaps it is a combination of excellent intentions and the
execution of profitable ventures. Governments of all nations intend to impose taxes on carbon
credits in their respective domains. Carbon taxation shifts energy markets toward less expensive
renewables. On average, individuals save money. Carbon taxation shifts energy markets toward
less expensive renewables. The savings from preventing climate disasters can be enormous. If
you truly wish to innovate, carbon emissions must incur a penalty. Without it, there are little
incentives to innovate. CERs are one of our most effective weapons in the fight against climate
change, making their categorization and consequent taxing status a crucial legal issue that
requires explanation as soon as possible.
8. CASE STUDY
Emissions trading programmes have a huge potential to reduce pollution while keeping costs to
businesses to the minimum. These plans' advantages stem from two different places. On the
industrial side, units are free to pick the least expensive pollution reduction strategy. Traditional
command-and-control laws, in contrast, do not take into account variances between industries.
The finest possibilities for reduction will typically be missed if the same standard is mandated
everywhere. Once created, an emissions trading plan will offer a self-regulating system that
improves pollution control effectiveness. In the long-term, the lower compliance costs may also
make it simpler to enact new laws that improve the quality of the environment. 107 The study of
carbon trading, which will be addressed in the part, has demonstrated that cap-and-trade is a
reliable strategy for achieving specified emissions reductions at a reasonable price.
According to this experience, four aspects are crucial for an emissions trading plan to be
implemented successfully.
 Setting the Cap: To achieve fair prices and carbon reductions, the objective for total
emissions from the industry where trading is introduced must be determined.
 Distribution of Permits: To increase support for the plan, the emission permits must be
allocated fairly. This allocation has been made free relative to baseline emissions in
many successful cases, significantly lowering the cost of compliance for industries.
 Monitoring: Each industrial facility's emissions must be accurately and continuously
107
Steffen Kallbekken, Why the CDM Will Reduce Carbon Leakage (Climate Policy 2007).
observed, with a high level of integrity that is acknowledged by all parties.
 Compliance: The legal framework must give businesses the assurance that purchasing
permits is the only trustworthy option to fulfill their environmental commitments.108
Total Emissions in the U.S. Acid Rain Programme, 1980-1999
Sulfur dioxide emissions in the United States are totaled in Figure 1 ‘Program for Acid Rain.’ In
1995, the year the emissions restriction was first implemented, total emissions represented by the
black bars, decreased significantly.109 Thereafter, total emissions continued to be below the
emissions cap, represented by the grey bars. The use of cleaner fuels by cautious market
participants allowed for easier than anticipated emissions reductions, which is why units initially
108
A.D. Ellerman and R. Schmalensee, Emissions Trading Under the U.S. Acid Rain Program: Evaluation of
Compliance Costs and Allowance Market Performance (MIT Center for Energy and Environmental Policy Research
1997).
109
M. Wara, ‘Measuring the Clean Development Mechanism's Performance and Potential’ (2008) 55 UCLA L. Rev.
1759, 1782.
over-complied.
Figure 2 depicts where these essential elements fit into the overall framework of an emissions
trading programme. The graph demonstrates how the regulator's role is altered by emission
trading. The regulator establishes an overall emission cap, which is what truly matters for
environmental quality, and distributes these emissions among units in the form of permits, as
opposed to fixing emissions at the level of each polluting unit. Then, units can exchange this
emitting privilege. Trading enables those units that can accomplish the needed emissions
reductions at the lowest cost to do so, without changing the total cap. The regulator compares
emissions against permit holdings at the end of each permit period to ensure compliance.
9. II. EMISSIONS TRADING EXPERIENCE TO DATE
The use of cap-and-trade pollution markets has been very effective in reality, reliably reducing
emissions at a lower cost than anticipated. The three different emissions trading programmes for
the three main air pollutants that have been put into place in various nations are briefly discussed
in this section. The discussion's goal is to highlight the crucial components of each scheme's
design and execution.
A. UNITED STATES, SULPHUR DIOXIDE: It is an incredibly effective trading system that,
at a very minimal cost to businesses, eliminated sulphur dioxide emissions and the associated
acid rain problem.110
Purpose: The first significant system for pollution reduction through the trading of emissions
permits was established by the 1990 Clean Air Act Amendments. The program's goal was to
reduce SO2 emissions from power stations to prevent acid rain; as a result, it is also frequently
referred to as the Acid Rain programme. The program's overarching objective was to lower
annual SO2 emissions by 10 million tonnes from 1980 levels.111
Cap on emissions: Beginning in 1995, the program's emissions cap was set at a level that was
roughly half of the emissions produced by the same group of power units in 1980. Phase I only
applied to the 263 worst power plants in 21 states, while Phase II, which started in 2000, applies
to more than 2,000 fossil fuel-burning electric generating units, which is almost all of them in the
US. Each participating unit must have enough permits, or allowances, on hand to cover at least
its yearly emissions. A facility must have 5,000 permits in order to emit 5,000 tonnes of SO 2. No
matter how many licences a facility has, it is not allowed to go over the restrictions specified by
the same law to safeguard the public's health. According to the baseline heat input of the
electricity-generating units, the overall level of emissions was set on a per-unit basis
(Environment Protection Agency, 2009). From 1995 on, permits were distributed for each year.
The United States Environmental Protection Agency (EPA) assigned allowances based on an
emission rate of 2.5 pounds of SO2/mmBtu (million British thermal units) of heat input (the
average fossil fuel consumed from 1985 through 1987).112
Implementation: At the start of the programme, a certain number of permits based on the
formula above were granted for free to existing generating units. It should be noted that, in
theory, the allocation of units and the setting of the overall quota are two independent processes.
110
Curtis A. Moore, ‘Marketing Failure: The Experience with Air Pollution Trading in the United States’ (Harvard
Innovation 2004) <Innovations in American Government Awards | Ash Center (harvard.edu)> accessed 28
November 2022.
111
Steven Sorrell and Jos Sijm, “CARBON TRADING IN THE POLICY MIX” (2003) 19 Oxford Review of
Economic Policy 420–37 <http://www.jstor.org/stable/23606759> accessed 28 November 2022.
112
A Kossoy, State and Trends of the Carbon Market (Environment Department, World Bank 2010).
The EPA could have established the overall cap using the formula above and then distributed
licences through an auction.
Trading: After the first distribution, new units or units in need of extra permits could buy them
from other sellers or at EPA-run auctions. Although the auctions were designed to provide
transparent information regarding pricing, the majority of trading actually took place privately.
Units can reduce emissions at a reasonable cost by trading while maintaining the cap's overall
pollution level. The vertical grey bars in Figure 2 compare the sulphur dioxide emissions rates
for each polluting source under the trading scheme to the estimated emissions rates for each unit
in the absence of trading, which are depicted by the thick black line. The fact that many units
have real emissions rates that are higher or lower than they would have been, under a fixed
emissions standard, shows that these units took use of the flexibility offered by emissions trading
to achieve compliance at a reasonable cost. For some units, reducing emissions directly is the
best approach to comply, while for others, purchasing credits from units that were able to reduce
emissions at a cheaper cost allows them to pay for the ability to emit more. As shown in Figure 1
above, the cap insured that total emissions decreased while the price of emissions drove each unit
to look for inexpensive ways to reduce emissions.
Monitoring: At affected facilities, emissions are regularly monitored for an average annual cost
of $124,000. The foundation of trading, which necessitates the recording of every tonne of unit
emissions, is continuous emissions monitoring. Both a volumetric flow monitor and a SO 2
pollutant concentration monitor must be used by units required to track SO 2 emissions in pounds
per hour. Because the permit is only valid for the whole mass of the pollutant released, both
concentration and flow are necessary. The device also needs a data acquisition and handling
system (DAHS) to process and record readings in addition to this basic hardware. The
monitoring methodology incorporates conservative fill-in formulas that penalize units for
monitoring downtime by filling in missing data. Protocols for NOx and CO 2 emissions
monitoring are also in place at the EPA. An Allowance Management System keeps track of the
number of permissions each unit has (AMS).
Permits may be exchanged privately between parties, but they must be disclosed to the EPA
when they are going to be used to offset emissions. By 1 March of the year after, affected units
must present to the EPA valid permits big enough to cover an entire year's worth of emissions. If
a unit doesn't have enough permits, it must give up any extra ones for the following year to
balance excess emissions and pay a fine for the excess from the current year. The fine is equal to
the excess emissions multiplied by the basic fine of $2,000 per tonne, which is increased each
year to account for inflation. For 1997, the excess fee was $2,525 per tonne. The excess charge is
significant given that this year's permit rates were just over $100 per tonne, although in actuality
all units complied by possessing an adequate number of licences.
Outcomes: The effort had the intended result of significantly reducing emissions at a lower cost
than expected. Total emissions decreased from 8 million tonnes in 1995, the first year of the
programme, to less than 5 million tonnes. These reductions were made possible by the use of
reduced sulphur coal and scrubbers, which take SO 2 out of stack emissions. Using a trading
system rather than rigid laws is thought to save businesses between $225 million and $374
million annually.113
B. CHILEAN TOTAL SUSPENDED PARTICULATES: Despite being inconsistently executed,

