Submitted in partial fulfilment of B.

Com(H) 3rd year

TUSHAR AWASTHI
Roll No.-348

MENTOR: HEAD OF DEPARTMENT:

MR. DEEPAK BALANI Mrs. MEENAKSHI CHOUDHARY
Associate Professor Assistant Professor
Department of Commerce
Sri Aurobindo College

CARBON (University of Delhi)

Delhi-110017

CREDIT
YEAR-2012 Roll No.-348

SUBMITTED BY: TUSHAR AWASTHI

B.COM (H) PART III

ROLL NO:348
SRI AUROBINDO COLLEGE
MENTOR- MR. DEEPAK BALANI
FINAL TERM DEPARTMENT-Mrs.
HEAD OF COMMERCE PROJECT MEENAKSHI
CHOUDHARY

2011-2012

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ACKNOWLEDGEMENT
This project could not have been possible without the
efforts of Mr DEEPAK BALANI (Commerce Department,
Sri Aurobindo College) who not only served as an
excellent mentor but also ensured that I leave no stone
unturned in giving my best. I would like to thank my
friends and family for giving me a congenial
environment to work in.

Lastly, I am deeply obliged to the editors and owners of

the various business news papers, web sites and
magazines that I referred to, for providing me the ready
raw material to create this project.

TUSHAR AWASTHI
B.COM (H) III YEAR
348

3|Page
 CONTENTS
S.NO PAGE NO.

1. INTRODUCTION 8.

2. WHAT IS CARBON CREDIT? 9.

3. HOW BUYING CARBON CREDITS CAN REDUCE 11.

EMISSIONS?
4. BACKGROUND 13.

5. EMISSION ALLOWANCES 14.

6. KYOTO PROTOCOL 16.

7. KYOTO’S FLEXIBLE MECHANISM 18.

8. JOINT IMPLEMENTATION 20.

9. CLEAN DEVELOPMENT MECHANISM 22.

10. EMISSION TRADING 25.

11. OBJECTIVES 29.

12. DETAILS OF AGREEMENT 30.

4|Page
13. COMMON BUT DIFFERENTIATED RESPONSIBILITY 32.

14. MARKET TREND 33.

15. BUSINESS REACTION 34.

16 ASIA PACIFIC PARTNERSHIP ON CLEAN

. 36.
DEVELOPMENT AND CLIMATE

17 INDIA AND COPENHAGEN MEET 40.

.

18 CRITICISM 44.
.

19 CONCLUSION 45.
.

20 BIBLIOGRAPHY 46.
.

5|Page
 CERTIFICATE

This is to certify that TUSHAR AWASTHI,Roll No.348, a

bonafide student of B.Com(H) III year of Sri Aurobindo
College,University of Delhi, has carried out the project report
entitled “CARBON CREDIT ”under our supervision and
guidance .He may submit this project in the partial fulfilment
of the requirement for the B.Com(H) degree.

Mrs.Meenakshi Choudhary Mr.Deepak Balani

Assistant Professor Associate Professor
Department of Commerce Department of Commerce
Sri Aurobindo College Sri Aurobindo College
University of Delhi University of Delhi

6|Page
 DECLARATION

This is to certify that I,TUSHAR AWASTHI of Sri Aurobindo

College,B.Com(H),have completed a project on “CARBON
CREDIT”under the supervision of my academic mentor Mr.DEEPAK
BALANI for partial fulfilment of the requirements for the degree of
bachelor of commerce (Hons)from the University of Delhi.

This work done in the project is originally to the fullest of my

knowledge and have been carried out by me .

TUSHAR AWASTHI
B.COM (H) III YEAR
348

7|Page
 INTRODUCTION

D
ay by day the cycle of climate on earth is changing. Global
warming has led to season shifting, changing landscapes,
rising sea levels, increased risk of drought and floods,
stronger storms, increase in heat related illness and diseases all over
the world. This has resulted due to emissions of Green House
Gases(GHG’s) from various anthropogenic activities.

Since the inception of Kyoto Protocol in the year 1997, countries all
over the world have become more concerned about ‘Global Warming’.
Industrialized countries are the major contributors to these emissions
compared to the developing countries.
India being one of the developing countries has ratified the Kyoto
Protocol and is emerging as one of the leading Carbon traders under
the Clean Development Mechanism (CDM) of Kyoto Protocol.
Since India generates enormous amount of Municipal Solid Waste,
implementation of CDM project for power generation is incredibly
viable. India can be efficiently used as CDM activity for recovery of
emitted gases & power generation. CDM projects could be very
significant for the economy of the country.
Apart from improving the environment, it would not only contribute
substantially to the overall power generation capacity but can also
give a good return on investment.
Decomposition and stabilization of solid organic waste material has
been taking place in nature ever since life appeared on this planet.
With the progress of civilization and advancements of scientific
knowledge, efforts are being directed towards rationalizing and
controlling the process in such a way as to make it more effective and
efficient. I hope that this project will serve the purpose of
understanding the above subjects in a better and proficient manner.

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WHAT IS CARBON CREDIT?
“Carbon credits are a key component of national and international
attempts to mitigate the growth in concentrations of greenhouse gases
(GHGs). One Carbon Credit is equal to one ton of Carbon”.

Carbon trading is an application of an emissions trading approach.

