Financing clean energy projects via carbon markets is a growth opportunity

Carbon markets have a growing role to play in helping the world meet net-zero ambitions - but transparency and policy are needed to truly boost the potential. The evolving fiscal mechanism can become a powerful tool in helping finance fledgling technology and projects seeking to reduce emissions and take the transition forward.

These were among prime findings from Leadership Panel session, Exploring the role of carbon tax and carbon trading in achieving net-zero goals and assessing their social and economic implications. Manish Dabkara, Chairman and Managing Director of EKI Energy Services, a carbon credit developer and supplier, highlighted the importance, complexities and potential hurdles of the carbon market.

He stressed the need for “consistency for the buyer for which credit to buy” as well as credit quality, and said “definition” was required to boost confidence in credit trading. Dabkara said while the international voluntary carbon market was currently experiencing volatility, he expects “in the next two to three years we will get more transparency.” This in turn could enable more price forecasting and bring price consolidation. With energy efficiencies and technology major levers for a carbon-zero world, the carbon market is positioned for an increased role. And Dakar said India was making great strides in both areas.

Debnath Mukhopadhyay, CFO, TruAlt Bioenergy Ltd, also raised the importance of transparency. He said the value of carbon credits had to be standardised globally to inspire confidence among investors. Many incentives were required to move the biofuels industry forward, but a “benchmark for carbon tax credits was required to incentivise” parties and enable further scaling to meet net-zero targets.

Matthew Harwood, Chief Strategy Officer of Oil & Gas Climate Initiative-founded venture capital firm Climate Investment, offered a positive consequence of the carbon market as it runs two funds investing in climate technology. He underlined how carbon markets “are very supportive of energy innovation and climate innovation”. “We see through experience with our portfolio companies how the generation of the credits can just tip a project into the financeable category. “Maybe there are other sources of revenue, but it might just be that generating a carbon credit can be the additional revenue that makes the project economic. “We’re very focused on some of the new rules that are coming out around the quality of those credits.”

Abhay Bakre, Director General, Bureau Of Energy Efficiency, echoed the need for standardisation as the system was “going to have implications for every stakeholder”. After the Paris Agreement, energy efficiency has become a key pillar to reducing emissions, something India is excelling at, not least as a big energy importer. In turn it is leading the pack in the carbon market having operated carbon pricing for many years. “I think by 2030, India will be one of the top three carbon markets in the world…the carbon market will be a win-win for all the players,” said Bakre, adding that carbon needed to be “recognised internationally to secure investment”.

Extensive consultations between parties, including governments, think tanks and project developers in March 2023, helped boost that process. Harwood, meanwhile, described it as “very exciting” to see the potential that India has to drive innovation into the clean tech area. “We have invested in some 40 different technologies so far, probably about a third focused on energy efficiencies, so for the Indian market, that makes a lot of sense,” he said. “There is a real opportunity for India to innovate around some of the higher cost technologies, but do so in an Indian way, through bringing down the costs so they are more appropriate for the Indian market.”

He added: “This innovation wave is poised to break in India and these policy instruments we’re talking about - carbon markets - can really accelerate that innovation in a way that we’ve seen in countries like Norway, where they have strong carbon prices. “But I do think the policy…and the carbon market needs to come through to give further support to this innovation.”