this trade programme may have influenced businesses to switch to greener fuels.
Purpose: In Santiago, Chile, the Emissions Offsets Trading Program was first implemented in
1992 to cut airborne particle emissions from stationary industrial sources. Since the 1970s,
Santiago has routinely surpassed the limits for particulate matter with a diameter of less than 10
nanometers (PM10), and these high concentrations have been linked to respiratory illness and
mortality.114
Cap on emissions: Existing sources were given daily emissions rights at the time the regulation
was published in proportion to a baseline emissions rate that had been predetermined and applied
to all existing sources. The Program's target emission reduction was set at 80%, which was
chosen to 95% of the time meet daily ambient air quality standards. There were 680 sources with
a flow rate more than 1,000 m3 per hour in 1993, and they were all subject to the restriction. No
matter how many permits a source has, both new and current sources are subject to a maximum
113
Susanne Droege, “Carbon Leakage and the EU ETS: Sectors at Risk and the International Context of Emissions
Trading, Trade Flows and Climate Policy.” (2009) Research Highlights: A Selection of Climate Strategies 19–22
<http://www.jstor.org/stable/resrep15553.4.> accessed 29 November 2022.
114
J.P. Montero, J. M. Sanchez and R. Katz,‘A Market-Based Environmental Policy Experiment in Chile’ (2002)
The Journal of Law and Economics 45.
cap that cannot be exceeded. Typically, this overall cap was nearly twice as high as the number
of emission permits a source had been given. Furthermore, regardless of the number of permits
held, big stationary sources were likely to be shut down during bouts of poor ambient air quality.
Implementation: Existing sources were "grandfathered" in, or given free emissions licences for
life. New sources that emerged after the program's launch were required to buy rights from
current sources.115 Due to this distinction, the program's inception was very successful in
obtaining the identification of existing but unidentified point sources in order to get emissions
rights. However, because unidentified sources appeared to obtain rights and because rights were
determined by a per-unit emissions capacity method, the overall cap turned out to be less strict
than anticipated.
Trading: Annual capacity studies serve as the foundation for emission rights. The only criterion
is that the unit retains sufficient capacity rights at the time of this yearly monitoring to cover its
present capacity. In reality, there was not a lot of trading and little emissions capacity licences
were exchanged. As capacity rights have remained with their original holders, who might not be
the enterprises to which these rights are most valuable, this low trading is evidence that the
market did not realize its full potential for cost savings. The permit market's low trading volume
appears to have been a response to uncertainty about upcoming restrictions and transaction costs.
Monitoring: The authorities measured source size and fuel type during field inspections in order
to determine emissions capacity, not aggregate emissions. The ability to reduce emissions
through improved combustion control or other channels that do not change capacity but may
reduce emissions is not taken into account in this rough estimate of the potential to produce
emissions, which may be more useful for particulate matter than for other pollutants. This
monitoring technique's exclusion of process sources that emit emissions but do not have the
same capacity as boilers is another drawback. As a result, the system's potential is limited
because each unit's emissions capacity is based on an estimated flow volume and a uniform
emissions concentration quota, but no such restriction could be applied to different industrial
process sources. For these reasons, it is preferable to use current technologies to directly measure
total pollutant emissions.
B.G. Ostro and T. Feyzioglu ‘Air Pollution and Health Effects: A Study of Medical Visits Among Children in
115
Santiago, Chile’ (1999) 1 Environmental Health Perspectives 107.