Greenhouse gas emissions are capped and then markets are used to
allocate the emissions among the group of regulated sources. The idea
is to allow market mechanisms to drive industrial and commercial
processes in the direction of low emissions or less "carbon intensive"
approaches than are used when there is no cost to emitting carbon
dioxide and other GHGs into the atmosphere. Since GHG mitigation
projects generate credits, this approach can be used to finance carbon
reduction schemes between trading partners and around the world.

There are also many companies that sell carbon credits to commercial
and individual customers who are interested in lowering their carbon
footprint on a voluntary basis. These carbon off setters purchase the
credits from an investment fund or a carbon development company
that has aggregated the credits from individual projects. The quality of
the credits is based in part on the validation process and sophistication
of the fund or development company that acted as the sponsor to the
carbon project. This is reflected in their price; voluntary units typically
have less value than the units sold through the rigorously-validated
Clean Development Mechanism.
There are two distinct types of Carbon Credits:
1. Carbon Offset Credits (COC's) and
2. Carbon Reduction Credits (CRC's).

Carbon Offset Credits consist of clean forms of energy production,

wind, solar, hydro and bio fuels.

9|Page
Carbon Reduction Credits consists of the collection and storage of
Carbon from our atmosphere through bio sequestration (reforestation,
forestation), ocean and soil collection and storage efforts. Both
approaches are recognized as effective ways to reduce the Global
Carbon Emissions crises.

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 How buying carbon credits
can reduce emissions?
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.
For example, consider a business that owns a factory putting out 100,000
tonnes of greenhouse gas emissions in a year. Its government is an
Annex I country that enacts a law to limit the emissions that the business
can produce.
So the factory is given a quota of say 80,000 tonnes per year. The factory
either reduces its emissions to 80,000 tonnes or is required to purchase
carbon credits to offset the excess. After costing up alternatives the
business may decide that it is uneconomical or infeasible to invest in
new machinery for that year. Instead it may choose to buy carbon credits
on the open market from organizations that have been approved as being
able to sell legitimate carbon credits.

We should consider the impact of manufacturing alternative energy

sources. For example, the energy consumed and the Carbon emitted in
the manufacture and transportation of a large wind turbine would
prohibit a credit being issued for a predetermined period of time.

 One seller might be a company that will offer to offset emissions

through a project in the developing world, such as recovering methane
from a swine farm to feed a power station that previously would use
fossil fuel. So although the factory continues to emit gases, it would pay
another group to reduce the equivalent of
20,000 tonnes of carbon dioxide emissions from the atmosphere for
that year.

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 Another seller may have already invested in new low-emission
machinery and have a surplus of allowances as a result. The factory
could make up for its emissions by buying 20,000 tonnes of allowances
from them. The cost of the seller's new machinery would be subsidized
by the sale of allowances. Both the buyer and the seller would submit
accounts for their emissions to prove that their allowances were met
correctly.

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 BACKGROUND
Burning of fossil fuels is a major source of industrial greenhouse gas
emissions, especially for power, cement, steel, textile, fertilizer and
many other industries which rely on fossil fuels (coal, electricity
derived from coal, natural gas and oil). The major greenhouse gases
emitted by these industries are carbon dioxide, methane, nitrous oxide,
hydro fluorocarbons (HFCs), etc, all of which increase the
atmosphere's ability to trap infrared energy and thus affect the climate.

The concept of carbon credits came into existence as a result of

increasing awareness of the need for controlling emissions. The IPCC
(Intergovernmental Panel on Climate Change) has observed that:

Policies that provide a real or implicit price of carbon could create

incentives for producers and consumers to significantly invest in low-
GHG products, technologies and processes. Such policies could
include economic instruments, government funding and regulation,
While noting that a tradable permit system is one of the policy
instruments that has been shown to be environmentally effective in the
industrial sector, as long as there are reasonable levels of predictability
over the initial allocation mechanism and long-term price.
The mechanism was formalized in the Kyoto Protocol, an
international agreement between more than 170 countries, and the
market mechanisms were agreed through the subsequent
Marrakesh Accords. The mechanism adopted was similar to the
successful US Acid Rain Program to reduce some industrial
pollutants.

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 Emission allowances
The Protocol agreed 'caps' or quotas on the maximum amount of
Greenhouse gases for developed and developing countries, listed in its
Annex I. In turn these countries set quotas on the emissions of
installations run by local business and other organizations, generically
termed 'operators'. Countries manage this through their own national
'registries', which are required to be validated and monitored for
compliance by the UNFCCC (United Nations Framework Convention
on Climate Change ).
Each operator has an allowance of credits, where each unit gives the
owner the right to emit one metric tonne of carbon dioxide or other
equivalent greenhouse gas. Operators that have not used up their
quotas can sell their unused allowances as carbon credits, while
businesses that are about to exceed their quotas can buy the extra
allowances as credits, privately or on the open market. As demand for
energy grows over time, the total emissions must still stay within the
cap, but it allows industry some flexibility and predictability in its
planning to accommodate this.
By permitting allowances to be bought and sold, an operator can seek
out the most cost-effective way of reducing its emissions, either by
investing in 'cleaner' machinery and practices or by purchasing
emissions from another operator who already has excess 'capacity'.
Since 2005, the Kyoto mechanism has been adopted for CO2 trading
by all the countries within the European Union under its European
Trading Scheme (EU ETS) with the European Commission as its

validating authority. From 2008, EU participants must link with the

other developed countries who ratified Annex I of the protocol, and
trade the six most significant anthropogenic greenhouse gases. In the
United States, which has not ratified Kyoto, and Australia, whose
ratification came into force in March 2008, similar schemes are being
considered.
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Annex I countries (industrialized countries): Australia, Austria,
Belarus, Belgium, Bulgaria, Canada, Croatia, Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece, Hungary,
Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania,
Luxembourg, Monaco, Netherlands, New Zealand, Norway, Poland,
Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain,
Sweden, Switzerland, Turkey, Ukraine, United Kingdom, United States
of America

