CARBON TRADING MECHANISM

CONTENT
⚫ HISTORY OF CARBON TRADING
⚫ HIGHLIGHTS OF KYOTO PROTOCOL
⚫ CONCEPTS AND MECHANISM INVOLVED IN
CARBON TRADING
⚫ CARBON- CREDIT MARKET
⚫ COMPANIES INVOLVED IN CARBON TRADING
⚫ WHATS WRONG WITH CARBON TRADING ?
⚫ EXAMPLES OF CARBON TRADING
⚫ MERITS AND DEMERITS OF CARBON TRADING
⚫ ALTERNATIVES FOR CARBON TRADING
⚫ CASE STUDY
⚫ BUDGET –CARBON TRADING
A HISTORY OF CARBON TRADING:
CARBON TRADING
TRADE –BUYING AND SELLING
Overall , carbon trading is buying and selling of
carbon terms of carbon credits, to put down the
emission of CO2.
How humans have come up with this very
complicated, unverifiable and lenient solution to
climate change, that is not only designed to create
billions of profit for corporations (who by the way
are the main culprits of climate change), but is
also designed to lure us away from the seeking
real solutions for our dying planet.
A carbon credit is a generic term for any tradable
certificate or permit representing the right to emit
one tonne of carbon dioxide or the mass of
another greenhouse gas with a carbon dioxide
equivalent (tCO2e) equivalent to one tonne of carbon
dioxide
MECHANISM
1. Emissions trading (or cap and trade)-
between two countries with binding obligations
2 . Trading in project-based credits
(carbon offset – carbon credit)-
J I joint Implementation (between two country
with obligations)
CDM clean development mechanism (between a
country with and one without obligations)
+
hybrid trading systems (if in some difficulties in
equivalences, mixing in economics)
 What are carbon offsets?

⚫ Carbon trading runs in parallel with a system of carbon

offsets. Instead of cutting emissions themselves,
companies, and sometimes international financial
institutions, governments and individuals, finance
“emissions-saving projects” outside the capped area to
generate carbon credits which can also be traded within
the carbon market.
The UN’s Clean Development Mechanism (CDM) is
the largest such scheme with almost 1,800 registered
projects in developing countries by September 2009, and
over 2,600 further projects awaiting approval. Based on
current prices, the credits generated by approved schemes
will be worth around $35 billion by 2012.
What is this carbon-credit market
anyways?
How does it solve climate change?

⚫ It has become a universal truth that our climate is

changing because of global warming. And so,
representatives of governments have come together to
create a solution to this problem.
⚫ The United Nations created the Kyoto Protocol which
requires all member states to reduce their carbon
emissions and find ways to mitigate the worsening
effects of climate change.
⚫ But for developed countries whose industries are
dependent on fossil fuels, they cannot immediately
lower their emissions. And so the protocol
designed a carbon trading mechanism popularly
known as “Cap and Trade” scheme.
This means,
Carbon emission will be regulated and limited to a
certain volume of allowable emission. For
example, major polluters like the United States
which releases more than the allowed 350 parts per
million of CO2, would have to cut about 80% of
their yearly emissions.
⚫ To ensure that countries abide or stay under the cap,
certain amount of permits to pollute at a certain
period of time, the UN will decrease releasing these
permits to reach the goal of lowering CO2 in the
atmosphere. The fewer permits, the higher their
prices are in the market.
⚫ Countries and corporations that cannot do their
commitment can instead buy carbon credits from
countries or corporations with surplus carbon credits
derived from Clean Development Mechanisms
(CDM). Thus the demand for renewable energy
projects boomed especially in ‘developing countries’
with rich natural resources and high energy potential
such as the Philippines. In other words, rich
countries pay poorer ones to cut greenhouse gas
emissions on their behalf.
what’s wrong with cap and trade?

There are fundamental theoretical flaws in the whole

cap and trade scheme
the scheme was never set up to directly tackle the key task
of a rapid transition away from fossil fuel extraction,
over-production and over-consumption. It seeks instead to
quantifying existing pollution as a means to create a new
tradeable commodity. Within this framework, traders
invariably opt for the cheapest available credits at the
time, but what is cheap in the short-term is not the same as
what is environmentally effective or socially just.
 Some of the key problems with the
cap and trade approach are :

⚫ The “trade” component does not reduce any

emissions.
⚫ The “cap” has too many holes and sometimes caps
nothing.
⚫ Offsets loosen the cap.
 What examples have there been of Cap and
Trade schemes?