Outcomes: By 1997, the total TSP capacity (as opposed to emissions in general) was below the
permitted capacity. During this time, the industrial sector transitioned to cleaner fuels like natural
gas, which appears to be the main cause of the reduction. The cost of these adjustments is not
well predicted, but it appears that the implementation of the permit system hastened this
changeover and prompted a response from the gas supply.
C. UNION OF EUROPE, CARBON DIOXIDE: A successful plan that created thriving carbon
markets and decreased emissions, but may have caused early emissions to be too high.116
Purpose: In order to reduce carbon dioxide emissions that fuel global climate change, the
European Union launched a CO2 emissions trading scheme, known as the EU ETS, in 2005. The
programme is applicable to businesses that produce electricity or work in industries that use a lot
of energy in all of the EU's member states.
Cap on emissions: As an international initiative, the EU ETS, the allocation process was carried
out at the level of each nation. Each member nation was tasked with creating a National Action
Plan (NAP), which the European Commission would then assess, outlining the level of emissions
each state anticipates and how it will distribute its licences to various polluting units. Unit-level
allocations, which included a total of around 12,000 units and 46% of the EU's total CO 2
emissions, were typically based on historical emissions.117 To create NAPs, which were used to
assign permits to the units participating in the programme, EU member states collected emissions
data from years up to 2004. These NAPs set predictions for what emissions would be over 2005–
2007.118 Facilities that would get allocations and hence had a motive to inflate emissions upward
provided the majority of this data freely. There was no unified allocation target for all of Europe,
and member states frequently allocated liberally to their own units in comparison to both
historical emissions and Kyoto Protocol commitments.
Implementation: With the idea that further phases would come after, the plan was implemented
in two stages. The first phase spanned the years 2005 to 2007 and the second, 2009 to 2012.
116
G Robinson and R. Watanabe, ‘The European Union Emissions Trading Scheme’ (2005) 5 EU ETS Climate
Policy 10-14.
117
J. Graichen and V. Graichen, ‘The EU Emissions Trading Scheme in numbers’ (2007), ETC/ACC Technical
Paper No. 2007/2 18.
118
C Egenhofer, ‘Shaping the Global Arena- Preparing the EU Emissions Scheme for Post 2012 Period’ (Center for
European Policy Study March 2007) < untitled (pitt.edu)> accessed 17 November 2022.
Member States were obligated to provide free of charge to units 95% of the first phase's permit
allocations and 90% of the second phase's.119
Trading: Since its establishment, there has been a free and open market for carbon dioxide
emission permits. Historically, the price of carbon has fluctuated a lot within a €10–30 range.
The carbon market includes many third parties in addition to units, and permits from the Kyoto
Protocol, which represent reductions in carbon emissions from outside the EU, can also be traded
in some capacity with the EU ETS.
Monitoring: Units applying for permits must have a mechanism in place to track and record
emissions. Units are then required to surrender enough permits under the programme by the 30th
of April each year to cover emissions from the prior year. In the first phase of the programme,
units with insufficient permits must pay a penalty for excess emissions of €40 per tonne of CO 2
and €100 per tonne in the second phase. During the earliest years of the system, these penalties
represented significant premiums over the going rates.
Outcomes: About 3.4% less carbon emissions were produced under the EU ETS than in the case
of business as usual. Emissions trading inside and between nations did a decent job of connecting
units with excess allocations to those with shortfalls. 120 Although, the initial allocation targets
were liberal the system did appear to have some teeth and future efforts will likely focus on
achieving even greater savings.
10.III. IMPORTANT ELEMENTS NEEDED FOR THE INDIAN EMISSIONS