15 | P a g e
 Kyoto Protocol
As of February 2009, 183 states have signed and ratified the Kyoto
Protocol to the United Nations Framework Convention on Climate
Change, aimed at combating global warming .The Kyoto Protocol is a
protocol to the United Nations Framework Convention on Climate
Change (UNFCCC or FCCC), an international environmental treaty
with the goal of achieving "stabilization of greenhouse gas
concentrations in the atmosphere at a level that would prevent
dangerous anthropogenic interference with the climate system."

The Kyoto Protocol establishes legally binding commitment for the

reduction of four greenhouse gases (carbon dioxide, methane, nitrous
oxide, sulphur hexafluoride), and two groups of gases (hydro
fluorocarbons and per fluorocarbons) produced by "annex I"
(industrialized) nations, as well as general commitments for all
member countries. As of January 2009, 183 parties have ratified the
protocol, which was initially adopted for use on 11 December 1997
in Kyoto, Japan and which entered into force on 16 February
2005.

Under the Kyoto Protocol, industrialized countries agreed to reduce

their collective greenhouse gas (GHG) emissions by 5.2% from the
level in 1990.
 National limitations range from the reduction of 8% for the European
Union and others to 7% for the United States.
 6% for Japan, and 0% for Russia.
 The treaty permitted the emission increases of 8% for Australia and
10% for Iceland.
Kyoto includes defined "flexible mechanisms" such as:
1. Emissions Trading.
2. Clean Development Mechanism.

16 | P a g e
 3. Joint Implementation
To allow annex I economies to meet their GHG emission limitations
by purchasing GHG emission reductions credits from elsewhere,
through financial exchanges, projects that reduce emissions in non-
annex I economies, from other annex I countries, or from annex I
countries with excess allowances. In practice this means that non-
annex I economies have no GHG emission restrictions, but have
financial incentives to develop GHG emission reduction projects to
receive "carbon credits" that can then be sold to annex I buyers,
encouraging sustainable development. In addition, the flexible
mechanisms allow annex I nations with efficient, low GHG- emitting
industries, and high prevailing environmental standards to purchase
carbon credits on the world market instead of reducing greenhouse gas
emissions domestically. Annex I entities typically will want to acquire
carbon credits as cheaply as possible, while non-annex I entities want
to maximize the value of carbon credits generated from their domestic
Greenhouse Gas Projects.
Among the annex I signatories, all nations have established
Designated National Authorities to manage their greenhouse gas
portfolios; countries including Japan, Canada, Italy, the Netherlands,
Germany, France, Spain and others are actively promoting
government carbon funds, supporting multilateral carbon funds intent
on purchasing carbon credits from non-annex I countries, and are
working closely with their major utility, energy, oil and gas and
chemicals conglomerates to acquire greenhouse gas certificates as
cheaply as possible. Virtually all of the non-annex I countries have
also established Designated National Authorities to manage the Kyoto
process, specifically the "CDM process" that determines which GHG
Projects they wish to propose for accreditation by the CDM Executive
Board.

17 | P a g e
 Kyoto's 'Flexible
mechanisms'
A credit can be an emissions allowance which was originally allocated
or auctioned by the national administrators of a cap-and-trade
program, or it can be an offset of emissions. Such offsetting and
mitigating activities can occur in any developing country which has
ratified the

Kyoto Protocol, and has a national agreement in place to validate its

carbon project through one of the UNFCCC's approved mechanisms.
Once approved, these units are termed Certified Emission Reductions,
or CERs. The Protocol allows these projects to be constructed and
credited in advance of the Kyoto trading period.

The Kyoto Protocol provides for three mechanisms that enable

countries or operators in developed countries to acquire greenhouse
gas reduction credits.
 Under Joint Implementation (JI) a developed country with relatively
high costs of domestic greenhouse reduction would set up a project in
another developed country.
 Under the Clean Development Mechanism (CDM) a developed
country can 'sponsor' a greenhouse gas reduction project in a
developing country where the cost of greenhouse gas reduction project
activities is usually much lower, but the atmospheric effect is globally
equivalent. The developed country would be given credits for meeting
its emission reduction targets, while the developing country would
receive the capital investment and clean technology or beneficial
change in land use.
 Under International Emissions Trading (IET) countries can trade in
the international carbon credit market to cover their shortfall in

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allowances. Countries with surplus credits can sell them to countries
with capped emission commitments under the Kyoto Protocol.
These carbon projects can be created by a national government or by
an operator within the country. In reality, most of the transactions are
not performed by national governments directly, but by operators who
have been set quotas by their country.

