Tamil Nadu is one of the most industrialised states in India, contributing to 10% of the country’s manufacturing sector and nearly 9% of India’s GDP. Surprisingly, the state contributes to only 4% of the overall greenhouse gas (GHG) emissions. This is a vestige of how the state’s economy is structured – benefitting from the high value-added manufacturing and services. This also means that the state has a responsibility to decarbonise its economy ahead of the national 2070 deadline.
To decarbonise its economy, Tamil Nadu has two complementary approaches – a policy-led technology and sector road-map for emissions reduction; and the use of an emerging carbon market to discover cost-effective solutions where some entities mitigate and others with compliance requirements or voluntary targets could purchase credits that are on sale. These credits (or allowances) could be a result of surplus permits from entities that exceed their compliance or offsets from those who develop projects that remove or reduce GHGs.
Policy-led decarbonisation
When it comes to energy sources, Tamil Nadu has an in-principle commitment to no new coal-based power generation. Nearly a quarter of all generation within the state is from renewable sources. With the reduction in costs of electricity storage and the incorporation of smartness into the electricity grid, the state can reap many more benefits. This would allow power utilities to – provide flexibility to the power grid, offer additional capacity at peak electricity demand hours, shift peak demand to hours when renewable energy is available and keep the grid secure overall. Transportation also represents a crucial sector where targeted interventions in using principles of transit-oriented design, increasing provision of public transport, discouraging private vehicle use, and incentives to adopt electric vehicles will deliver a significant reduction in carbon emissions. These two sectors represent nearly 65% of overall emissions in Tamil Nadu.
Enter carbon markets
About 16% of Tamil Nadu’s carbon emissions are from industrial processes, agriculture and associated practices, and livestock among others. These are more challenging to address as they are a result of deep-seated individual preferences and community practices, or from sectors where the cost of mitigating emissions is still not financially viable for individual actors.
For instance, process and product use from industry results in emissions to the tune of 10 million tonnes of CO2 in the state, and will almost entirely have to rely on carbon capture utilisation and storage (CCUS) for mitigation. As per a recent study by the Council on Energy, Environment and Water (CEEW), this could cost between $90 and $400 for each tonne of CO2 removed. Such entities might choose to use a carbon offset market or a green credit market to help the state progress towards its net-zero commitments.
In 2023, the union government notified a domestic carbon credit trading scheme and the green credit programme. Both of these mechanisms incentivise project developers to carry out activities that generate environmental benefits. These, in turn, would have an associated carbon reduction – that would be certified through an administrator and affiliated accreditors. While some of these credits could be used to fulfil compliance obligations, there is also a thriving (international and national) market for voluntary carbon reduction credits, that provides another demand source for those selling verified credits.
For Tamil Nadu, there are clear benefits of incentivising programmes like the Green Tamil Nadu or Tamil Nadu Wetlands mission, that could generate carbon and green credits. In addition to sequestering carbon, they provide a range of ecosystem benefits and these will be valued at a premium by a market that is increasingly factoring in the vagaries of climate. As per existing studies, preservation of (a select set of) wetlands is likely to cost Rs 230 crore annually but would generate benefits that are valued higher than Rs 13,000 crore annually.
To tap into the potential of carbon or green credit markets, Tamil Nadu and other states must lay the preparatory ground for potential developers of projects, by helping identify opportunities for the reduction or removal of GHGs, and ensuring that they are compliant with the robust monitoring and reporting protocols that will be put in place. This will enable developers to take them to appropriate markets to then value them for the services they deliver,in making our country more resilient to extreme climate events.
The way forward
TN has two complementary approaches – a policy-led technology and sector road-map for emissions reduction; and the use of emerging carbon market to discover cost-effective solutions
Footnote is a weekly column that discusses issues relating to Tamil Nadu
Karthik Ganesan is a Fellow and Director, Research Coordination, Council on Energy, Environment and Water