TRADING SCHEME
The prerequisites for adopting local trade for air pollutants in Indian states are discussed in this
section.
2.7.2 CERTAIN CONTAMINANTS.
119
A.D. Ellerman B.K. Buchner and C. Carraro, Allocation in the European Emissions Trading Scheme: Rights,
Rents and Fairness (Cambridge University Press, 2007).
120
L. Rajamani, ‘Addressing the 'Post-Kyoto' Stress Disorder’ (2009) 58(4) 1 CIQ 803.
Choose an air pollutant or pollutants that should be reduced in the targeted areas, have reliable
monitoring equipment, and are emitted by a number of sizable point sources. It is considered that
the ETS's goal is to reduce emissions of some common air pollutants, including SO 2, NOX, or
SPM, in order to improve public health and lower compliance costs. The SPCB's objectives and
issues, as well as market design concerns including the prevalence of big sources and the ease of
monitoring, will all be taken into account while deciding which pollutants should be controlled.
Markets with numerous significant sources and stronger oversight will typically run more
smoothly.
2.8.2 CAP ON EMISSIONS.
In order to implement a cap-and-trade system, the emissions cap must be set. The cap must not
be too high for the system to achieve reductions, nor too low for enterprises to find it
unaffordable. We offer two main options: setting the cap using baseline emissions or using a
targeted or desired level of ambient pollution. Data on the included units' baseline emissions are
necessary for both methods.121 Information on local air pollution sources and the relationship
between emissions and ambient concentrations are also needed for the second method. It should
be noted that determining the total emissions cap is separate from determining how to distribute
emissions permits within that cap, which is discussed later.
2.9.2 STANDARD EMISSIONS.
Set the cap on emissions at the historical baseline level or at some level below this baseline level
(for example, 25%). To varying degrees, almost all market-based systems used till date, have
predicated total emissions on a historical baseline. The monitoring system required for trading
can be used to establish baseline emissions before the permit market is established. Making sure
baselines are precise and ensuring that the process of generating baselines does not in and of
itself generate any incentive to pollute are the main challenges with this approach. The amount of
emissions that units choose to emit today cannot be influenced by limits placed on historical
baselines. For instance, it would be misleading to state, before baseline monitoring, that this
121
Hansen et al., ‘Target Atmospheric C02: Where Should Humanity Aim?’ (2008) 2 Open Atmospheric Sci. J.
217-31.
monitoring would be utilized to determine future emission levels. Units would then be motivated
to emit more today in order to improve their allocation.
2.10.2 BACKGROUND TARGETS.
Set the emissions cap at the level necessary to reduce the amount of ambient pollution. As an
illustration of this technique, let's say that industry accounts for 50% of particulate emissions and
transportation for the remaining 50%. The projected amount of emissions needed to achieve the
desired level of ambient air quality is 60 tonnes, compared to the present total emissions of 100
tonnes. Then, the cap set for industry would be 30, a 20-percent decrease from the starting point.
The advantage of using this method to set ambient concentrations is that it is well-supported by
public policy. Setting broad goals based on ambient norms is appropriate because the purpose of
pollution regulation is to benefit the whole public. Additionally, the NAAQS provide a reliable
means to track advancement toward the ultimate objective of market-based schemes and are
well-established. The fundamental issue with this approach is that it might be challenging to
relate emissions to different sources and levels of ambient pollution. However, the Central
Pollution Control Board (CPCB) already have the majority of the data required to make this
connection possible, including ambient pollution data and source apportionment studies that
calculate how much of air pollution is attributable to various sources, including industry, power
generation, cooking fires, and transport. In the cities of Delhi, Bangalore, Pune, Mumbai,
Chennai, and Kanpur in 2007–2008, the Central Pollution Control Board started similar source
apportionment studies for particulate matter less than ten nanometers in diameter (PM10).
2.11.2 SAFEGUARDS.
Set additional restrictions that prevent the local buildup of pollutants, such as hard caps or other
restrictions on high-frequency emissions. There are additional regulatory requirements beyond
the overall emissions cap. Furthermore, the majority of market-based systems overlap with rigid
restrictions designed to avoid the concentration of pollutants in one area. Although there hasn't
been any evidence of a tendency for this to happen from emissions trading, this hard cap might
be a crucial safety net for pollutants like SO 2 or particulates where local hot spots will be linked
to harmful health impacts.
2.12.2 A PRICE CAP.
Ensure that the government sells permits if the cost increases too much. The market system can
be set up to guarantee industry that compliance won't be prohibitively expensive in addition to
offering protections against the concentration of pollutants. In order to do this, the regulator
agrees to sell more permits, raising the overall cap, if the permit price increases over a
predetermined threshold. When it becomes apparent that the cap has established a reasonable
overall pollution target and the market is operating efficiently, this ceiling can be raised over
time.
2.13.2 IMPLEMENTATION.
Free Distribution of Licenses: Give units free licences based on a predetermined formula,
typically in relation to baseline emissions. Emission permits were initially given away for free in
the majority of permit marketplaces up to this point. All of the markets that are discussed have
experienced this free distribution. The main advantages of this approach are its simplicity and
ability to get support from the industry. It might also be reasonable to compensate plants for the
regulatory change since they will have invested in their capacity before the new regulation. 122
This approach has a direct disadvantage in that it prevents SPCBs from earning money from the
sale of permits, which they might otherwise use to fund ongoing operations like monitoring, as
well as an indirect cost in that it partially undermines the polluter pays principle upheld by Indian
environmental legislation.
Auctioning is allowed: The total number of licences determined upon under the cap is auctioned
off by SPCB or another body. The benefits of this approach are the exact opposite of the
drawbacks mentioned above. Ensuring that companies responsible for the emissions pay the full
cost of these emissions is made possible by auctioning permits. This generates money for the
implementation of rules or other reasons.
The allocation decision depends on a number of additional factors: Give-aways and auctions