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 Joint Implementation
Joint implementation (JI) is one of three flexibility mechanisms set
forth in the Kyoto Protocol to help countries with binding greenhouse
gas emissions targets (so-called Annex I countries) meet their
obligations. JI is set forth in Article 6 of the Kyoto Protocol. Under
Article 6, any Annex I country can invest in emission reduction
projects (referred to as "Joint Implementation Projects") in any other
Annex I country as an alternative to reducing emissions domestically.
In this way countries can lower the costs of complying with their
Kyoto targets by investing in greenhouse gas reductions in an Annex I
country where reductions are cheaper, and then applying the credit for
those reductions towards their commitment goal.

A JI project might involve, for example, replacing a coal-fired

power plant with a more efficient combined heat and power plant.
Most JI projects are expected to take place in so-called "economies in
transition," noted in Annex B of the Kyoto Protocol. Currently Russia
and Ukraine are slated to host the greatest number of JI projects.
Unlike the case of the Clean Development Mechanism, the JI has
caused less concern of spurious emission reductions, as the JI, unlike
the CDM, takes place in countries which have an emission reduction
requirement.

The process of receiving credit for JI projects is somewhat complex.

Emission reductions are awarded credits called Emission Reduction
Units (ERUs), where one ERU represents an emission reduction
equalling one tonne of CO2 equivalent. The ERUs come from the
host country's pool of assigned emissions credits, known as Assigned
Amount Units, or AAUs. Each Annex I party has a predetermined
amount of AAUs, calculated on the basis of its 1990 greenhouse gas
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emission levels. By requiring JI credits to come from a host country's
pool of AAUs, the Kyoto Protocol ensures that the total amount of
emissions credits among Annex I parties does not change for the
duration of the Kyoto Protocol's first commitment period.

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 Clean Development
Mechanism
The Clean Development Mechanism (CDM) is an arrangement
under the Kyoto Protocol allowing industrialised countries with a
greenhouse gas reduction commitment (called Annex 1 countries) to
invest in ventures that reduce emissions in developing countries as an
alternative to more expensive emission reductions in their own
countries. A crucial feature of an approved CDM carbon project is that
it has established that the planned reductions would not occur without
the additional incentive provided by emission reductions credits, a
concept known as "additionality".
The CDM allows net global greenhouse gas emissions to be reduced at
a much lower global cost by financing emissions reduction projects in
developing countries where costs are lower than in industrialized
countries. However, in recent years, criticism against the mechanism
has increased.
The CDM is supervised by the CDM Executive Board (CDM EB)
and is under the guidance of the Conference of the Parties
(COP/MOP) of the United Nations Framework Convention on
Climate Change (UNFCCC).
The Kyoto Protocol’s Clean Development Mechanism was supposedly
created to help finance sustainable development projects in the world’s
poorest countries. Many of its supporters argued that it would make it
possible for these countries to ‘leapfrog’ or skip the process of
industrialization to a more sustainable economic model. But most of
the money is going to the largest and most industrialized emerging
economies.
Expected average annual carbon credits* from registered projects
under the Clean Development Mechanism (CDM) by host country.

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The official offsets market (at current average prices for carbon
credits) represents approximately $371 million of which nearly 75%
goes to just 3 countries – China, Brazil and South Korea.1,2
Only 3 countries (Bangladesh, Bhutan, and Nepal) from the UN’s list
of 50 Least Developed Countries (LDCs) have registered projects with
the Clean
Development Mechanism. These amount to 3 biomass and 1 micro-
hydro project.
The LDCs’ share of the carbon pie represents approximately 0.33% of
Clean Development Mechanism financing or 1.2 million dollars.
Over two-thirds of Clean Development Mechanism projects are
initiated from just 3 countries: The Netherlands (35.59%), Britain
(20.34%), and Japan (15.25%).
When the Clean Development Mechanism was proposed in the UN
climate negotiations, many campaigners were convinced that it would
provide a boon for the core renewable technologies long championed
by environmentalists – wind, solar, tidal/wave, geothermal and micro-
hydro. However, only 2% of all CDM-sanctioned carbon ‘capital’ goes
towards these essential technologies. The vast majority of credits
generated are the result of a few industrial gas capture projects at
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 major chemical and manufacturing plants that capture HFC – a
powerful greenhouse gas. Critics argue that these sources should not
be paid to clean up a mess of their own making. That these companies
are significant polluters in other respects is not factored in to the
decision-making process.
Of the 176 registered offset projects with the UN’s climate office, 99
are biomass projects, initiated by industries such as sugar refineries
that have huge environmental impacts in other areas.
 ‘Renewable’ includes wind, solar (heating and photovoltaic),
tidal/wave, geothermal and micro-hydro power generation.
 ‘Bio energy’ includes projects that use agricultural and animal waste
products for fuel as well as gases extracted from organic waste
decomposition in landfills.
 ‘Efficiency’ projects involve some energy-conservation measures and
improvements.
 ‘Dams’, though technically considered to be ‘renewable’, are often
highly controversial and have many other damaging impacts on
communities and the environment. Micro-hydro projects are generally
considered to have few impacts and are therefore included under
‘renewables’.
 ‘Gas capture’ projects involve major petrochemical and
manufacturing plants that have undertaken to not release powerful
greenhouse gases into the atmosphere.

