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A Study On Carbon Credit
A Study On Carbon Credit
CARBON CREDIT
Carbon credits are an element used to aid in regulation of the amount of gases that are being released into the air. This is part of a larger international plan which has been created in an effort to reduce global warming and its effects. The plan works by capping the amount of total emissions that can be released by one company or business.
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CARBON CREDIT
If there is a shortfall in the amount of gases that are used,
there is a monetary value assigned to this shortfall and it may be traded. These credits are often traded between businesses.
However, they also are bought and sold in international
CARBON CREDIT
There are two types of market in carbon credit:
1. Compliance Market (Annexure I countries) 2. Voluntary Market (Non- Annexure countries)
KYOTO PROTOCOL
The Kyoto Protocol is a legally binding agreement that
arose out of the UNFCCC to tackle climate change through a reduction of green house gas emissions.
Countries (those listed in Annex I) are legally bound to
KYOTO PROTOCOL
It was adopted in Kyoto, Japan, on 11th December 1997
Objective:
stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent air pollution interference with the climate system
it is expected to gain from the protocol in terms of transfer of technology and related foreign investments
India maintains that the major responsibility of curbing
emission rests with the developed countries, which have accumulated emissions over a long period of time.
KYOTO MECHANISM
Kyoto is a 'cap and trade' system that imposes national
caps on the emissions of Annex I countries. On average, this cap requires countries to reduce their emissions 5.2% below their 1990 baseline over the 2008 to 2012 period.
The types of Kyoto mechanisms are: 1. Clean Development Mechanism 2. Emissions trading 3. Joint implementation (JI)
KYOTO MECHANISM
Both Annex I & non-Annex I Parties must co-operate
technologies; Research & systematic observation of the climate system; Education, training, & public awareness of climate change; & The improvement of methodologies & data for GHG inventories.
CDM MARKET
The CDM market is like any other commodity market.
Majority of the trading is done in the Primary market.
The secondary market is not as expanded as the primary mainly because of the high volatility of the carbon prices.
The Buyers of CERs can be broadly classified into: 1. Compliance Buyers 2. Carbon Funds (e.g.: Carbon Fund of World Bank) 3. Traders
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purchase emission reductions which arise from projects located in non-Annex I countries. The carbon credits that are generated by a CDM project are termed Certified Emission Reductions (CERs), expressed in tonnes of CO2 equivalent
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CDM PROCESS
IDENTIFICATION OF PROJECT AND DEVELOPMENT OF PROJECT CONCEPT NOTE SUBMISSION OF THE PDD AND HOST COUNTRY APPROVAL VALIDATOR DEVELOPMENT OF PROJECT DESIGN DOCUMENT MAKE PDD COMPLETELY AVAILABLE FOR 30 DAYS
VALIDATION OF PROJECT
REGISTRATION WITH THE CDM POSSIBLE REVIEW BY CDM EXECUTIVE BOARD PROJECT IMPLEMENTATION AND MONITORING ISSUANCE OF CERS TO PROJECT DEVELOPERS
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CHALLANGES
Procedural delays in the CDM:
2,022 out of 3,188 projects are at validation stage An average wait of 80 days to go from registration request to actual
registration
awaiting registration It is difficult to recruit, train and retain qualified, technical staff to apply the complex rules consistently
elements of its financing package, and ultimately its construction and implementation
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EMISSION TRADING
Emissions trading (ET) is a mechanism that enables
countries with legally binding emissions targets to buy and sell emissions allowances among themselves
Under an emissions trading system, the quantity of
emissions is fixed (often called a "cap") and the right to emit becomes a tradable commodity. The cap (say 10,000 tonnes of carbon) is divided into transferable units (10,000 permits of 1 tonne of carbon each)
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EMISSION TRADING V/S CARBON TAXES: THE POLITICS-WHO LIKES WHICH POLICY & WHY?
