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By Vipul Mundada & Charan SalianRoll No: 251 & 268
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Rapid Industrial Growth
Increase Energy Consumption
Increase CO2 and other GHG emission
Global Warming due to increase
concentration of GHG
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A carbon credit is a generic term for any tradable certificate or permit representingthe 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.
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Carbon credits and carbon markets are a component of national and international
attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One
carbon credit is equal to one metric tonne of carbon dioxide, or in some markets,
carbon dioxide equivalent gases. 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.
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Key idea is to encourage companies to reduce the emission of carbon and Green
House Gases (GHGs).
UNFCCC came out with concept of Certified Emission Reductions (CER) based on
the Industry standards.
Companies emitting lesser carbons than industry standard gets Credits by way of
CERs.
Carbon credit is equivalent to one tone of carbon dioxide or its equivalent GHG.
Carbon credits are Entitlement Certificates issued by the United NationsFramework Convention on Climate Change (UNFCCC).
The potential buyers of carbon credits shall be corporate in various Annexure I
countries that need to meet the compliance prevailing in their countries as per the
Kyoto Protocol.
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165 nations signed the 1992 United Nations Framework Convention on Climate
Change (UNFCCC) at Rio de Janeiro.
The Convention divides countries into two main groups - Annex I & Non-Annex I
Countries.
Annex I (developed countries) agreed to reduce their GHGs by 5.2 % below 1990
levels in 1st commitment period 2008 2012.
Convention is based on three principles:
Common but differentiated responsibility Precautionary approach
Sustainable Economic Growth and Development
The Kyoto protocol defined how to bring down the emissions in COP 3 in 1997.
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The Kyoto Protocol is an international agreement linked to the United Nations
Framework Convention on Climate Change.
The major feature of the Kyoto Protocol is that it sets binding targets for 37
industrialized countries and the European community for reducing greenhouse gas
(GHG) emissions.
The major distinction between the Protocol and the Convention is that while the
Convention encouraged industrialised countries to stabilize GHG emissions, the Protocol
commits them to do so.
The Protocol was initially adopted on 11 December 1997 in Kyoto, Japan, and enteredinto force on 16 February 2005.
As of August 2011, 191 states have signed and ratified the protocol. The only remaining
signatory not to have ratified the protocol is the United States.
Other states yet to ratify Kyoto include Afghanistan, Andorra and South Sudan, after
Somalia ratified the protocol on 26 July 2010.
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Annex I countries:
There are 41 Annex I countries and the European Union is also a member.
These countries are classified as industrialized countries and countries in
transition.
Annex I countries which have ratified the Protocol have committed to reduce
their emission levels of greenhouse gasses to targets that are mainly set below
their 1990 levels.
They may do this by allocating reduced annual allowances to the major operators
within their borders.
These operators can only exceed their allocations if they buy emission
allowances, or offset their excesses through a mechanism that is agreed by all the
parties to UNFCCC.
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Annex II countries:
There are 23 Annex II countries and the European Union.
Turkey was removed from the Annex II list in 2001 at its request to recognize its
economy as a transition economy.
These countries are classified as developed countries which pay for costs of
developing countries.
Annex II countries are a sub-group of the Annex I countries. They comprise of
Organisation for Economic Co-operation and Development (OECD) members.
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Non Annex I countries:
Developing countries.
Developing countries are not required to reduce emission levels unless developed
countries supply enough funding and technology. Setting no immediate
restrictions under UNFCCC serves three purposes
It avoids restrictions on their development, because emissions are strongly linked
to industrial capacity.
They can sell emissions credits to nations whose operators have difficulty meeting
their emissions targets.
They get money and technologies for low-carbon investments from Annex II
countries.
Developing countries may volunteer to become Annex I countries when they are
sufficiently developed.
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Emissions trading (ET) is a mechanism that enables countries with legally
binding emission targets to buy and sell emissions allowances among themselves.
Each country has a certain number of emission allowances (amount of carbon
dioxide it can emit) in line with its Kyoto reduction targets .
The IET allows industrialized countries to trade their surplus credits on the
international carbon credit market.
A global Carbon Market is estimated to be around $30 billion.
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The purpose of CDM is reduce to emissions and also contribute to sustainable
development in developing countries.
The CDM is administered by the CDM Executive Board (CDM Board) which
reports and is accountable to the Conference of Parties (COP).
A Carbon emission reduction (CER) is given by the CDM Executive Board.
One CER is equivalent to one tone of carbon dioxide reduced.
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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 countrycan sponsor a green house 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 emissionreduction targets, while the developing country would receive the capital
investment and clean technology or beneficial change in land use.
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Outcome of the work of the Ad Hoc Working Group on Further
Commitments for Annex I Parties under the Kyoto Protocol are:
To achieving the lowest levels would require Annex I Parties as a group to
reduce emissions in a range of 25-40 per cent below 1990 levels by 2020
(close to the 51% reduction in a low-carbon society).
Urges Annex I Parties to raise the level of ambition of the emission
reductions to be achieved.
In the second commitment period, the base year shall be 1990.
The global warming potentials shall be those provided by the IPCC.
Market Based Mechanisms to be reviewed under Post-2012 Regime.
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Carbon trading in India
As of 1st Oct, 2010. 1,561 CDM projects are approved in India.
As of 31st March 2011. 907 CDM projects at or after the validation stage.
As of 31st March 2011. 630 CDM projects were registered at CDM
executive board.
Basic Data on Registered CDM Projectsas of 31 March 2011):
N. of ProjectsAvg. Annual Emission
Reductions (t-CO2)
Total ERs by 2012
(t-CO2)
Amount of Issued
CERs (t-CO2)
Review
ConductedRejected
630 80,555 273,783,807 93,119,476 193 44
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Multi Commodity Exchange of India Ltd. ( MCX) entered into a strategic alliance
with CCX in September 2005 to initiate carbon trading in India.
Offers Mini version of ECX CFI & CCFE SFI.
The tie-up would provide immense scope and opportunity for domestic suppliers torealize better prices for their carbon credits.
India being a major supplier of carbon credits, the tie-up between the two exchanges is
expected to ensure better price discovery of carbon credits.
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India Non Annexure I country, has a large scope in emissions trading.
India and china together contribute to $5 billion of the global carbon trade estimated at
$30billion.
It is one of the leading generators of CERs through CDM.
Analysts forecast that its trading in carbon credits would touch US$ 100 billion by
2020.
Currently, the total registered CDM projects are 630, almost 18.5% of the total CDM
projects registered with the UNFCCC.
The amount of issued CERs (t-CO2) are 13.0% of the total amount of issued CERs (t-
CO2) under CDM projects by UNFCCC.
The total CDM projects approved by India are 1561, almost 46.0% of the total CDM
projects registered with the UNFCCC.
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