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 Emissions
trading
Emissions trading (or emission trading) is “an administrative
approach used to control pollution by providing economic incentives
for achieving reductions in the emissions of pollutants”. It is
sometimes called cap and trade.

 A central authority (usually a government or international body)

sets a limit or cap on the amount of a pollutant that can be
emitted.
 Companies or other groups are issued emission permits and are
required to hold an equivalent number of allowances (or credits)
which represent the right to emit a specific amount.
 The total amount of allowances and credits cannot exceed the cap,
limiting total emissions to that level. Companies that need to
increase their emission allowance must buy credits from those who
pollute less. The transfer of allowances is referred to as a trade. In
effect, the buyer is paying a charge for polluting, while the seller is
being rewarded for having reduced emissions by more than was
needed. Thus, in theory, those who can easily reduce emissions
most cheaply will do so, achieving the pollution reduction at the
lowest possible cost to society.
There are active trading programs in several pollutants. For
greenhouse gases the largest is the European Union Emission
Trading Scheme. In the United States there is a national market to
reduce acid rain and several regional markets in nitrogen oxides.
Markets for other pollutants tend to be smaller and more localized.

 Kyoto provides for a 'cap and trade' system which imposes

national caps on the emissions of annex I countries. On average,
this cap requires countries to reduce their emissions 5.2%

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 below their 1990 baseline over the 2008 to 2012 period.
Although these caps are national-level commitments, in practice,
most countries will devolve their emissions targets to individual
industrial entities, such as a power plant or paper factory.
 The ultimate buyers of credits are often individual companies that
expect emissions to exceed their quota, their assigned allocation
units, AAUs or 'allowances' for short. Typically, they will purchase
credits directly from another party with excess allowances, from a
broker, from a JI/CDM developer, or on an exchange.

 National governments, some of whom may not have devolved

responsibility for meeting Kyoto obligations to industry, and that
have a net deficit of allowances,

will buy credits for their own account, mainly from JI/CDM
developers. These deals are occasionally done directly through a
national fund or agencies, as in the case of the Dutch governments
ERUPT programme, or via collective funds such as the World
Bank’s Prototype Carbon Fund (PCF). The PCF, for example,
represents a consortium of six governments and 17 major utility
and energy companies on whose behalf it purchases credits.
 Since allowances and carbon credits are tradable instruments with
a transparent price, financial investors can buy them on the spot
market for speculation purposes, or link them to futures contracts.
A high volume of trading in this secondary market helps price
discovery and liquidity, and in this way helps to keep down costs
and set a clear price signal in CO2 which helps businesses to plan
investments. This market has grown substantially, with banks,
brokers, funds, arbitrageurs and private traders now participating in
a market valued at about $60 billion in 2007. Emissions Trading
PLC, for example, was floated on the London Stock Exchange's
AIM market in 2005 with the specific remit of investing in
emissions instruments.

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 Although Kyoto created a framework and a set of rules for a global
carbon market, there are in practice several distinct schemes or
markets in operation today, with varying degrees of linkages
among them.
 Kyoto enables a group of several annex I countries to create a
market-within-a-market together. The EU elected to be treated as
such a group, and created the EU Emissions Trading Scheme
(ETS). The EU ETS uses EAUs (EU Allowance Units), each
equivalent to a Kyoto AAU. The scheme went into operation on 1
January 2005, although a forward market has existed since 2003.
 Since the creation of Kyoto is subject to a lengthy process of
registration and certification by the UNFCCC, and the projects
themselves require several years to develop, this market is at this
point largely a forward market where purchases are made at a
discount to their equivalent currency, the EUA, and are almost
always subject to certification and delivery (although up-front
payments are sometimes
made). According to IETA, the market value of CDM/JI credits
transacted in 2004 was EUR 245 m; it is estimated that more
than EUR 620 m worth of credits were transacted in 2005.
 Several non-Kyoto carbon markets are in existence or being
planned, and these are likely to grow in importance and numbers in
the coming years. These include the New South Wales Greenhouse
Gas Abatement Scheme, the Regional Greenhouse Gas Initiative
and Western Climate Initiative in the United States and Canada, the
Chicago Climate Exchange and the State of California’s recent
initiative to reduce emissions.
 These initiatives taken together may create a series of partly linked
markets, rather than a single carbon market. The common theme is
the adoption of market-based mechanisms centered on carbon
credits that represent a reduction of CO2 emissions. The fact that
some of these initiatives have similar approaches to certifying their
credits makes it possible that carbon credits in one market may in
the long run be traceable in other schemes. The scheme would

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broaden the current carbon market far more than the current focus
on the CDM/JI and EU ETS domains. An obvious precondition,
however, is a realignment of penalties and fines to similar levels,
since these create an effective ceiling for each market.

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 Objectives
The objective of the Kyoto climate change conference was to
establish a legally binding international agreement, whereby all the
participating nations commit themselves to tackling the issue of
global warming and greenhouse gas emissions.

The five principle objectives of the Kyoto Protocol are :

1. Commitments to reduce greenhouse gases that are legally binding

for annex I countries, as well as general commitments for all
member countries.

2. Implementation to meet the Protocol objectives, to prepare

policies and measures which reduce greenhouse gases; increasing
absorption of these gases (for example through geo sequestration
and bio sequestration) and use all mechanisms available, such as
joint implementation, clean development

mechanism and emissions trading; being rewarded with credits

which allow more greenhouse gas emissions at home.