are not exclusive of one another. The EPA employed both in the Acid Rain programme,
122
M. Fowlie and J. M. Perloff, Distributing Pollution Rights in Cap-and-Trade Programs: Are Outcomes
Independent of Allocation? (University of California, Berkeley 2008).
preferring auctions not out of a sense of fairness but rather to maintain market liquidity for
permits. Choosing the total cap and allocating permits to achieve it are two separate
considerations. However, unit-level allocations may still be granted in proportion to baseline
emissions even if the quota is based on an ambient target. An alternative would be to base the
overall cap on the total of unit baseline emissions while auctioning off the permits. In the
broadest economic sense, the initial distribution of permits has little bearing on the effectiveness
of the carbon market. Evidence from the United States lends credence to this hypothesis, which
is based on the theoretical work of Ronald Coase, whose accomplishments were honored with
the Nobel Prize in Economics.123 However, the first allocation is crucial for the program's
adoption by the sector and concerned citizens.
2.14.2 TRADING.
The type of the permit itself and the tracking of participant permit holdings will be the major
factors to take into account when designing a trading system.
Quantity and length of the permit: Determine the amount of pollution that each permit covers
and the duration of each permit's validity. The actual type of the permit itself can be crucial. To
promote trading, the permit should be a product with a value that business can easily gauge. A
suitable comparison point is the U.S. example of a permit being equal to 1 tonne of SO 2. Instead
of their concentration, permits are determined by the total amount of emissions. There is also a
time limit on permits. By allowing units to adjust to their emissions over a longer period of time,
such an entire year, may lessen uncertainty. Periodic true-up points must be established in
emissions markets, such as once a year or every six months. The regulator must receive licences
from plants at these points for each unit of pollution emitted since the previous true-up point.
Goals for reducing pollution can also influence how long the permit is valid. Only during the
summer, when ozone pollution is at its greatest, is the U.S. NOX budget programme in
operation. To address the distinct harms caused by urban pollution at certain times, the
equivalent in the Indian context may be separate pollution permits for the winter and non-winter
seasons. Some markets, like the SO2 market in the US, allow licences to be used for up to several
years at a time. The total cost of compliance is typically reduced by allowing permits to be used
123
Gerard S. Roe & Marcia B. Baker, ‘Why is Climate Sensitivity So Unpredictable?’ (2007) 318 JE Rev. L. 629.
for longer periods of time since businesses can choose to emit more during times when
abatement costs are low and less during times when they are higher (e.g., during an economic
boom). On the other hand, the longer the length of a permit, the more likely it is that businesses
will advocate for more permits to be issued, ultimately exceeding the quota. Permits should have
a limited lifespan at the start of a trading scheme while the appropriate level of the emissions cap
is unknown to prevent high emissions from spilling over into the future under a cap that is too
high.
Create a market for permits: Make an exchange system that allows for simple trade and sets
prices that are obvious. The market's liquidity describes how simple it is to buy and sell permits.
It should be simple and affordable for units wanting to purchase or sell licences to ascertain the
market price and to make transactions at that price at a minimal cost. The liquidity of the market
will be impacted by both the size of the market itself and the design of the permit, as was
previously stated. If there are more participating units, it is more probable that buyers and sellers
will quickly locate one another so that each can obtain the permissions they want. The pollution
authority may want to offer to sell permits at a high price in order to ensure some level of
liquidity in a tiny market. Units can be confident that their emissions costs will never go beyond
a predetermined threshold thanks to this offer.
2.15.2 MONITORING.
Any trading system must include monitoring as its core. The precise tracking of all Sulfur
Dioxide emissions thorough the American programme contributed to the success and
transparency of the permit market monitoring. Create a monitoring plan that correctly and
constantly tracks all pollution emissions and outlines what to do in the event of a data gap. 124
Continuous monitoring is expensive but generally accurate with current equipment for a variety
of pollutants, including SO2, NOX, and to a lesser extent, particle matter. To facilitate trading,
there must be ongoing monitoring of all impacted facilities, similar to the CARE Air Centre run
by the Tamil Nadu Pollution Control Board. In order for trade to be based on aggregate pollutant
emissions rather than concentrations, this monitoring should include both pollutant
concentrations and the volume of gas flow. Monitoring is both a technique and a system for
124
H Taylor, ‘Regulation as the Mother of Invention: The Case of S02 Control’ (2005) 27 IMW 348-78.
tracking pollution levels and bridging technological gaps. The monitoring procedure should
outline the frequency of equipment inspections for continuous emissions monitoring as well as
the repercussions of falsified or incomplete data. When emissions statistics are insufficient, it is
the best practice to expect the worst, or something close to it, as observed from the experience in
the U.S. sulphur dioxide market.
2.16.2 OUTCOMES.
Evaluation: Follow the development of the emissions trading system through emissions, the
operation of the permit market, and the decrease in business costs. The immediate and evident
result of emissions has been covered extensively. Costs associated with compliance for
participating companies will be a significant extra outcome. One may quantify the cost of
compliance and the overall advantages of emissions trading more thoroughly than has been done
for any of the previous schemes by conducting industry surveys during a monitoring-only period
and after the introduction of the permit market, which may be phased in over time. These metrics
will aid in identifying Indian industries that emissions trading will benefit from regulation in the
long run.
11.FINAL THOUGHTS AND INDIAN ADVICE
When carbon trading is implemented, India will be the obvious leader among emerging
economies in environmental legislation. A trading arrangement will have advantages beyond
only attaining compliance at a cheaper cost to society. A trading system will make it simpler to
modify regulations when environmental objectives change. Instead of immediately kicking some
locations or sources out of compliance, tighter environmental standards can be achieved through
