The Road to Global Warming is Paved with Good Intentions - Analysing India's "Green Credit Framework"

Once an inspirational topic for dystopian literature, climate change has become an alarming reality, with weekly (if not daily) reports of climate-induced crises. Appropriate regulations are the need of the hour – however, most regulatory instruments fall short of achieving a meaningful reduction in industry and household emissions.

One such regulatory instrument that warrants a critical analysis is the tradable emission right. Individuals and firms may either purchase such rights from a public authority or perform environmentally-friendly activities. Once acquired, these rights may be freely traded between individuals and/or firms. In principle, this system should limit pollution activity to a small group of the highest payers (with the public authority placing a cap on the rights each individual or firm can acquire). In reality, this economic instrument may not sufficiently reduce emission levels, because:

(a)     Such rights are traded among a small community of industries, whereas pollution is generated by a larger set of individuals and firms; [1]

(b)    Most regulatory systems are not sufficiently robust to ensure the perfect market conditions under which these rights would be a means of limiting pollution. Instead, wealthier firms may be incentivised to obtain a larger number of rights. As this recent editorial from The Hindu notes, commodification of pollution through tradable rights may undermine the real goal of reducing pollution.

Recently, the Ministry of Environment, Forest and Climate Change (Government of India) introduced a new form of a tradable right called a “green credit”. As per the Green Credit Rules, 2023, person or an entity can earn a green credit by undertaking any of the following measures - tree plantation, water management, sustainable agriculture, waste management, air pollution reduction, mangrove conservation and restoration, ecomark label development, and sustainable building and infrastructure. Green credits are tradable on a platform managed by the ICFRE (the Indian Council of Forestry Research and Education).

The Methodology notified under the Green Credit Rules, 2023 provide further details on the manner of earning and utilising a green credit. As of date, green credits can only be earned  for tree plantation activities. The Forest Department of a State/Union Territory shall identify a degraded land (including open forest and scrub land, wasteland and catchment areas) where tree plantation activity will occur. A person or entity may make a payment against the demand note raised by the ICFRE for such tree plantation activity. Each tree planted on the land parcel equals to one green credit, subject to a maximum density of 1100 trees per hectare (although this limit is sought to be revised). The green credits can be used for CSR/ ESG reporting, or in lieu of the compulsory afforestation requirements under the Forest Conservation Rules, 2022.

The Methodology has a few notable drawbacks. As per this article of Mongabay India, the Methodology does not clarify if a green credit can be rescinded if, for instance, the newly planted tree does not survive or is harmful to its surrounding environment as an invasive species.  Further, by emphasising on degraded land parcels for reafforestation efforts, sites that may appear less degraded but are nonetheless suitable for restoration may not receive sufficient attention.

In real world imperfect markets, tradable rights do not reduce emissions. However, the vast experience of regulators in experimenting with tradable rights can at least inform a more robust Green Credit Framework.  In order to see a meaningful reduction in emissions, the Methodology prescribed by the MoEFCC must cover a wider range of activities than tree plantation, and must prescribe a method of calculating green credits that accurately reflects the emissions reduced as a result of undertaking environmentally-friendly activities.

[1] See Brownen Morgan and Karen Yeung, An Introduction to Law and Regulation: Texts and Materials (Cambridge University Press, 2007), at page 91.