3. Minimizing impacts on developing countries by establishing an

adaptation fund for climate change.

4. Accounting, reporting and review to ensure the integrity of the

Protocol.

5. Compliance by establishing a compliance committee to enforce

commitment to the Protocol.

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 Details of the agreement
According to a press release from the United Nations Environment
Programme:
"After 10 days of tough negotiations, ministers and other high-level
officials from 160 countries reached agreement this morning on a
legally binding Protocol under which industrialized countries will
reduce their collective emissions of greenhouse gases by 5.2%”.
 The agreement aims to lower overall emissions from a group of six
greenhouse gases by 2008-12, calculated as an average over these
five years. Cuts in the three most important gases –
1. carbon dioxide (CO2)
2. methane (CH4)
3. nitrous oxide (N20) –
will be measured against a base year of 1990.

Cuts in three long-lived industrial gases

1. Hydro fluorocarbons (HFCs)
2. Per fluorocarbons (PFCs)
3. Sulphur hexafluoride (SF6) –
can be measured against either a 1990 or 1995 baseline."
 National limitations range from 8% reductions for the European
Union and others,
 to 7% for the US, 6% for Japan,
 0% for Russia, and permitted increases of 8% for Australia and
10% for Iceland.

 The agreement is an amendment to the United Nations Framework

Convention on Climate Change (UNFCCC, adopted at the Earth
Summit in Rio de Janeiro in 1992). All parties to the UNFCCC can
sign or ratify the Kyoto Protocol, while non-parties to the
UNFCCC cannot.

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 The Kyoto Protocol was adopted at the third session of the
Conference of Parties to the UNFCCC (COP3) in 1997 in Kyoto,
Japan. Most provisions of the Kyoto Protocol apply to developed
countries, listed in annex I to the UNFCCC. Emission figures
exclude international aviation and shipping.

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Common but differentiated
responsibility
The United Nations Framework Convention on Climate Change
agreed to a set of a "common but differentiated responsibilities."
The parties agreed that:

 The largest share of historical and current global emissions of

greenhouse gases originated in developed countries.

 Per capita emissions in developing countries are still relatively low.

 The share of global emissions originating in developing countries

will grow to meet social and development needs.

 China, India, and other developing countries were not included in

any numerical limitation of the Kyoto Protocol, because they were
not main contributors to the greenhouse gas emissions in the pre-
treaty industrialization period. China has since become the largest
greenhouse gas emitter. However, even without responsibility
under the Kyoto target, developing countries were to share the
common responsibility of all countries to reduce emissions.

 The protocol defines a mechanism of "compliance" as a

"monitoring compliance with the commitments and penalties for
non-compliance."

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 Market trend
Carbon emissions trading has been steadily increasing in recent years.
According to the World Bank's Carbon Finance Unit, 374 million
metric tonnes of carbon dioxide equivalent (tCO2e) were exchanged
through projects in 2005, a 240% increase relative to 2004 (110
mtCO2e) which was itself a 41% increase relative to 2003 (78
mtCO2e).

In terms of dollars, the World Bank has estimated that the size of the
carbon market was 11 billion USD in 2005, 30 billion USD in 2006, and
64 billion in 2007.

The Marrakesh Accords of the Kyoto protocol defined the

international trading mechanisms and registries needed to support
trading between countries, with allowance trading now occurring
between European countries and Asian countries. However, while the
USA as a nation did not ratify the Protocol, many of its states are now
developing cap-and-trade systems and are looking at ways to link
their emissions trading systems together, nationally and
internationally, to seek out the lowest costs and improve liquidity of
the market. However, these states also wish to preserve their
individual integrity and unique features.

For example, in contrast to the other Kyoto-compliant systems, some

states propose other types of greenhouse gas sources, different
measurement methods, setting a maximum on the price of
allowances, or restricting access to CDM projects. Creating
instruments that are not truly fungible would introduce instability
and make pricing difficult. Various proposals are being investigated to
see how these systems might be linked across markets, with the

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International Carbon Action Partnership (ICAP) as an international
body to help co-ordinate this.

Business reaction
With the creation of a market for mandatory trading of carbon
dioxide emissions within the Kyoto Protocol, the London financial
marketplace has established itself as the centre of the carbon finance
market, and is expected to have grown into a market valued at $60
billion in 2007. The voluntary offset market, by comparison, is
projected to grow to about $4bn by 2010.

23 multinational corporations came together in the G8 Climate

Change Roundtable, a business group formed at the January 2005
World Economic Forum. The group included Ford, Toyota, British
Airways, BP and Unilever. On June 9, 2005 the Group published a
statement stating that there was a need to act on climate change and
stressing the importance of market-based solutions. It called on
governments to establish "clear, transparent, and consistent price
signals" through "creation of a long-term policy framework" that
would include all major producers of greenhouse gases. By December
2007 this had grown to encompass 150 global businesses.

Businesses in the UK have come out strongly in support of emissions

trading as a key tool to mitigate climate change, supported by NGOs.
However, not all businesses favour a trading approach. On December
11, 2008, Rex Tillerson, the CEO of ExxonMobil, said a carbon tax is "a
more direct, more transparent and more effective approach" than a
cap and trade program, which he said, "inevitably introduces
unnecessary cost and complexity." He also said that he hoped that
the revenues from a carbon tax would be used to lower other taxes
so as to be revenue neutral.

