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INTRODUCTION
What are carbon credits? Carbon credits are generated by enterprises in the developing world that shift to cleaner technologies and thereby save on energy consumption, consequently reducing their greenhouse gas emissions. For each tonne of carbon dioxide emission avoided, the entity can get a carbon emission certificate which they can sell either immediately or through a futures market, just like any other commodity.
The main reason behind the development of carbon credit trading is to control global warming and reduce greenhouse gases and its effects.
If there is a shortfall in the amount of gases that are used, there is a monetary value assigned to this shortfall and it may be traded. These credits are often traded between businesses. However, they also are bought and sold in international markets at whatever the determined market value for them is. There are also times when these credits are used to fund carbon reduction plans between trading partners.
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Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets
Raising the price of carbon will achieve four goals. First, it will provide signals to consumers about what goods and services are high-carbon ones and should therefore be used more sparingly. Second, it will provide signals to producers about which inputs use more carbon (such as coal and oil) and which use less or none (such as natural gas or nuclear power), thereby inducing firms to substitute low-carbon inputs. Third, it will give market incentives for inventors and innovators to develop and introduce low-carbon products and processes that can replace the current generation of technologies. Fourth, and most important, a high carbon price will economize on the information that is required to do all three of these tasks.
CARBON CREDIT
Under the Kyoto Protocol, the 'caps' or quotas for Greenhouse gases for the developed Annex 1 countries are known as Assigned Amounts and are listed in Annex B. The quantity of the initial assigned amount is denominated in individual units, called Assigned Amount Units (AAUs), each of which represents an allowance to emit one metric tonne of carbon dioxide equivalent, and these are entered into the country's national registry.
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KYOTO PROTOCOL
The Kyoto Protocol is a legally binding agreement that arose out of the UNFCCC to tackle climate change through a reduction of green house gas emissions. Countries (those listed in Annex I) are legally bound to reduce man-made green house gases emissions by approximately 5.2% Individual countries have their own reduction targets outlined in Annex B of the Kyoto Protocol
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KYOTO PROTOCOL
Objective:
stabilisation
of greenhouse gas concentrations in the atmosphere at a level that would prevent air pollution interference with the climate system
India signed and ratified the Protocol in August, 2002. Since India is exempted from the framework of the treaty, it is expected to gain from the protocol in terms of transfer of technology and related foreign investments India maintains that the major responsibility of curbing emission rests with the developed countries, which have accumulated emissions over a long period of time.
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KYOTO MECHANISM
Kyoto
is a 'cap and trade' system that imposes national caps on the emissions of Annex I countries. On average, this cap requires countries to reduce their emissions 5.2% below their 1990 baseline over the 2008 to 2012 period. types of Kyoto mechanisms are: Clean Development Mechanism Emissions trading Joint implementation (JI)
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The 1. 2. 3.
KYOTO MECHANISM
Both Annex I & non-Annex I Parties must co-operate in the areas of: Development, application & diffusion of climate friendly technologies; Research & systematic observation of the climate system; Education, training, & public awareness of climate change; & The improvement of methodologies & data for GHG inventories.
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CDM MARKET
The
CDM market is like any other commodity market. Majority of the trading is done in the Primary market. The secondary market is not as expanded as the primary mainly because of the high volatility of the carbon prices.
The 1. 2. 3.
Buyers of CERs can be broadly classified into: Compliance Buyers Carbon Funds (e.g.: Carbon Fund of World Bank) Traders
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is a mechanism whereby an Annex I party may purchase emission reductions which arise from projects located in nonAnnex I countries. The carbon credits that are generated by a CDM project are termed Certified Emission Reductions (CERs), expressed in tonnes of CO2 equivalent
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CDM PROCESS
IDENTIFICATION OF PROJECT AND DEVELOPMENT OF PROJECT CONCEPT NOTE DEVELOPMENT OF PROJECT DESIGN DOCUMENT HOST COUNTRY APPROVAL SUBMISSION OF THE PDD AND HOST COUNTRY APPROVAL VALIDATOR
POSSIBLE REVIEW BY CDM EXECUTIVE BOARD ISSUANCE OF CERS TO PROJECT DEVELOPERS PROJECT IMPLEMENTATION AND MONITORING 15
CHALLANGES
Procedural
2,022 out of 3,188 projects are at validation stage An average wait of 80 days to go from registration request to actual registration
Complex
DOEs are unable to keep up with a large backlog of projects awaiting registration It is difficult to recruit, train and retain qualified, technical staff to apply the complex rules consistently
EMISSION TRADING
Emissions trading (ET) is a mechanism that enables countries with legally binding emissions targets to buy and sell emissions allowances among themselves Under an emissions trading system, the quantity of emissions is fixed (often called a "cap") and the right to emit becomes a tradable commodity. The cap (say 10,000 tonnes of carbon) is divided into transferable units (10,000 permits of 1 tonne of carbon each)
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EMISSION TRADING V/S CARBON TAXES: THE POLITICS-WHO LIKES WHICH POLICY & WHY?
