Green Credit Rules 2023

The proposed Green Credit Program (GCP) implementation guidelines of 2023 have been notified by the Ministry of Environment, Forest and Climate Change. It was introduced in the union budget for 2023-24 with the intent of leveraging a competitive market-based approach and incentivizing voluntary environmental activities by diverse stakeholders. The Indian Council of Forestry Research and Education (ICFRE) will serve as the administrator of the program, developing the guidelines, processes and procedures for implementation of the program.

The ‘Green Credit’ means a singular unit of an incentive provided for a specified activity delivering a positive impact on the environment. The Green Credit program is a mechanism that complements the domestic carbon market. ‘Carbon Market’ is a tool for putting a price on carbon emissions. It allows the trade of carbon credits with the overall objective of bringing down emissions. These markets create incentives to reduce emissions or improve energy efficiency. For example, an industrial unit that outperforms the emission standards stands to gain credit. Another unit that is struggling to attain the prescribed standards can buy these credits and show compliance with these standards. The unit that did better on the standards earns money by selling credits, while the buying unit is able to fulfill its operating obligations.

Eligible Green Credit Activity may include tree plantation, water management (including water conservation, water harvesting, wastewater treatment and water use efficiency), sustainable agriculture (including soil conservation, adding nutrition to soil, land restoration, and regenerative agriculture), waste management, air pollution reduction, mangrove conservation and restoration, eco-mark label development, and sustainable building and infrastructure.

Any person or entity (“Applicant”) desirous of obtaining green credits for the protection, preservation or conservation of the environment shall register their activity (“Eligible Green Credit Activity”) electronically with the Administrator. The Administrator after receiving a report from the designated agency (verifying the Green Credit Activity) shall grant the Applicant a certificate of Green Credit.

The carbon market establishes trading systems where carbon credits or allowances can be bought and sold. A carbon credit is a kind of tradable permit that, per United Nations standards, equals one ton of carbon dioxide removed, reduced, or sequestered from the atmosphere. Carbon allowances or caps, meanwhile, are determined by countries or governments according to their emission reduction targets.

While the domestic carbon market focuses solely on CO2 Emission reductions, the Green Credit System aims to meet other environmental obligations as well, incentivizing sustainable actions by companies, individuals, and local bodies. The green credits will be tradable and those earning it will be able to put these credits up for sale on a proposed domestic market platform. The sale proceeds shall be redeployed into activities that promote green initiatives or environment-related projects.

It implies that when businesses buy credits, they are just balancing their carbon footprints rather than lowering their overall emissions or investing in clean technology. Experts are concerned that the market-based mechanism of green credits may lead to Greenwashing. Companies or entities may engage in tokenistic or superficial activities to generate green credit without making substantial efforts to address environmental issues. There are also concerns about the effectiveness of these mechanisms in achieving urgent emissions reductions and the allocation of resources for monitoring and fraud prevention instead of more transformative efforts directed by the government.

It will be crucial to ensure that the methodology and the standards are robust and additional strategies that would create enough demand for the green credits for the viability and stability of the market. In addition, there is a need for a careful assessment and implementation of the Green Credit System, particularly its focus on tree plantation and afforestation. It is important to consider unresolved forest ownership and governance rights, ecological and biodiversity challenges, and global critiques of carbon credit schemes. Internal discussions and public consultations are important to address these aspects.

The Green Credit Program will encourage private sector industries and companies as well as other entities to meet their existing obligations, stemming from other legal frameworks, by taking actions that are able to converge with activities relevant to generating or buying green credits. The guidelines bring together mechanisms to quantify and support ecosystem services together and would be of great help to organic farmers and FPOs. It’s a first-of-its-kind instrument that seeks to value and reward multiple ecosystem services to allow green projects to achieve optimal returns beyond just carbon.

The Green Credit Scheme is designed to establish a market for the monetization of concerted efforts across various domains, encompassing water conservation, sustainable agriculture, etc. The scheme aims to provide incentives for individuals to actively contribute to the reduction of environmental pollution, extending beyond the mere limitation of carbon emissions. Functioning akin to a cap-and-trade system, participants could fulfill their designated targets and subsequently trade any surplus in the open market.

This framework facilitates industrial decarbonization and establishes a marketplace where entities unable to implement clean solutions due to financial constraints can procure certificates to offset their environmental impact. By doing so, organizations are not only motivated to surpass their objectives but also contribute to assisting smaller enterprises in meeting their targets. Leveraging the sale of excess certificates, companies can generate revenue, fostering investor confidence in financing technologies aimed at environmental protection. These initiatives shall go a long way in ushering a sustainable environment-friendly economy.

About the authors: Bhargesh Ojha is a Senior Advisor and Paritosh Garg is an Associate at Chandhiok & Mahajan.