At the 2021 UN climate summit COP26 in Glasgow, India’s prime minister Narendra Modi announced the Lifestyle for Environment (LiFe) movement. The purpose of this movement is to nudge individual choices and behaviours towards sustainability. In line with the movement, the Ministry of Environment, Forest, and Climate Change recently announced the Green Credit Programme initiative to encourage environmentally friendly practices.
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The LiFe movement was introduced to encourage “mindful and deliberate utilisation, instead of mindless and destructive consumption”. It focuses on behaviours and attitudes of individuals, aiming to mobilise at least one billion Indians to take action for protecting and conserving the environment. It also utilises climate-friendly social norms, beliefs, and daily household practices embedded in Indian culture to drive the campaign.
Prime Minister Modi announced the initiative’s launch at the recent COP28 in Dubai, which the Ministry of Environment, Forest, and Climate Change described in a statement as “an innovative market-based mechanism designed to incentivize voluntary environmental actions across diverse sectors, by various stakeholders like individuals, communities, private sector industries, and companies”.
The new Green Credit Rules will incentivise individuals, organisations, and industries to undertake positive environmental projects, extending beyond simply carbon emissions reduction to include improvements in air and water quality, biodiversity, and more. Initially focusing on water conservation and afforestation projects, the new programme “envisions the issue of green credits for plantations on waste and degraded lands and the river catchments areas to restore their vitality”.
Similar to a carbon market system, where organisations can buy and sell carbon credits, entities will be able to claim green credits for actions undertaken that positively impact the environment, which can then be traded for financial benefits on a domestic market platform.
A key benefit of the new system is its inclusivity; indeed, the program is accessible not only to organisations but also to individuals participating who want to partake in simple yet effective practices such as composting and community cleanups. There are several activities eligible for green credits, categorised into eight key areas:
Tree plantation
Water management
Sustainable agriculture
Waste management
Air pollution reduction
Mangrove conservation and restoration
Eco-mark labelling
Sustainable building and architecture
The green credit system will complement the carbon credit system. Any activity that is eligible for green credits will also be eligible for carbon credits if it leads to the reduction or removal of carbon emissions. The rules also clarify that any green credits that are generated or procured by organisations due to legal obligations cannot be traded.
The green credit system is a significant step taken towards reshaping financial systems for a more sustainable future. It will increase awareness and inspire collective action against climate change by building environmentally friendly habits. Unlike carbon credits, the new system looks beyond just carbon. With the risk of large-scale and irreversible environmental changes increasing, it is important to focus not only on preserving but also restoring natural resources. Furthermore, an incentive-based approach may be more effective than other measures such as taxation, which organisations may be able to get around, especially in countries with low levels of enforcement.
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Sumit Agarwal, the managing direction at the National University of Singapore’s Sustainable and Green Finance Institute, cited the success of India’s Production Linked Incentive Scheme – which gave financial incentives to manufacturers for the production of high-performance solar panels – as an example of why green credits may be successful in driving positive environmental and economic outcomes. The scheme resulted in an additional 48-gigawatts of manufacturing capacity added to the country over the next three years.
However, there are also reservations about the programme.
For it to work, the scheme would have to reach scale. Targeting just the India market and thus having just a restricted number of participants could lead to inefficient transactions due to an unbalance in the number of buyers and sellers. Several other factors could also affect its success, such as market volatility, which would cause the value of green credits to fluctuate in value and result in businesses facing uncertainties related to their environmental investments. Furthermore, stronger regulations are needed to guarantee ongoing monitoring and validation of claims, which would otherwise risk being mere greenwashing. However, these would slow down the efficiency of the programme, with delays in receiving credit and receiving revenues from trades, and affect its success.
Unlike the carbon market, which prices a standard unit per tonne of carbon emitted, the green credit system does not yet have a standard unit of measurement for the benefits, which will be more complex to determine as they are accrued from various activities and across different sectors.
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