lowering the amount of the cap, which would increase the cost of emissions permits and provide
incentives to pollute less. India might gain from linking the regional emissions trading system to
the global carbon dioxide emissions trading systems. The infrastructure required for pricing
carbon dioxide and other local pollutants will be established through a successful cap-and-trade
system, positioning the nation to readily receive payments for the reduction in greenhouse gas
emissions caused by its novel policies. Demand for such cuts will be sparked by the European
Union Emissions Trading Scheme, the Kyoto Protocol, and upcoming carbon mitigation
strategies stated in the Copenhagen Accord.125 To address this requirement, an emissions trading
system would bring in net foreign investment and reward India's economy for its green economic
development.
Carbon markets suggestions:
The idea of a national carbon market in India has been discussed for some time, and the passage
of the Bill in Lok Sabha is a step closer to making it a reality. The operational carbon markets
around the world may provide some insights into how to design the proposed carbon market as
discussed in the aforesaid section. Note that the ideas are based on current market processes and
lessons learned from ETS in other countries across the world because the nuances of the Indian
carbon markets are not yet known. The suggestions are as follows:
Compatibility with the international units: The units used to measure carbon credits should be
simple to swap out for their equivalents around the world. As was previously said, India has a
significant export potential for carbon credits, therefore the compatibility will encourage credit-
importing nations to choose to buy carbon credits from Indian firms.
24x7 trading: The current RECs and ESCerts are periodically traded. On the contrary, it is
advocated that the market for carbon credits be regularly opened up for trading. Both buyers and
sellers can take advantage of the pricing by engaging in regular trading. Additionally, a 24-hour
market will make international deals easier because time zones won't matter.
Restricted export as opposed to outright prohibition: Given that all the information is yet
unknown, it may be too soon to make any comments on the proposed ban on the export of
carbon credits. However, the author is of the opinion that carbon credit exports should not be
fully outlawed due to India's ability to fulfill its climate pledges while also bolstering its
economy. On the same, reasonable quantitative limitations may be imposed; alternatively, a
minimum obligation to be offset in domestic markets may be mandated. In order to fulfill their
responsibilities and earn foreign currency through the export of surplus, this will encourage
organizations to participate in more low-carbon operations.
125
Copenhagen Accord, Dec. 18, 2009, FCCC/CP/2009/L.7, available at <http:// unfccc.int/ resource/ docs/
2009/copl 5/eng/107.pdf>.
Flexibility with security: Prices may be allowed to be set by the demand-supply system, but the
procedures should be set up so that the enterprises that generate the credits have a guarantee that
the credits will be sold. In order to achieve this, a government fund may be established to buy
any surplus offsets that are still in effect at the conclusion of the compliance period.
Long-term environmental benefits: The project eligibility criteria should be created in a way
that ensures the project really improves the environment and that the benefits outweigh any
degradation. Benefits ought to be lasting, if not permanent.
Conditions for a Successful Emissions Trading Scheme
An adequate emissions cap, the ability to ensure compliance, flexibility, long-term regulatory
certainty, and openness are requirements for a successful emissions trading plan. Nations must
impose a limitation on industrial emissions in order to establish a market for GHGs by limiting
the supply of carbon allowances at a level that will both spur demand for AAUS and achieve
environmental reduction objectives. Additionally, a strong enforcement system is required to
ensure the price of allowances. The enforcement mechanism's expenses must be less than the
price of buying allowances for the emissions trading market to continue to be profitable. The
market also has to provide participants some information and technology in how they reduce
emissions. Increased participation expands the low-cost choices for emissions reduction and
boosts cost savings in a carbon market.
For businesses that create long-term carbon reduction programmes, regulatory stability over time
is crucial. Because the lifespan of many power plants is between twenty and forty years,
businesses consider the costs and benefits of decreasing emissions when performing cost-benefit
evaluations. The banking of allowances, also referred to as inter-temporal trading, has been
crucial in enhancing the economic and environmental performance of emissions trading
programs. In the U.S., banking enables parties "to reduce emissions below their requirement in
one year and bank 'surplus' allowances for use or trade in future years." Banks promoted early
emissions reductions above the necessary level as part of the Acid Rain Program. Participants in
the Acid Rain Program reduced emissions more than was necessary during Phase 1 because
“Banking can help with regulatory uncertainty by providing an incentive for early emissions
reductions and adding stability to an emissions trading scheme. The prospect of higher marginal
abatement costs after 2000 made abating more than required in Phase I an appealing option for
smoothing the transition to the more demanding Phase II cap.”126
There are two preferred methods for allocating emissions units: auctioning and grandfathering.
The allocation of emissions allowances is a crucial moment for creating transparency in the
emissions trading market because it allows for price stability and promotes public and private
trust in the market "Although grandfathering enjoys greater political support among established
carbon emitters, auctioning is a more effective method of allocating emissions units.
Grandfathering, on the other hand, bases allocation on the carbon emitter's prior emissions.” 127
However, historical emissions are difficult to verify, they restrict new competitors' access to
markets, and they can bring in unexpected revenues for the emitters. Auctioning promotes public
confidence in the market and allows for transparency in the price and allowance distribution. For
instance, auctioning offered a clear way to reveal prices in the Acid Rain Program. Auctioning
equalizes the playing field for inexperienced and experienced participants. As it does not result
in windfall profits from the distribution of free AAUS, auctioning promotes the efficient
deployment of AAUS and generates funds that might be used to cover compliance costs or
compensate customers for price increases. Therefore, auctioning should be used in an emissions
trading system to promote price and public transparency in the carbon market.
SYSTEM COMMENTS ON THE CARBON PRICING:
