How Carbon Market Boost At COP29 Can Bolster Indian RE Sector?

How Carbon Market Boost At COP29 Can Bolster Indian RE Sector?

After a long wait, global leaders have approved the standards for an international carbon market at the latest COP20 at Baku in Ajerbaijan. The United Nations Framework Convention on Climate Change (UNFCCC) announced this significant development in an official release. The new UN-backed global carbon credit market is set to pave the way for increased investments in green activities worldwide.

“Yesterday we already secured critical progress on one of our key priorities – Article 6. At that meeting, standards were proposed for how international carbon crediting projects will work. We built support for these standards at Pre-COP and worked intensively to lay the foundations for early endorsement. Yesterday, Parties reached consensus on the standards for Article 6.4 and a dynamic mechanism to update them,” Yalchin Rafiyev, COP29 Lead Negotiator, told the media.

Rafiyev added that this will be a game-changing tool to direct resources to the developing world, potentially saving up to $250 billion a year when implementing climate plans.

The new framework is expected to boost investments in pro-climate activities, particularly in mitigation efforts, such as renewable projects in developing countries like India. With globally agreed-upon standards established at COP29, the move is anticipated to bring greater stability and clarity to the global voluntary carbon credit market, encouraging further investments in the country.

India has emerged as a leading player in solar power over recent years. The country, which had only 9 GW of solar power capacity at the end of January 2017, now boasts around 90 GW as of September 2024. This growth has enabled India to produce solar power at a lower cost than fossil fuels, with solar project tariffs dropping to as low as ₹1.99 per unit, making it highly competitive in the global market.

Domestic solar module manufacturing has also scaled up significantly, with around 130 local manufacturers and 7-8 solar cell makers, with capacities expected to increase further. Given its vulnerability to cyclones and other extreme weather conditions due to its proximity to oceans and the Himalayas, India has invested heavily in mitigation measures and plans to expand these efforts. However, several agencies have highlighted a funding shortfall for India’s renewable sector, which could hinder meeting its Nationally Determined Contributions (NDCs). India’s NDC targets aim for 50% of its installed capacity to come from non-fossil fuel sources.

The approval of global carbon market standards at COP29 is expected to benefit India’s expanding renewable sector. The international framework could ensure the financial viability of projects by attracting investments and creating a predictable revenue stream through carbon credits.

In the past, even a minimally regulated voluntary market encouraged companies to invest in pro-climate initiatives, such as providing clean stoves and biogas facilities to Indian communities. These investments have helped clean energy companies manage production costs, ultimately passing savings on to end users.

For instance, Sistema.bio, a Pune-based biodigester company, told Saur Energy that it leveraged carbon credits to offer biodigesters to dairy farmers in India. These units, usually priced at around ₹35,000, were made available for ₹8,000-₹10,000. Thus, increased funding through carbon credits could strengthen the financial capabilities of clean energy companies and make their solutions more affordable for the masses. If successful, this could lead to the expansion of various clean energy projects across the country.

Furthermore, the sale of domestic carbon credits on the international market could attract more buyers, secure additional funding, and further expand the carbon credit market.