Carbon offset

Indian Economy glossary

Also called: Offsetting · Topic: Environment and Sustainable Development · NCERT: Beyond NCERT

Meaning

A carbon offset means cancelling out your own greenhouse gas emissions by buying carbon credits. Each credit is a certificate for 1 tonne of CO₂e reduced, avoided or removed somewhere else. CO₂e (carbon dioxide equivalent) turns every greenhouse gas into the amount of CO₂ that would cause the same warming.

Offsets matter because they let a company or country say it has lowered its net emissions without cutting all of them at home. So the claim is only true if the tonne behind each credit is real.

Net emissions = own emissions − offset credits surrendered (in t CO₂e)

Explanation

How offsetting works

  • Step 1: a project creates credits.
  • A project cuts emissions or removes carbon from the air, for example by protecting a forest or replacing a coal boiler.

  • A standard-setter checks the project and issues 1 credit for each tonne of CO₂e.

  • Step 2: a buyer purchases the credits.

  • The buyer is usually a firm with a net-zero pledge, or an entity that must meet a legal target.

  • Step 3: the buyer "retires" the credits.

  • Once the credits are cancelled in a registry, they cannot be sold again.

  • The buyer subtracts them from its own emissions.

  • Illustration (numbers for learning only):

  • A firm emits 1,000 t CO₂e and buys 1,000 credits. On paper its net emissions are zero.
  • Suppose 400 of those credits come from projects that would have happened anyway. Then only 600 t were really offset.
  • The real net emissions are 400 t. The "net zero" claim is false. This is greenwashing (claiming green credentials that are not real).

Four integrity tests: is the offset real?

Test Meaning in simple words Failure example
Additionality The cut would not have happened without the credit money A forest that was never under threat is sold as "saved"
Permanence The carbon stays locked away A forest that earned credits later burns and releases the carbon
No leakage Emissions do not simply move to another place Logging stops in one area but moves to the next district
No double counting The same tonne is not claimed by two buyers or two countries The host country counts the cut in its own target and a foreign buyer also claims it

Where offsets are traded: two kinds of market

  • Compliance carbon market
  • It is created by law.

  • Covered entities must surrender allowances or credits equal to their emissions.

  • Voluntary carbon market (VCM)

  • Buyers offset by choice, for example companies with net-zero pledges.
  • Standards: Verra and Gold Standard. The ICVCM's Core Carbon Principles serve as a quality benchmark.
  • Weak spot: some REDD+ credits faced integrity scandals, because the deforestation they claimed to have "avoided" was overstated. REDD+ stands for Reducing Emissions from Deforestation and forest Degradation, a forest-carbon programme.

International lineage: from CDM to Article 6

  • Clean Development Mechanism (CDM), under the Kyoto Protocol
  • Developed countries funded emission-cutting projects in developing countries.

  • In return they earned CERs (Certified Emission Reductions), which counted towards their own targets. This was offsetting between countries.

  • Paris Agreement, Article 6.2: ITMOs (Internationally Transferred Mitigation Outcomes)

  • These are country-to-country transfers of emission cuts.

  • They need "corresponding adjustments": the selling country adds the tonne back to its own account, so the cut is not counted twice.

  • Paris Agreement, Article 6.4: Paris Agreement Crediting Mechanism (PACM)

  • This is a UN-supervised system that replaced the CDM.
  • Its rules were finalised at COP29 (Baku, 2024). Standards were adopted on:
    • the baseline (what emissions would have been without the project)
    • leakage
    • reversal (making sure stored carbon is not lost later) [2]
  • The UNFCCC says Article 6 could help save up to US$250 billion a year in the cost of carrying out national climate plans [2].

In India

  • CDM history: India was the second-largest host of CDM projects, after China.
  • Carbon Credit Trading Scheme (CCTS), 2023
  • The Energy Conservation (Amendment) Act, 2022 gave the government legal power to create it.
  • It was notified in June 2023 and created the Indian Carbon Market (ICM) [1].

  • It uses tradable Carbon Credit Certificates (CCCs), where 1 CCC = 1 t CO₂e [1].

  • The CCTS has two parts:

  • Compliance mechanism: Obligated Entities must meet GHG Emission Intensity (GEI) targets [1].

  • Offset mechanism: entities that are not obligated can voluntarily register projects and earn credits. This is India's own domestic offset route.

  • Institutions:

  • BEE (Bureau of Energy Efficiency) is the administrator.
  • Grid-India is the registry, which records who holds which credits.

  • CERC (Central Electricity Regulatory Commission) regulates trading.

  • Article 6.2: India notified its list of activities eligible for international transfer in 2023.

  • Task ahead: India needs strong MRV (Monitoring, Reporting and Verification) so that its offset credits pass the additionality and permanence tests.

Don't confuse with

  • Carbon credit: the credit is the certificate for 1 t CO₂e. The offset is the act of using credits to cancel your own emissions.
  • Allowance (cap-and-trade permit): the government issues an allowance under a cap, and it is the right to emit 1 t CO₂e. A credit comes from a project that reduced, avoided or removed 1 t.
  • Green Credit (Green Credit Programme): it rewards actions such as tree planting or water conservation. It is not a certified tonne of CO₂e, so it is not a carbon credit and cannot serve as a carbon offset.
  • Carbon tax: it makes the polluter pay a price on its own emissions. An offset lets the emitter pay someone else to cut emissions and keep emitting at home.

Prelims Hooks

  • 1 carbon credit = 1 tonne of CO₂e reduced, avoided or removed. Offsetting means buying credits to cancel out your own emissions.
  • The four integrity tests are additionality, permanence, no leakage and no double counting. A forest that later burns fails permanence.
  • Corresponding adjustment (Article 6.2, ITMOs) prevents double counting between countries.
  • Article 6.4 PACM replaced the Kyoto-era CDM. Its rules, with baseline, leakage and reversal standards, were finalised at COP29, Baku (2024) [2].
  • CCTS (June 2023) has a compliance mechanism and an offset mechanism for non-obligated entities. BEE is the administrator, Grid-India the registry and CERC the trading regulator [1].
  • Trap: a Green Credit is not a carbon credit. Verra and Gold Standard are voluntary-market standards, not UN bodies.

Mains Points

  • Offsets vs real cuts (greenwashing risk)
  • Offsets let firms keep polluting at home while claiming "net zero".
  • If credits fail additionality or permanence, as in the REDD+ scandals, the planet gets no real cut.

  • Offsets should come after deep cuts at home, not replace them.

  • Rules that raise integrity

  • Corresponding adjustments under Article 6 and the COP29 baseline, leakage and reversal standards [2] make each credit more trustworthy.

  • India's CCTS offset mechanism will earn buyer trust only with strong MRV and a transparent registry run by Grid-India.

  • Opportunity for India (GS-III, with a GS-II link)

  • As the second-largest CDM host, India can earn climate finance by selling high-quality credits under Article 6.
  • It must first decide which cheap cuts to keep for its own NDC. Selling them abroad through corresponding adjustments makes India's own target harder to meet.

Related concepts

Read more

Sources

  1. 1Carbon Pricing in India (PIB Press Note)pib.gov.in · tier 1
  2. 2COP29 Agrees International Carbon Market Standardsunfccc.int · tier 2