Industry sees initial carbon credits priced around $10/mtCO2e in India

A carbon price for India could kick off at around $10/mtCO2e when the country's upcoming inaugural Carbon Credits Trading Scheme commences in the coming years, industry executives and a government official said at the recent Asia Climate Summit in Delhi.

India plans to implement its compliance mechanism around 2026, with 11 sectors expected to be covered gradually, including petroleum refineries, cement, steel, aluminum, thermal power plants and fertilizers. A voluntary market is also expected to be opened around the same time.

"[We] want to have a balance effect so that prices are somewhere around -- our expectation is $10 (per credit)," Saurabh Diddi, director at the Bureau of Energy Efficiency, the key carbon policy framing body, said at a panel discussion titled "Opportunities for the use of international carbon markets by India."

"We are not expecting $60 (per credit) or $70 (per credit) in our market as of now," Diddi said, referring to the level of prices in advanced markets. He said the government is likely to use a "market stability reserve" fund that can purchase credits to support any lack of demand.

BEE is likely to announce methodologies for sectors classified under phase 1 of the domestic voluntary market under the CCTS by March 2025, Diddi said on the sidelines of the event.

India laid rules to operationalize its compliance carbon market, sorting out how emission allowances will be issued and traded to pave the way for an official launch around 2026, BEE said in a document titled "Detailed Procedure for Compliance Mechanism under the Indian Carbon Market" in November 2023.

Other industry members at the summit also estimated India's initial carbon price at a similar level, referring to it as the minimum cost of abatement.

For "achieving the NDCs, if I try to do the carbon price... it is going to be sub $10 (per carbon credit)," Rambabu Paravastu, advisor & chief sustainability officer at renewables firm Greenko told S&P Global Commodity Insights on the sidelines.

However, "... that price which we are expecting to do our storage, our green hydrogen, green ammonia and all these activities, we are expecting to be $50 (per carbon credit)," Paravastu, who's firm is diversifying into renewable hydrogen/ammonia, said.

Striking a balance

A $10/mtCO2e price in India compares with a wide range of carbon prices in the current market -- some voluntary carbon credit prices have been in the low single digits. Australia Carbon Credit Units are trading just under A$40/mtCO2e ($26/mtCO2e) and the EU emission trading system reached as high as around EUR75/mtCO2e ($81.40/mtCO2e) earlier this year.

Platts, part of Commodity Insights, assessed the EU Emission Allowance Nearest-December at EUR64.52/mtCO2e ($70.06/mtCO2e) Oct. 31. The latest CEA price was Yuan 104.25/tCO2e ($14.62/mtCO2e) Oct. 25, according to data from the Shanghai Environment and Energy Exchange.

Singapore plans to raise its carbon tax to S$25/mtCO2e ($18.88/mtCO2e) with effect from 2024, and to S$45/mtCO2e in 2026 and 2027, with a view to reaching S$50-$80/mtCO2e by 2030.

In the context of India, the carbon price level is critical because it has to consider the impact on economic growth as well as drive new technologies like hydrogen and carbon capture. The widely discussed cost of abatement is the initial price needed to decarbonize a sector, and will gradually increase as cheaper methods are exhausted.

Low-hanging fruit

Industry members believed the Indian CCTS will be open to lower priced credits as it would enable many projects to register and sell their credits. On the buy side it will allow the emitting industries to get low-priced credits. This is seen as a win-win situation.

"India... may have a lower domestic price because I think the government's goal is to create a market that can take up a lot of the low-hanging fruit domestically," Dirk Forrister, president and CEO of the International Emissions Trading Association told Commodity Insights.

"And then in terms of international engagements, they would only be selling reductions that are not required for the national target," Forrister, whose institution hosted the summit, said.

A modeling done for the IETA showed the global average of carbon price would be around $38/mt by 2030, with likely increase to more than $200/mt by 2050 as NDCs are expected to become stricter in the future.

Keeping in view carbon credits at $38/mt, the domestic price in India could be lower, though the credits sold overseas might be priced higher, Forrister said.

An executive at a large Indian conglomerate with operations in hard-to-abate sectors also saw the minimum cost of carbon abatement in India at the same level as the other participants.

The cost of abatement is around $10-$12/mt, Deeksha Vats, chief sustainability officer at Aditya Birla Group said in a panel discussion titled "Japan and the Joint Crediting Mechanism: fostering linkages across Asia Pacific and beyond."

The cost is "technomercially" viable and corporates can kind of go and get that solution..." Vats said.

India's emissions (excluding CCUS) in an inflections scenario are expected to rise from 3.97 billion mt GHG in 2023 to 5.13 billion mt GHG by 2040, data from Commodity Insights shows.