The cap-and-trade system is now the most "economically and environmentally" sound method of
limiting emissions and reducing global warming, according to the Environmental Defense Fund.
It is, so that pollution is firmly limited by the cap and trading promotes the most economical way
to reduce emissions. However, a number of arguments have been made to show that carbon
pricing, including carbon trading, is insufficient to slow down climate change (in addition to the
problems with carbon taxation). These arguments make the point that carbon pricing drives
system optimization rather than system transformation to reduce pollution and places more value
126
Matthew Ranson and Robert N. Stavins. “Linkage of Greenhouse Gas Emissions Trading Systems: Learning
from Experience” (2014) Fondazione Eni Enrico Mattei (FEEM) <http://www.jstor.org/stable/resrep01019>
127
Tim Laing and Michael Mehling, “Designing an Emissions Trading System: An Overview of International
Practices.” (2013) International Experience with Emissions Trading, Climate Strategies 1–7
<http://www.jstor.org/stable/resrep15570.4> accessed 29 November 2022.
on increasing efficiency than effectiveness. Additionally, it has been noted that the current
emissions problems are a basic social systemic issue, rather than merely a market issue, therefore
they will take more than just a "price on pollution" to be resolved.
Social Justice and Carbon Trading are incompatible: What you don't possess cannot be
traded in. Governments and businesses that "trade" in carbon create de facto property rights over
the atmosphere, a globally shared commons. Such property rights over the atmosphere have not
been discussed or bargained at any level; rather, their ownership with respect to any carbon
exchange is established covertly.
The carbon trade will exacerbate current disparities since market shares in the new carbon
market will be distributed depending on who is already the biggest polluter and who is able to
take advantage of the market the quickest. Therefore, the global oil, chemical, and automotive
companies as well as the wealthiest countries would be the new "carbocrats"; these are the same
groups that first caused the problem of climate change. The richest countries and corporations
will also be able to grow their worldwide share of emissions by outpacing poorer carbon credit
interests due to the current lack of "supplementarity" in the global carbon market.
The clean development mechanism directly endangers vulnerable groups of people. Some of the
CDM-proposed initiatives, like tree planting and dam construction, have been criticized for
extending the authority of authoritarian leaders, displacing local residents from their homes, and
endangering local economies that are self-sufficient and low-carbon cultures.
Planting trees is not a way to combat climate change. Only while the tree is still living and
standing is the carbon absorbed by the forest removed from the carbon cycle. Industrial forestry
will not be able to store carbon. Permanent replanting only removes carbon from the atmosphere
once; therefore it cannot make up for ongoing overproduction.
Because we can't predict the future and we can't be certain that each project that sells carbon
credits has cut their emissions in excess than they would have done without the intervention,
carbon trading encourages businesses to profit from efficiency that would have been
implemented anyhow. The industry's cost of energy is continually decreased thanks to profit,
competition, and technological innovation. Any low-energy investment may receive an
automatic monetary incentive from a carbon market. If these possibilities do arise, they ought to
be precise, accountable, and targeted.
Trading in "hot air" is an accounting scam that has resulted in a 30% decrease in emissions since
Russia's economic collapse in 1990.128 This accidental windfall, which is frequently referred to as
"hot air," will be sold by Russia as international carbon credits, which could oversupply the
market. The total world emissions would inevitably be the same if nations used these Russian
credits to subsidize their emissions, just as they would if there were no carbon market or Kyoto
Protocol.
Huge incentives for cheating: There are several chances to engage in fraud and create false
credits that do not actually reflect any decrease in emissions. The client receives inexpensive
money, and the vendor receives the money without making any changes. Similar incentives exist
for false representation and "leakage," or the movement of polluting activities to unrepresentative
locations. Trading in carbon cannot be successful because it is impossible to manage or observe
the carbon market. Every transaction must be reviewed, and every sale must be approved, to
remove the motivation for both sides to deceive. No global corporation or accounting system can
manage the complexity of the market.
Given the generally weak quality of international legal systems, the legal framework will never
be adequate. Countries that want to use carbon credits as a subsidy for their emissions also push
for rules that are so weak that cheating will not be discouraged. Numerous Annex 1 nations (such
as Russia, Turkey, Ukraine, and Romania) are among the most lawless and corrupt, and they are
all too willing to take manipulated carbon credits if they are corrupt or in need of foreign
currency.
CO2 is not SO2: The primary paradigm for carbon trading is sulphur dioxide (SO 2) emissions
trading under the US Clean Air Act, 1990. None of the aforementioned issues existed with this
programme since it was modest (a few hundred enterprises), simple to monitor (one pollutant
from a single source—power generation), had enduring goals, and—most importantly—was
128
Kleinman, Rachel, “The Craggers Solution—Better than Emissions Trading?” (2008) 115 ReNew: Technology
for a Sustainable Future 28–31 <https://www.jstor.org/stable/renetechsustfutu.105.28> accessed 29 November 2022.
implemented within a single nation with effective enforcement mechanisms. 129 CO2 IS NOT A
CFC: CFCs were the only worldwide emissions traded under the Montreal Protocol. A single
pollutant from an industrial process made the programme modest (17 producer companies),
simple to monitor, and operating inside a solid legal framework.130
The market believes that carbon credits from various sources are completely interchangeable
however that is not the case. Carbon "saved" through technological innovation, which is distinct
from carbon "saved" by a change in social or lifestyle, is a different commodity from carbon
"sequestered" in sinks. Each source requires distinct legislation on oversight, different
requirements, and different agencies, which further increases the complexity of trading in diverse
greenhouse gases. It is a recipe for deceit and fraud to force them into a single market where they
are interchangeable.
129
Gudrun Benecke, “Varieties of Carbon Governance: Taking Stock of the Local Carbon Market in India” (2009)
18 The Journal of Environment & Development 346–70 <http://www.jstor.org/stable/44319882> accessed 29
November 2022.
130
Ibid.

