Trading in carbon credits

Bhavani Jade Roll no - 7

Agenda
Introduction Emission Allowances Emissions Trading Effect of Carbon Credits Indian Context

Introduction
 Burning of fossil fuels is a major source of

industrial green house gas emissions. E.g. Power, cement, steel, textile, and fertilizer industries .  Increases 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.  It was formalized in the Kyoto Protocol – agreement between 169 countries.

Emission allowances
• The Protocol agreed 'caps' or quotas on the

maximum amount of Greenhouse gases that each participating country can produce. • In turn these countries set quotas on the emissions of installations run by local business and other organizations, generically termed ‘operators.’ • 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.

Emissions Trading
• Emissions trading

(ET) is a mechanism that enables countries with legally binding emissions targets to buy and sell emissions allowances among themselves • 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 • The transfer of allowances is referred to as a trade. • For trading purposes, one allowance is considered

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 • The buyer is being fined for polluting, while the seller is being rewarded for having reduced emissions • Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets • By allowing 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

Indian context
Multi Commodity Exchange of India Ltd. (MCX)

entered into a strategic alliance with Chicago Climate Exchange (CCX) in September 2005 to initiate carbon trading in India. The European Climate Exchange (ECX), a subsidiary of Chicago Climate Exchange (CCX), remains the leading exchange.

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