India presented its five nectar elements (Panchamrit) of climate action at the 26th UN Climate Change Conference of the Parties (COP) held in Glasgow, which was a step towards achieving India’s long-term goal of net zero emissions by 2070. As part of a “non-quantified goal”, the concept of Lifestyle for the Environment (LiFE) was introduced by the prime minister.
To take the concept of LiFE ahead, the Ministry of Environment, Forest and Climate Change (MoEFCC) introduced the Green Credit Programme (GCP) by enacting the Green Credit Rules, 2023, (GC rules) on 12 October 2023, which lays down a framework to protect the environment by incentivising pro-environmental actions propagating healthy, sustainable and environment friendly development.
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India’s prime minister and the president of the United Arab Emirates co-hosted a high-level event on the GCP at the 28th edition of the COP in Dubai, and launched a web platform that would serve as an international platform for dialogue and collaboration, and a repository of policies and best practices that incentivises environmentally friendly actions by way of the issuance of green credits. However, some potential challenges are as follows:
Nature of green credits. Carbon credits are considered as “goods” for the purposes of “commodity derivatives” under the Securities Contracts (Regulation) Act, 1956 (SCRA). Any contract for derivatives is valid and legal if they are: (1) traded on recognised stock exchanges; (2) settled on the clearing house of a recognised stock exchange in accordance with the rules and bylaws of such a stock exchange; or (3) between such parties and on such terms as may be specified by the central government by notification in the official gazette.
Given that the Securities and Exchange Board of India (SEBI) has jurisdiction over trading of carbon credits, the sale and purchase of voluntary carbon credits are structured either as “ready delivery contracts” or “non-transferable specific delivery contracts” to oust the jurisdiction of the SEBI. Since the GC rules do not clarify the nature of the green credits, it is unclear if they would be treated as goods for commodity derivatives, akin to carbon credits.
Therefore, it is pertinent that the government categorically specifies the nature of green credits, and modalities around trading of green credits, to ensure that there is no jurisdictional tussle between the SEBI and the administrator.
Interplay between carbon and green credits. The GC rules provide that the GCP is independent of the carbon credit under the Carbon Credit Trading Scheme, 2023. However, it stipulates that an activity generating green credits under the GCP may also be eligible for the issuance of carbon credits under the above-mentioned scheme. While a carbon credit is allotted on account of reduction, removal or avoidance of greenhouse gas emissions equivalent to one tonne of carbon dioxide equivalent, for green credits no such quantified value is specified. In the absence of a quantified methodology for calculation, the benchmark for the issuance of a carbon credit against the same activity for which a green credit will be issued is unclear and ambiguous.
Moreover, allowing the issuance of carbon credits along with green credits for the same activity may result in double counting and dual incentivisation for the same activity.
Dispute resolution with respect to green credits. Per the GC rules, the administrator is responsible for regulating matters relating to green credits, and to safeguard the interests of the sellers and buyers, and take preventive and corrective actions to prevent fraud or mistrust. However, the GC rules are silent on a dispute resolution mechanism for any dispute that may occur between the administrator, stakeholders and the designated agencies. No specific dispute settlement mechanism or forum is provided under the GC rules.
Quantification of green credits. The technical committee is entrusted with the role to develop and recommend to the administrator the methodology for calculation of one unit of green credit based on the equivalence of the resource requirement, parity of scale, scope, size and other relevant parameters. However, given the wide category of eligible activities under the GCP, the quantification/calculation of one unit of green credit will be challenging. The proposed GCP is certainly a promising step towards India’s decarbonisation commitments, but its success will depend on the clarity of methodologies and processes implemented vis-à-vis the issuance and trading of green credits.
Abhijit Mukherjee is an associate partner at Dentons Link Legal.
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