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ABSTRACT:

2. MARKET COSTS AND SOCIAL COSTS OF NATURAL COMMODITIES

1. THE CONCEPT OF TRADING CARBON

2. CARBON CREDIT AND THEIR EXCHANGE

3. CARBON TAX: AN ALTERNATIVE APPROACH

4. NEED FOR CARBON TRADING

5. WHAT IS THE PRICE OF CARBON CREDITS?

6. PARTICIPATION OF INDIVIDUALS IN CARBON TRADING

7. JURISPRUDENCE SURROUNDING CARBON TRADING

1. Encouraging sustainable development in underdeveloped nations, and

1) Clean Development Mechanism (CDM) initiatives are implemented in nations not

2) JI initiatives, which are similar to CDM but are implemented in other

2. EMISSIONS TRADING PROGRAMMES IN OTHER COUNTRIES:

2.1.2 NEW ZEALAND

Carbon emissions trading programme has been attempted to be implemented by several

2.3.2 UNITED STATES OF AMERICA

In a number of its provinces, China is beginning to implement obligatory trade programmes.

2.6.2 KOREA (SOUTH)

3. CARBON TRADING IN INDIA

 Reducing overall anticipated carbon emissions by one billion tonnes by 2030

How does India's carbon tax work?

Renewable Energy Certificate (REC) is a market-based instrument designed to encourage the

Instances of Carbon trading in India:

 Handia Forest in Madhya Pradesh: In Madhya Pradesh, it is anticipated that by

Important Bill Features:

 Industries including mining, steel, cement, textiles, chemicals, and petrochemicals

 Transport sector which includes Railways, and

 Commercial properties as indicated in the schedule.51

A penalty of up to Rs 10 lakh may be imposed for noncompliance with this requirement. In

 Constructed after notice of the Code; and

Difficulties posed by the 2022 Amendment:

Consequences of responsibility for emerging technologies: Through the non-fossil energy

A thorough analysis of the commodity known as Certified Emission Reductions (CERs),

6. CONTRACTUAL ISSUE RELATED: FUTURE TRADING

VAT (Value Added Tax):

1.2 Taxation Concerns with CERS

 Right to receive CERs arises only if the assessee conducts business,

 Such business is conducted by saving fossil fuel,

 CERs have a market value,

3. CARBON CREDITS AS A RESULT OF ENVIRONMENTAL WORRY

3.2 Legislative purpose is irrelevant for interpreting a taxation statute

 Monitoring: Each industrial facility's emissions must be accurately and continuously

Total Emissions in the U.S. Acid Rain Programme, 1980-1999

9. II. EMISSIONS TRADING EXPERIENCE TO DATE

B. CHILEAN TOTAL SUSPENDED PARTICULATES: Despite being inconsistently executed,

Santiago, Chile’ (1999) 1 Environmental Health Perspectives 107.

10.III. IMPORTANT ELEMENTS NEEDED FOR THE INDIAN EMISSIONS

2.7.2 CERTAIN CONTAMINANTS.

2.8.2 CAP ON EMISSIONS.

2.9.2 STANDARD EMISSIONS.

2.10.2 BACKGROUND TARGETS.

11.FINAL THOUGHTS AND INDIAN ADVICE

Carbon markets suggestions:

Conditions for a Successful Emissions Trading Scheme

SYSTEM COMMENTS ON THE CARBON PRICING:

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