United States is the strongest proponent of emissions trading as
US is energy inefficient and has high per capita carbon dioxide emissions levels. The European Union has been in favor of carbon taxes as the EU is already relatively energy efficient The Russian Federation & the Ukraine are major supporters of emissions trading Developing countries are extremely cautious of emissions trading, & view it primarily as a "loophole" that the US & Japan can use to avoid their domestic responsibility
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one Annex I Party can invest in a project that reduces emissions or enhances sequestration in another Annex I Party, and receive credit for the emission reductions or removals achieved through that project. The unit associated with JI is called an emission reduction unit (ERU)
In simple terms Joint Implementation means transfer of
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reductions:
Under JI Track 1, a host Party that meets all of the
eligibility requirements may verify its own JI projects and issue ERUs for the resulting emission reductions or removals.
Under JI Track 2, each JI project is subject to
verification procedures established under the supervision of the Joint Implementation Supervisory Committee.
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CARBON TRADING
A carbon trading system allows the development of a
market through which carbon dioxide or carbon equivalents can be traded between participants, whether countries or companies. Each carbon credit is equal to 100 metric tons of carbon dioxide, which can be traded or exchanged in market.
There are two kinds of carbon trading Emission trading
and trading in Project-based Credits. The two categories are put together as Hybrid trading System
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offset trading are used and try to make allowance exchangeable for project-based credits.
Hybrid trading system is enormously complex as it is not
only difficult to try to create credible credit and make them equivalent to allowance
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CARBON NETWORK
Seller Exchange
Banks Individuals Trading exchange Banks NGO & Govt. Consultants Annex 2 & 3 countries Brokers & Traders Intermediary service providers Individuals Consultants Others NGO & Government
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Buyers
Annex 1 country
Banks
Others
Consultants
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public approval
Encourages activities like tree plantings which would
help reduce soil salinity, improve water quality and enhance biodiversity
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trading market
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POSITION OF INDIA
India is considered as the largest beneficiary, claiming
45,000 crore over a period of time and Indian companies are expected to corner at least 10 per cent of the global market in the initial year
If India can capture a 10% share of the global CDM
market, annual CER revenues to the country could range from US$ 10 million to 300 million
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development, cities are facing problems of Municipal Solid Waste disposal. The urban population in larger towns & cities in India is increasing at a decadal growth rate of above 40% Various processes/technologies available to reduce the amount of Municipal Solid Waste are as follows:
Physical (a. Pelletisation)
Biochemical (a. Aerobic Composting b. Anaerobic Digestion) Thermal (a. Incineration b. Gasification)
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an alliance with the Chicago Climate Exchange in 2005 to introduce carbon credit trading in India
MCX is the futures exchange. People here are getting
price signals for the carbon for the delivery in next five years. The exchange is only for Indians and Indian companies
The Indian government has not fixed any norms nor has
it made it compulsory to reduce carbon emissions to a certain level. So, people who are coming to buy are actually financial investors
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and thereby reducing its cost of implementation There is no counter party risk as exchange guarantee the trade The price discovery on the exchange platform ensure the fair price for both the sellers and buyers Bring players to a single platform
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are stated as developing countries, but overseas companies can buy carbon credits from these countries.
Now companies in India can use Carbon credits to get
liberal loans, incentives by multinationals in their countries and benefits like better social and ecological visibility
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worldwide to get its carbon emission reduction project certified. It is set to reap rewards from the sale of CER credits from this year itself
Tata Steel is believed to have signed a MoU with the
Japanese government agency NEDO for sale of credits accruing to it from carbon reduction following the implementation of an over Rs 250 crore modernization and upgradation project
for carbon credit benefits. Most of them are replacing coalbased technologies with more environment-friendly processes
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819 registered by the CDM Executive Board, the environment ministry, the World Bank and the International Emissions Trading Association
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CONCLUSIONS
There is a great opportunity awaiting for India in carbon
the largest beneficiaries accounting for 25 % of the total world carbon trade, says a recent World Bank report
Analysts
claim if more companies absorb clean technologies, total CERs with India could touch 500 million.
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CONCLUSIONS
Of the 391 projects sanctioned, the UNFCCC has
power, bio-gases co-generation and municipal solid waste to energy, municipal water pumping and natural gas power. The ministry has given the host-country clearance, the CDM projects will have to be approved by the executive board of the UNFCCC
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THANK YOU
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