Need a more comprehensive carbon credit market: Avaada Group chairman

Vineet Mittal, Chairman, Avaada Group

On November 8, an expert group of the United Nations (UN) released a report at the ongoing COP27 climate conference in Egypt in which it dismissed the use of cheap carbon credits to offset continued emissions as a viable “net-zero” strategy.

The 17-member expert panel constituted by UN Secretary-General Antonio Guterres at last year's climate negotiations in Glasgow recommended that companies, financial institutions, cities and regions focus on outright emissions and not carbon intensity -- a measure of how much carbon is emitted per unit of output.

Responding to this, Vineet Mittal, chairman of Avaada Group, which develops and operates renewable energy projects in India, told Moneycontrol in an interview on November 11 that the carbon credit system is an important tool to incentivise companies for green projects, but said that the market rather needs transparency.

“We need a more comprehensive carbon credit mechanism. What is needed in the carbon credit market is transparency, which has to increase. A buyer should be able to verify whether the carbon credit certificate they have got is genuine and it’s impacting,” Mittal said.

He further said there is a need now to bring the concept of “additionality” in terms of whether the emission reduction would have occurred without the carbon credits.

“If your project can sustain the cost of capital, for example, the return paid to investor is high enough for the private sector or the government to invest without carbon credits, then the project is not additional. It could be financed any which way. But many projects in the developing nations are not profitable - the return is not in sync with the risk they take. So without having a vibrant carbon pricing, the transition is not going to happen,” Mittal said.

Watch the full video interview with Vineet Mittal, Chairman, Avaada Group below

“Humans respond to positive incentives much more. This is a positive incentive that if I am emitting carbon, I have to buy some form of carbon reduction certificate, then it creates a marketplace. Doing this adjusts the right priced and the price discovery is realistic. So, if the additionality can be proven and transparency of getting these certificates is improved then it is the best system,” he said.

Talking about India’s stand that developing nations should invest in trillions towards climate financing in developing countries, Mittal said the topic of climate change mitigation gets complicated when it comes to the money quotient.

“In many cases it gets defined by jargons. Some define it (climate financing) as spending on mitigation and adoption. Now is it supposed to come from the $100 billion part of climate finance or not? Further, contribution from developed and industrialised nations which was agreed more than a decade ago; trading in carbon offset under article 6 which is meant to transfer the money from developed to developing countries; and loss and damage is again a new form of compensation,” he said.

“We need to make the definition of climate financing very simple. The trillions of dollars that India had thought for climate action - it should be clearly defined how much of the fund is to minimise climate change and how much is towards averting climate change,” Mittal said.

At this year's conference being held in the Egyptian seaside resort of Sharm el-Sheikh from November 6 to 18, developed countries are pushing developing nations to further intensify their climate plans.

On the other hand, the developing countries are seeking commitment to finance and technology needed to address climate change and resulting disasters.

At a high-level ministerial dialogue on NCQG at COP27 on November 9, India highlighted that climate actions to meet the NDC targets require financial, technological, and capacity-building support from developed countries, people aware of the developments said.