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 The International Air Transport Association, whose 230 member
airlines comprise 93% of all international traffic, position is that
trading should be based on “benchmarking,” setting emissions levels
based on industry averages, rather than “grandfathering,” which
would use individual companies’ previous emissions levels to set their
future permit allowances. They argue grandfathering “would penalise
airlines that took early action to modernise their fleets, while a
benchmarking approach, if designed properly, would reward more
efficient operations."

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Asia Pacific Partnership on
Clean Development and
Climate
The Asia Pacific Partnership on Clean Development and Climate is an
agreement among seven Asia-Pacific nations: Australia, Canada,
China, India, Japan, South Korea, and the United States. Between
them, these seven countries are responsible for more than half of the
world's carbon dioxide emissions.

The partnership had its official launch in January 2006 at a ceremony

in Sydney, Australia. The alliance states that member nations have
initiated nearly 100 projects aimed at clean energy capacity building
and market formation since then. Building on these activities, long-
term projects are scheduled to deploy clean energy and environment
technologies and services. The pact allows those countries to set
arbitrary goals for reducing greenhouse gas emissions individually,
without any enforcement mechanism for these goals.

Supporters of the pact see it as "complementing the Kyoto Protocol"

whilst being more flexible. Critics have said the pact will be ineffective
without any enforcement measures and is a means to undermine the
negotiations leading to the Protocol scheduled to replace the current
Kyoto Protocol (negotiations started in Montreal in December 2005).

U.S. Senator John McCain said the partnership "[amounted] to

nothing more than a nice little public relations ploy," while the
Economist described the partnership as "patent fig-leaf for the refusal
of America and Australia to ratify Kyoto"

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 India
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. At the G8 meeting in June 2005, Indian Prime
Minister Manmohan Singh pointed out that the per-capita emission
rates of the developing countries are a tiny fraction of those in the
developed world. Following the principle of common but
differentiated responsibility, India maintains that the major
responsibility of curbing emission rests with the developed countries,
which have accumulated emissions over a long period of time.
However, the U.S. and other Western nations assert that India, along
with China, will account for most of the emissions in the coming
decades, owing to their rapid industrialization and economic growth.
INDIA VOWS 20- 25% CARBON
INTENSITY CUTS
India on 3rd December 2009 acquired the tag of a “responsible” global
power in mitigating when it announced that it would reduce its carbon
intensity levels by 20-25% on its 2005 level over the next 11 years .
The announcement was made by UNION ENVIRONMENT AND
FOREST MININSTER Jairam Ramesh in Lok Sabha before a
gathering of large number of MPS who, cutting across party lines,not
only recognised that global warming was a serious threat to the
planet ,but also armed the government with flexibility in climate
negotiations that kick off in Copenhagen on December 7th 2009,which
will climax with a global summit on December 18th 2009.

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 Impact
 Biggest impact will be felt by small and medium enterprises that
form India’s manufacturing base but are carbon intensive .they also
don’t have the capital to quickly shift to clean technology.
 Steel and cement industries traditionally carbon intensive, could
come under stress.
 The shift from burning wood as fuel to kerosene/gas could slow
down because the latter produce higher emissions.75% of rural and
25% of urban population still burn wood and want to shift to gas
/kerosene.

 Unless India shifts quickly to cleaner and expensive energy

alternatives, its overall growth might be hit.

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India and Copenhagen meet
Copenhagen meet will be held from 7 to 18 th December with the US
president and over 80 world leaders .Indian prime minister Manmohan
Singh’s office announced on Saturday that he will attend the UN
climate change conference which is about to begin Copenhagen.
India ranking 4rth among the world’s top 15 polluters of carbon
dioxide – a greenhouse gas blamed for global warming .The
government recently pledged to cut emissions by 20-25 percent by
2020, compared to 2005 levels.

Leaders of more than 100 nations are taking part in climate change
conference, which aims to reach a new international agreement on
reducing emissions and assistance for developing economies working
to slow the global warming trend.
US President Barrack Obama , India’s Prime Minister Singh and most
other heads of state or government are expected in the Danish capital
during the final sessions of the twelfth day conference which begins
on Monday.

Mr. Obama has revised his travel plans and will be arriving in
Copenhagen on December 18. He had originally intended to take part
in the meetings’ earlier stages but his spokesman Robert Gibbs said
the President decided US leadership would be most productive during
final rounds of talks. Thousands of people rallied in London on
Saturday to demand a strong climate deal at The UN conference.
About twenty thousand people turned out for a demonstration
organised by the stop climate chaos coalition which includes group
such as Oxfam and green peace.

Chinese Prime Minister Wen Jiabao whose country is another major

polluter, also will be in Copenhagen. China, India and the US all have
recently announced the target for reducing carbon emission.

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 Following India’s pledge to cut its green house gas emissions by 20-
25% over the next decade , the white house said on Friday that US is
ready to pay a affair share of $10 billion per year in climate aid to
developing countries as part of a new climate change agreement.

Participants in the Copenhagen meeting are trying to reach a new

international accord to replace the 1997 Kyoto protocol which expires
in 2012.