United States is the strongest proponent of emissions trading as US is energy inefficient and has high per capita carbon dioxide emissions levels. The European Union has been in favor of carbon taxes as the EU is already relatively energy efficient The Russian Federation & the Ukraine are major supporters of emissions trading Developing countries are extremely cautious of emissions trading, & view it primarily as a "loophole" that the US & Japan can use to avoid their domestic responsibility 18
CARBON TRADING
A carbon trading system allows the development of a market through which carbon dioxide or carbon equivalents can be traded between participants, whether countries or companies. Each carbon credit is equal to 100 metric tons of carbon dioxide, which can be traded or exchanged in market. There are two kinds of carbon trading Emission trading and trading in Project-based Credits. The two categories are put together as Hybrid trading System
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In Hybrid trading system, both emission trading and offset trading are used and try to make allowance exchangeable for project-based credits. Hybrid trading system is enormously complex as it is not only difficult to try to create credible credit and make them equivalent to allowance
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CARBON NETWORK
Seller Exchange
Banks Individua ls NGO & Govt. Consulta nts Annex 2 &3 countries Others Trading exchange Banks
Buyers
Annex 1 country
Banks
Individual s Consultan ts Others NGO & 22 Governme nt
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New cash source to companies who are able to maintain their emission levels well within the permissible limits. The overall ecological balance is preserved The company or country gets rewarded for applying clean technology in its production process.
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A much better corporate and social image which wins public approval Encourages activities like tree plantings which would help reduce soil salinity, improve water quality and enhance biodiversity
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DISADVANTAGES
The extent to which the Kyoto Protocol guidelines are implemented & followed The attitude of US which is the biggest polluter and had refused to sign the treaty The final rules and decisions relating to an emissions trading market
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POSITION OF INDIA
India is considered as the largest beneficiary, claiming about 31 % of the total world carbon trade through CDM It is expected to rake in at least Rs 22,500 crore to Rs 45,000 crore over a period of time and Indian companies are expected to corner at least 10 per cent of the global market in the initial year If India can capture a 10% share of the global CDM market, annual CER revenues to the country could range from US$ 10 million to 300 million
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India, due to increased population & commercial development, cities are facing problems of Municipal Solid Waste disposal. The urban population in larger towns & cities in India is increasing at a decadal growth rate of above 40% Various processes/technologies available to reduce the amount of Municipal Solid Waste are as follows:
Physical (a. Pelletisation) Biochemical (a. Aerobic Composting b. Anaerobic Digestion) Thermal (a. Incineration b. Gasification)
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India is one of the exempted from this protocol as they are stated as developing countries, but overseas companies can buy carbon credits from these countries. Now companies in India can use Carbon credits to get liberal loans, incentives by multinationals in their countries and benefits like better social and ecological visibility
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Gujarat Fluoro Chemicals is amongst first companies worldwide to get its carbon emission reduction project certified. It is set to reap rewards from the sale of CER credits from this year itself Tata Steel is believed to have signed a MoU with the Japanese government agency NEDO for sale of credits accruing to it from carbon reduction following the implementation of an over Rs 250 crore modernization and upgradation project NTPC and several state electricity boards have also applied for carbon credit benefits. Most of them are replacing coal-based technologies with more environment-friendly processes
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Of the 15 projects approved by the UNFCCC so far, four are Indian. These four are:
Gujarat Flurochemicals, Kalpataru Power Transmission Ltd, The Clarion power project in Rajasthan and The Dehar power project in Himachal Pradesh
The country accounted for 283 CDM projects out of the 819 registered by the CDM Executive Board, the environment ministry, the World Bank and the International Emissions Trading Association
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CONCLUSIONS
There is a great opportunity awaiting for India in carbon trading which is estimated to go up to $100 billion by 2010. In the new regime, the country could emerge as one of the largest beneficiaries accounting for 25 % of the total world carbon trade, says a recent World Bank report Analysts claim if more companies absorb clean technologies, total CERs with India could touch 500 million.
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CONCLUSIONS
Of the 391 projects sanctioned, the UNFCCC has registered 114 from India, the highest for any country. There are projects range from cement, steel, biomass power, bio-gases co-generation and municipal solid waste to energy, municipal water pumping and natural gas power. The ministry has given the host-country clearance, the CDM projects will have to be approved by the executive board of the UNFCCC
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THANK YOU
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