There have been a number of Cap and Trade

markets –
⚫ The EU ETS, the United States Acid Rain Program,
⚫ The Los Angeles Region Clean Air Markets
(RECLAIM),
⚫ The Chicago Emissions Reduction Market System
(ERMS)
⚫ The Regional Greenhouse Gas Initiative.

The EU ETS, established in January 2005, is the largest

cap and trade scheme in operation worldwide and is the
best for illustrating how carbon trading has failed in
Isn’t carbon trading better
than nothing?
No. As carbon trading helps to avoid change and
even increases emissions while exacerbating local
conflicts, it is not a question of alternatives to
carbon trading but rather of taking measures that
actually tackle climate change.
 What are the alternatives to
carbon trading?
⚫ Recognition of existing climate solutions.
⚫ Leave fossil fuels in the ground.
⚫ Rediscovering environmental protection.
New revenues: tax and/or end currency and fuel
speculation.
⚫ Renewable energy should be supported but not
uncritically
⚫ Public energy research.
⚫ Re-estimating energy demand.
⚫ Transition Towns movement
⚫ Changing economic calculations.
⚫ Challenging the “growth” fetish.
 Union finance minister Arum Jailed has proposed to cut the tax on
gains from carbon trading to 10% from 30% in a move expected to
make investments into energy efficiency and clean energy more
rewarding

New Delhi: The fine print of Union budget 2017-18 has served incentives for
the energy sector such as lowering the tax burden on carbon trading gains and
making it more attractive for foreign oil firms to store crude oil in India’s
strategic reserves.
⚫ The incentives seek to support energy security and climate change goals of the
country after having decisively departed from petroleum subsidies.
⚫ The minister also extended the income tax exemption to foreign companies
storing crude oil in India’s strategic reserves to any gains from sale of such oil
even after expiry of the company’s contract with the Indian government. At the
moment, this benefit is limited only during the contract period.
⚫ The Clean Development Mechanism (CDM) set up under the Kyoto Protocol of
the United Nations Framework Convention on Climate Change (UNFCCC)
allows investors in emission-reducing projects to generate tradable credits
corresponding to the volume of emission reduction achieved. These credits can
be sold to industrialized countries. So far, the income tax department has been
treating the income on transfer of carbon credits as business income, subject to a
30% tax. Jaitley has proposed that it shall be a concessional 10% and applicable
surcharge and cess. This amendment will take effect from the 2017-18 financial
year.
⚫ The move to incentivize clean energy projects comes parallelly with
gradual increase in taxes on petroleum products and the cess on coal,
making India one of the leaders in climate change action. Since June
2014, when international oil prices started declining, India has
increased excise duty on branded petrol from Rs15.5 a litre to Rs22.7 a
litre as of December 2016 and on branded diesel from Rs5.8 a litre to
Rs19.7 a litre, pointed out the Economic Survey2016-17.
⚫ “In contrast, the governments of most advanced countries have simply
passed on the benefits to consumers, setting back the cause of curbing
climate change. As a result, India now outperforms all the countries
except those in Europe in terms of tax on petroleum and diesel,” the
survey pointed out.
⚫ Ashish Khanna, chief executive officer of Tata Power Solar Systems
Ltd, said the budget demonstrated the government’s commitment to
being a front runner in renewable sources of energy.
⚫ In line with the government’s stated objective of phasing out corporate
tax exemptions in order to be able to moderate the corporate tax rate
from 30% to 25%, Jaitley did not extend the income tax incentive for
power projects under section 80 IA after it expires on 31 March 2017.
Those who complete power projects before this deadline will,
however, be able to claim full deduction of income from the project
while calculating the company’s taxable income for 10 years.
 REDUCTION OF CARBON EMISSION

BETTER ENVIRONMENTAL SITUATION AND

EXTENSION OF CLIMATE CHANGE EFFECTS

MITIGATION OF
GLOBAL WARMING