Increase in greenhouse gas emission

since 1990
Change in greenhouse gas Change in greenhouse gas Treaty
EU Assigned Objective
Country Emissions (1990-2004) Emissions (1990-2004) Obligation
for 2012
excluding LULUCF including LULUCF 2008-2012

Denmark -19% -22.2% -20% -11%

Germany -17% -18.2% -21% -8%

Canada +27% +26.6% n/a -6%

Australia +25% +5.2% n/a +8%

Spain +49% +50.4% +15% -8%

Norway +10% -18.7% n/a +1%

New Zealand +21% +17.9% n/a 0%

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France -0.8% -6.1% 0% -8%

Greece +27% +25.3% +25% -8%

Ireland +23% +22.7% +13% -8%

Japan +6.5% +5.2% n/a -6%

United Kingdom -14% -58.8% -12.5% -8%

Portugal +41% +28.9% +27% -8%

EU-15 -0.8% -2.6% n/a -8%

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Below is a table of the changes in greenhouse gas emissions of some countries.
Change in greenhouse gas
Country
Emissions (1992-2007)
India +103%
China +150%
United States +20%
Russian Federation -20%
Japan +11%
Worldwide Total +38%

Comparing total greenhouse gas emissions in 2004 to 1990 levels, the

U.S. emissions were up by 15.8%, with irregular fluctuations from one
year to another but a general trend to increase.
At the same time, the EU group of 23 (EU-23) Nations had reduced
their emissions by 5%. In addition, the EU-15 group of nations (a
large subset of EU-23) reduced their emissions by 0.8% between 1990
and 2004, while emission rose 2.5% from 1999 to 2004. Part of the
increases for some of the European Union countries is still in line with
the treaty, being part of the cluster of countries implementation.
As of year-end 2006, the United Kingdom and Sweden were the only
EU countries on pace to meet their Kyoto emissions commitments by
2010. While UN statistics indicate that, as a group, the 36 Kyoto
signatory countries can meet the 5% reduction target by 2012, most of
the progress in greenhouse gas reduction has come from the stark
decline in Eastern European countries' emissions after the fall of
communism in the 1990s.

Criticism
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As with any financial market, emissions traders are vulnerable to
significant risk and volatility. The EU’s trading scheme (EU-ETS), for
instance, issued so many permits between 2005 and 2007 that it
flooded the market. Supply soared and carbon prices bottomed out,
removing incentives for companies to trade. Enforcement of trading
rules can be just as unpredictable, though Fahnestock says the EU is
working to correct the problems.

Carbon offsets have their own drawbacks, which reflect a fast-

growing and unregulated market. Some offset firms in the United
States and abroad have been caught selling offsets for normal
operations that do not actually take any additional C02 out of the
atmosphere, such as pumping C02 into oil wells to force out the
remaining crude. In 2008 the Climate Group, the International
Emissions Trading Association, and the World Economic Forum will
work to develop a Voluntary Carbon Standard to verify that offsetting
projects are beyond business-as-usual and have lasting environmental
value.

The lack of offset regulations has also made marketing problematic.

Recently, companies have taken to declaring themselves “carbon
neutral.” But until the Federal Trade Commission determines the
guidelines for such terms, it’s unclear which companies actually merit
the distinction. Already Vail Resorts, the organizers of the Academy
Awards, and other organizations have taken heat for touting their
investments in carbon offset projects that were not entirely
environmentally sound.

Conclusion
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Carbon Credit have become entrenched in the broader climate
change debate, however, fundamental scientific and methodological
problems persist. While these remain unresolved, they have the
potential to seriously undermine the financial and environment value
of any carbon credit scheme .The danger is that reducing emission at
source and recapturing carbon through sequestration are being
treated by government and industry as equivalent policy options.
Emission Trading should not be a mechanism that facilitates the
transfer of fossilised carbon locked away for millions of years over
short term biotic sinks. For this reason, the issue of carbon sinks is
currently undermining the integrity of carbon credits and creation of
carbon credit market.

Contrary to this Carbon Credit provides the economy of a country

with both monetary and non monetary benefits. Currently carbon
credits are valued at approximately 30 euro per metric tonne .Even if
a country generates 100,000 metric tonne of carbon credits a year it
can generate an additional 3million euro’s which is quite significant
amount especially for debt ridden country like India.

However if we look at non monetary benefits , carbon credits are gold

mine as they lead to positive changes in the soil property and
environment quality. India has a huge advantage when it comes to
the carbon credit market. In the new regime, the country could
emerge as one of the largest beneficiaries accounting for 25 percent
of total world carbon trade ,says recent World Bank report. The
carbon credit market is a liquid market as of now .And there is
nothing to support the fact it will remain the same in the time to
come .But India needs additional sources of revenue to finance its
infrastructural requirements and feed its “100 billion” population
.Even if the market stops growing in the future or ceases to exist ,the
non monetary effects for an agricultural economy like ours are huge
enough to make the risk worthwhile.

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 BIBLIOGRAPHY
 Times of India
 The Hindu ,Business Line
 Indian outlook

Websites referred to:

 www.highbeam.com
 Herald Tribune Business: Carbon trading: Where
greed is green
 what is carbon credit BNET.mht
 Kyoto Protocol, UNFCCC website
 www.nswai.com
 www.highbeam.com
 www.wikipedia.com

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