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The Indian government recently set greenhouse gas (GHG) emissions intensity targets for key industrial sectors under its Carbon Credit Trading Scheme (CCTS). These targets apply to eight major industries, including steel, cement, aluminium, and textiles, and aim to reduce emissions per unit of production.

What is the importance of assessing carbon targets at the economy-wide level?

• Reflects true environmental impact: Evaluating targets at the economy-wide level ensures we understand the overall reduction in greenhouse gas emissions, which is the ultimate goal of climate action.
• Enables flexible compliance: It allows efficient entities to overachieve and trade credits with less efficient ones, reducing total emissions cost-effectively. Eg: In India’s PAT scheme, cement plants exceeding targets sold energy-saving certificates to aluminium units lagging behind.
• Aligns with national commitments: It supports the evaluation of whether India is on track to meet its Nationally Determined Contributions (NDCs) and net-zero targets, beyond fragmented sectoral views. Eg: India aims to reduce emissions intensity of GDP by 45% by 2030 – a goal only visible through economy-wide analysis.

How has the PAT scheme proven effective in reducing energy intensity?

• Encouraged market-based efficiency: The Perform, Achieve and Trade (PAT) scheme allowed industries to meet energy targets using tradable efficiency certificates, creating a cost-effective compliance mechanism.
• Achieved aggregate reduction: Despite mixed results at the entity or sector level, overall energy intensity in India declined across PAT cycles, proving its system-wide impact. Eg: Between 2012–14, even as chlor-alkali sector’s intensity rose, combined data showed less energy used per unit of output.
• Enabled flexible transition: PAT helped industries adopt incremental improvements or buy credits instead of making costly in-house upgrades, ensuring participation without economic strain. Eg: Aluminium units improved production processes, while others chose certificate trading to meet targets.

Why are entity-level targets insufficient to assess emission reduction?

• Limited Scope of Impact: Targets at the entity level show progress in isolation and may miss the broader picture. For instance, even if some paper or chlor-alkali plants increase their energy use per unit of output, overall national emissions may still fall due to reductions in other sectors.
• Focus on Transactions, Not Outcomes: These targets often guide financial trades between companies rather than ensuring actual emissions reduction. A steel plant may meet its target not by cutting emissions but by buying efficiency certificates from another unit.
• Inconsistency Across Sectors: Emission reductions may vary widely across sectors. While cement and aluminium sectors may improve efficiency, others may lag. Solely relying on entity targets could misrepresent the real national decarbonisation progress.

What limits the comparison of CCTS targets with past and future benchmarks?

• Mismatch in Scope: The CCTS targets apply only to a part of India’s industrial base, making it difficult to compare them with economy-wide goals like the Nationally Determined Contributions (NDCs). Eg. CCTS covers only 8 industrial sectors, while NDCs span all sectors including agriculture and transport.
• Changing Baselines and Ambition Levels: Past schemes like PAT Cycle I had relatively modest targets. Comparing them with current CCTS goals may underestimate the urgency for stronger action aligned with net-zero by 2070. Eg. A sector that achieved 1% reduction earlier may now require over 2.5% annual reduction to stay on track.
• Different Indicators Used: Past targets often focused on energy intensity, while future goals (like NDCs) emphasise emissions intensity per GDP or value added, making direct comparison methodologically inconsistent. Eg. Comparing energy saved per unit of production vs emissions per unit of GDP distorts true climate ambition.

How do CCTS targets align with India’s NDC and net-zero goals?

• Partial Alignment with Emission Intensity Reduction: The CCTS targets aim to reduce emissions intensity in key industrial sectors, contributing to India’s NDC goal of reducing emissions intensity of GDP by 45% by 2030 (compared to 2005 levels). However, the annual reduction rateof ~1.68% in CCTS sectors is lower than the required pace for full alignment.
• Lag Behind Power Sector Decarbonisation: Compared to the power sector, which has low-cost mitigation options and a projected 3.44% annual decline in emissions intensity, the industrial sector’s slower pace (~2.53%) under CCTS may hinder the broader net-zero pathway.
• Need for Greater Sectoral Ambition: The current CCTS trajectory appears less aggressive than necessary for the 2070 net-zero target. Without scaling upambition across more sectors and tightening targets, CCTS alone cannot ensure full alignment with India’s long-term climate goals.

Way forward: 

• Enhance Sectoral Ambition with Dynamic Targeting: Revise CCTS targets periodically based on economy-wide modelling aligned with India’s NDC and net-zero goals, ensuring progressively stringent emission intensity reductions across all major industrial sectors.
• Integrate Technology and Incentives: Promote adoption of clean technologies through financial incentives, carbon pricing, and capacity-building support to enable industries to decarbonize efficiently without compromising growth.

Mains PYQ:

[UPSC 2014] Should the pursuit of carbon credit and clean development mechanism set up under UNFCCC be maintained even through there has been a massive slide in the value of carbon credit? Discuss with respect to India’s energy needs for economic growth.

Linkage: The article talks about the concept of “carbon credit,” which is a fundamental component of carbon trading schemes, including India’s Carbon Credit Trading Scheme (CCTS) which is related to the demand of the question.