Environmental attributes represent the characteristics of electric power generation that have an intrinsic value (excluding the energy output), arising from perceived environmental benefits of electricity generation from renewable sources, that result in the avoidance of adverse impact on the environment. For renewable energy generators (RE Generators) to realise tangible benefits from environmental attributes, various renewable energy tracking systems have evolved. These help RE Generators to monetise the green component of electricity, by selling environmental attributes to various entities (both obligated and voluntary), thereby creating much required liquidity. RE Generators in India have been realising the benefits of environmental attributes by registering their projects under the renewable energy certificate (RECs) mechanism, and various other international programmes, as outlined below.
Renewable Energy Certificates
India introduced RECs in 2010. This not only helped RE Generators, but also entities to fulfill their renewable purchase obligations (RPO). Accordingly, the Central Electricity Regulatory Commission (CERC) had notified the erstwhile Central Electricity Regulatory Commission (Terms and Conditions for Recognition and Issuance of Renewable Energy Certificate for Renewable Energy Generation), Regulations, 2010 (Erstwhile CERC REC Regulations), that governed accreditation, registration, issuance, trading and redemption of RECs. Currently, in India, 3,956 RE Generators have registered their renewable power projects under the REC mechanism and 78,473,007 RECs have been issued.
However, a reduction in the floor price and the forbearance price of RECs in power exchanges due to a demand-supply mismatch of RECs has caused RE Generators to opt for other lucrative environmental attributes. Under the Erstwhile CERC REC Regulations, RECs could not be traded on international platforms as their trading was limited to power exchanges, namely, Indian Energy Exchange Limited (IEX) and Power Exchange India Limited (PXIL), and only Indian nationals and Indian entities were permitted to register and trade on IEX and PXIL. Additionally, bilateral trading of RECs was not permitted under the Erstwhile CERC REC Regulations.
In a move to address some of these issues, CERC recently issued the Central Electricity Regulatory Commission (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulation, 2022 (CERC REC Regulations), on May 09, 2022. The CERC REC Regulations has introduced a market driven pricing for RECs, by inter alia removing the provision of floor/ forbearance price, allowing trading of RECs through electricity traders (in addition of trading through power exchanges) and making the validity of RECs perpetual (which were valid only for 1,095 days under the Erstwhile CERC REC Regulations).
International Renewable Energy Certificates
International REC Standard (I-REC Standard) is another renewable energy tracking system under which RE Generators can register their projects for issuance of international renewable energy certificates (I-RECs), which can be purchased by electricity traders, brokers and voluntary consumers. The Green Certificate Company (GCC) has been recognised by the I-REC Standard to issue I-RECs in India. Statkraft, in 2016, along with its Indian partner Malana Power Company Limited, became the first RE Generator in India, to register its 86 MW hydroelectric project with I-REC Standard and deal in I-RECs. Notably, I-RECs can be also traded internationally, as the registry for I-RECs is located outside India. Therefore, such RE Generators can easily transfer I-RECs to entities outside India.
Pursuant to India becoming a signatory to the Kyoto Protocol of the United Nations Framework Convention on Climate Change (Kyoto Protocol), RE Generators can avail the benefits of carbon credits, by registering their renewable energy projects under the clean development mechanism (CDM) through the National Clean Development Authority, for issuance of certified emission reduction credits (CERs) that can be traded on international platforms such as EU-ETS. CERs were briefly traded in India as futures trading in the Multi Commodity Exchange of India Limited (MCX) and the National Commodity & Derivatives Exchange Limited (NCDEX) in 2008, but their trading was abruptly stopped since carbon derivatives market had failed to develop locally. Globally, 7,845 projects have been registered under the CDM mechanism and a total of 2,195,926,698 CERs have been issued.
Although, India has the second highest CERs issued for renewable energy projects in the world, the biggest impediment for RE Generators here have been: (a) EU’s restriction on the use of CERs from renewable energy projects registered post December 31, 2012 (i.e., the expiry of the first commitment period of 2008-2012 of the Kyoto Protocol), from countries that are not categorised as ‘Least Developed Countries’ (India being an emerging market does not fall under the category of ‘Least Developed Country’); and (b) restriction imposed on the redemption of CERs that have been issued prior to 2020 under the Kyoto Protocol, due to unfavourable provisions in the Paris Agreement under the United Nations Framework Convention on Climate Change (COP21). This has resulted in India having one of the highest number of unutilised CERs and has caused a systematic fall in global prices of CERs.
Voluntary Carbon Credits
With majority companies aligning to the carbon neutrality goal under COP 21, the market for voluntary carbon credits (VCCs) has grown in recent times. VCCs provide RE Generators an additional instrument to yield liquidity by selling VCCs outside India. Verified Carbon Standard – Verra (VCS), Gold Standard, International Carbon Reduction & Offset Alliance and Global Emission Standards are some of the programmes under which RE Generators in India can register their projects to avail benefit of VCCs. VCS is usually preferred by RE Generators in India due to its international recognition.
The interplay between each of these programmes is not entirely clear in India. I-RECs prevent double counting of ‘green component’ of electricity, by not allowing projects registered under RECs in India or availing other concessional benefits to register under the I-REC Standard. The internal governing rules of such VCCs also prohibit RE Generators from dealing simultaneously in RECs and VCCs in order to prevent double counting and ‘green washing’.
The jurisprudence on the legal nature of the environmental attributes realised through international renewable energy tracking system in India is still evolving. ‘Carbon credits’ and RECs have been recognised as goods under the Securities Contracts (Regulation) Act, 1956, and the Goods and Services Tax Act, 2017, respectively. Accordingly, the attributes realised under any international renewable energy tracking system, including VCCs, would be considered as goods in India. However, factors such as ‘situs’ of these goods and the residential status of the contracting parties will have to be analysed to determine applicability of regulations under FEMA for export of such attributes.
International renewable energy tracking systems such as I-RECs, CERs and VCCs offer an attractive alternative to RECs on account of market driven pricing and free transferability of these certificates. As the market for sale of environmental attributes evolves in India, more clarity will emerge in terms of the legal status of such attributes, taxation on transfers of such attributes and compliance under FEMA. These would help remove various legal uncertainties with respect to I-RECs, CERs and VCCs.
 As per the website of the Renewable Energy Certificate Authority of India (as of May 24, 2022).
 As per the website of the United Nations Framework Convention on Climate Change – CDM (CERs for Project Activities) (as of May 24, 2022).
 Pursuant to notification dated September 27, 2016, corresponding number S.O. 3068(E), issued by the Department of Economic Affairs, Ministry of Finance, Government of India.
 Pursuant to notification dated September 30, 2021, corresponding number 8/2021-Central Tax (Rate), issued by the Department of Revenue, Ministry of Finance, Government of India.