Carbon Credit

By: Amit Sheth Anand Dube Dhruv Joshi Priya Singh Swapnil Mehta

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The Agenda
Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø Ø

GHGs and Pollution The Trading Principle and MACC Carbon Emission Reduction and KP Mechanisms Tax on Emission versus Credit Mechanism Global Exchanges for Carbon Trading India and the Carbon Credit Training

GHGs and Pollution
Carbon Dioxide

Emission of Carbon Dioxide World Over

The Marginal Abatement Cost Curve (MACC)

MACC and Trading Principle

* Source : Analysis of Post - Kyoto CO2 Emissions Trading Using Marginal Abatement Curves , Page 4

Carbon Reduction Mechanism

* Source: A Non-Traditional Source of Revenue for Mississippi Forest Landowners

A Provision in Place

The Kyoto Protocol
Ø Protocol to UNFCCC aimed at fighting the global warming Ø Ø Adopted on December 11, 1997 and entered into force on February 16, 2005 Ø Ø Sets targets for nations to reduce the emission of the GHGs Ø Ø Employs several mechanisms that help reduce the emission of the GHGs Ø

Ø

The

Number of Signatories

India and Kyoto Protocol
Ø India became the signatory of the Kyoto Protocol in August 2002 Ø Ø Enjoys Provisions for a Developing Country Ø Ø Exempted from the framework of the treaty Ø Ø Assertion of the US on India and China in the Carbon Market Ø Ø Currently an active member in the current trade

Clean Development Mechanism
Ø CDM is one of the cooperative mechanism established under the Kyoto Protocol (KP) to the United Nations Framework convention on Climate Change (UNFCCC) Ø Ø The CDM aims at assisting:
– Developing countries in implementing clean environmental friendly projects – Developed countries in reaching their committed targets

Ø Ø Some Requirements Include:
– Voluntary – Designated National Authority (DNA) in place – Ratification of Kyoto Protocol

Projects under CDM
Ø End-use Energy Efficiency Improvements Ø Ø Supply-Side Efficiency Improvements Ø Ø Renewable Energy Ø Ø Fuel Switching Ø Ø Agriculture (CH4 and NO2 reduction projects) Ø Ø Industrial Process

Major Players of CDM

in Implementation

Ø Executive Board (EB) Ø Ø Project Participants (PP) Ø Ø Designated National Authority (DNA) Ø Ø Designated Operational Entity (DOE)

The CDM Process

Source: CDM website

CDM Sellers ( 2006 ) • • • • • • • • • • •

CDM & India

Source: UNFCC

Source:

CDM India, as on Mar 2009

Challenges for CDM
Ø Ø Less Developed Infrastructure Ø Ø Long Time Taken by DOE Ø Ø Average Wait of 80 days to go from Registration Request to Actual Registration Ø Ø Complex Rules

• •

Joint Implementation
Ø Ø Joint implementation is a project-based mechanism

Ø One Annex I Party can invest in a project that reduces emissions Annex I Party Ø Ø Thus receive credit for the emission reductions or removals achieved through that project Ø Ø The unit associated with JI is called an emission reduction unit (ERU)

Emissions Trading
Ø Ø Emissions trading is a platform provided to reduce the emissions Ø Ø Assigned Amount Units Ø Ø A new commodity  Ø Ø Administrative Based Mechanism

Different Units for ET

Ø An Assigned Amount Unit (AAU) Ø Ø An Emission Reduction Unit (ERU) Ø Ø A Certified Emission Reduction (CER)  

    

Note: Transfers and acquisitions of these units are tracked and recorded through the registry systems under the Kyoto Protocol.

Mechanisms to Trading
Carbon Trading Market

Carbon Credit Market Development
Ø Highly Fragmented Market

Ø
Ø Classification

ü
ü Project based or baseline and credit system

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ü Companies trade credits obtained through the Clean Development Mechanism and Joint Implementation mechanism

ü
ü These two mechanisms allow countries to acquire emission credits by conducting greenhouse gas reduction projects in other countries with relatively low reduction costs

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ü Allowance market or cap and trade system

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ü Government authorities set the amount of total emissions and allot credits to companies.

Numbers to Ponder
2007 2008 Value ( MUS$ ) Volume ( MtCO2e ) Value ( MUS$ ) Volume ( MtCO2e ) Project - based Transactions

Primary CDM JI Voluntary market Sub total Secondary CDM Sub total Allowances Markets EU ETS New South Wales Chicago Climate Exchange RGGI AAUs Sub total TOTAL

552 41 43 636

7433 499 263 8 , 195

389 20 54 463

6519 294 397 7 , 210

240

5 , 451

1 , 072

26 , 277

2,060 25 23 na na 2 , 108 2 , 984

49,065 224 72 na na 49 , 361 63 , 007

3093 31 69 65 18 3 , 276 4 , 811

91910 183 309 246 211 92 , 859 126 , 345

The Project and Allowance Based Market

Who is Buying?

Who is Selling?

Trading Mechanism
Ø Commodity Model is preferred Ø Structure of CDM contracts has evolved since 2004 Ø Most transactions were forward purchases with payment on delivery at fixed price per ton of CO2 over a period of 10 years Ø Differentiation across contracts was sharing of non-registration risks Ø Since 2006, fixed price contract is no longer the dominant contract on the market with no clear standard emerging. Ø Not much data available as neither prices nor contractual structures are made public Ø Two trends emerge
ØPerception of reduced registration risk but increased delivery risk

Carbon Trading Exchanges
Ø Chicago Climate Exchange (Chicago, US) Ø Ø European Climate Exchange (London, UK) Ø Ø Nord Pool (Oslo, Norway) Ø Ø Power Next (Paris, France) Ø Ø European Energy Exchange (Leipzig, Germany)

INDIAN COMPANIES TAKING ADVANTAGE

ashedthe carbon credits it earned and until now received

Rs 17 crore by selling

project in the world to earn carbon credits because of using regenerative brakin ow claim Rs 1.2 crore per year

India & Carbon Credit Market
Ø The Kyoto protocol allows 35 developed nations to buy carbon credits from countries. India is one such country that has permission to sell the carbon credits Ø Ø As on 26 March 2010, 497 out of total 2116 projects registered by the CDM Executive Board are from India, which is next only to China with 779 projects. India share is just 19.76 %, while China is 47.96 % Ø Ø As per the current trends, India & China will be the biggest sellers of Carbon Credits, and European Union, the largest buyer
Ø Ø

India ’ s Potential
Ø Kyoto protocol, under which all these carbon credit trading stuff take place, theoretically, is valid only until 2012

Ø
Ø The National CDM Authority (NCDMA) in India has accorded Host Country Approval to 1226 projects facilitating an investment of more than Rs.151,397 crore

Ø
Ø If all these projects get registered by the CDM Executive Board, they have the potential to generate 573 million Certified Emission Reductions (CERs) by the year 2012

Ø
Ø At a conservative price of US $ 10 per CER, it corresponds to an overall inflow of approximately US $ 5.73 billion in the country by the year 2012

Sectors to Watch Out For …

Thank You  Q&A