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Concept:

As all we know the climate of India is changing. The summer season lasts for a longer period as compared to the winter season and spring has almost vanished. Several reasons contributed to this situation, one of them is carbon emissions from industries, factories, etc. So what is the solution for this? Whether we stop manufacturing and start harvesting only. Surely not, in 1992 Kyoto Protocol introduced the concept of carbon credits. It was a certificate that allows its users to emit Greenhouse gases. Normally 1 carbon credit was equal to 1 metric tonne of emission of carbon dioxide gas. Every company is allotted some carbon credits by industry regulators and the company is required to limit their emissions to that level and this numbering of credits goes on reducing over time. Ultimately this will help to reduce emissions up to an extent.

Carbon Offset:

Its general meaning is to use carbon credits against the carbon emissions generated. In practice, not every company can achieve that level of carbon credit and not every company required that amount of carbon credit. To balance this gap between demand and supply government allows the trading of these credits to voluntary persons. This trading can be done in voluntary markets where private investors, government, and non-government organizations can trade and offset carbon credits.

Carbon Credit in India:  

In India, a carbon credit is also an emerging concept for the reduction of emissions of greenhouse gases. India has issued 278 million carbon credits in the voluntary market from 2010 to 2022, accounting for 17% of the global supply according to an analysis of S&P Global, and has a target of zero emissions till 2070. Carbon Markets are the most effective drivers for offsetting carbon emissions. In the past credits were allowed to export however on 8 August 2022 government banned the export of credits and start developing a national market for the same. In Hyderabad, Telangana a company called Core Carbon x Solutions doing the business using concept of carbon credit. Let’s understand its business model in detail

  • Its business model revolves around distributing energy-efficient stoves free of cost to Odisha people who can’t afford the same and earn carbon credits and sell those earned carbon credits.
  • A typical carbon credit sold for around $8-$10 roughly around (Rs. 656 to Rs. 820) at the moment and according to a rough estimate, it would earn around 2 to 4 carbon credits which means revenue will rotate around (Rs. 1300 to 2600) and cost of distributing stove is around (Rs. 1200 to 1600).
  • So, it will earn at least Rs. 100 profit per stove and the company mission is to distribute 20 million stoves distribute and eventually Rs. 20 Crore profit minimum.
  • Last year the company’s profit was $11 million just by distributing 90,000 stoves. It is a win-win model. On one side people get stoves and second side a good amount of profit is generated.

Income Tax on Carbon Credit:

After a recent amendment a new section has introduced 115BBG (Taxation of Carbon Credits) @10% gross income without allowing any expense for the deduction. This section is not only for business houses but an individual can also claim the benefit of a 10% tax rate as compared to a 30% slab rate.

Possible Situations: Apart from the above situation the concept of carbon credits can also use in the following situations like

  • Farmers use diesel pumps to pump water which is costly for farmers on the other hand harmful to the environment. Companies should come forward to replace it with solar pumps and earn carbon credits.
  • Promotion of sustainable agriculture among farmers by companies to earn carbon credits and also lead to additional income for farmers.
  • Afforestation can be promoted by those companies who are in the business of wood chopping like every tree they cut they can plant more and earn carbon credits.

Conclusion:

There is a lot that can be done in this area This is a great opportunity for India to build sustainable businesses and solve India’s problems at the same time. Currently, Tesla is also using this strategy and earning around $518 million by selling excess carbon credits.  The usage of economic and social instruments to control environmental damage and secure the planet for future generations is something that has been devised recently with the advent of the concept of ‘green economics.’ Incentivizing people economically to watch their carbon footprint has been able to make considerable headway in terms of reducing the emissions of carbon-di-oxide and other poisonous by-products in the manufacturing process. Innovations in the form of clean energy are being undertaken by companies at their cost as it creates a healthier dynamic with the community within which it operates.

Author Bio

A proud Chartered Accountant recently qualified in November 2022 examinations. I have 3 years of experience as an Article Assistant in a reputed mid-size firm and wide exposure in Taxation, Audit, and Accounting. Aiming to leverage my academic knowledge and experience in Taxation and Accounting. View Full Profile

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3 Comments

  1. Prashant Kumar says:

    Hi Dipanshu, I am a little confused regarding the profits generated ($11M) by distributing 90,000 stoves. Using these numbers, the profit generated per stove comes to around 10,000. Could you please verify this.

  2. Bhatt sir says:

    It is time to explore water foot print on each product and to provide 💦 credit to concern institute which are working with water conservation and sustainable water conservation program.. as water is only elixir on earth ‘ જળ એજ જીવન ‘

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