CARBON TRADING……..

a new Trend towards a GREEN Planet

CONTENTS:

❑ Highlights of KYOTO PROTOCOL

❑ Definition of CARBON TRADING

Carbon CAP-TRADE program

Carbon Offsetting

❑ Implementation Mechanism of Carbon Trading

❑ Case Study of Carbon Trading in European Union

❑ Benefits of Carbon Trading

❑ Disadvantages of Carbon Trading

❑ Conclusion
 HIGHLIGHTS OF KYOTO PROTOCOL:
The Kyoto Protocol

❑ An United Nation- led international agreement reached in 1997

in Kyoto, Japan under UNFCCC

❑ Put to force on February 2005.

❑ To address the problems of climate change and the reduction of greenhouse

gas emissions.

Results: March towards a Green Planet

❑ Commitment to move away from fossil fuel energy sources (oil, gas and coal) to
renewable sources of energy viz. hydro, wind, solar power by 38 signatory countries

❑ Commitment to reduce greenhouse gas emissions by 2008-2012 to 5.2 percent below

1990 levels.(legally binding protocol)

❑ Targets for greenhouse gas emissions reduction were established for

each industrialized country. (Annex 1 countries)

❑ Developing countries (non-Annex 1 countries) including China and

India were asked to set voluntary targets for greenhouse gas emissions.
 CARBON TRADING

CARBON CAP-TRADE PROGRAM CARBON

OFFSETTING

CARBON CAP-TRADE PROGRAM

❑ CAP- Assignment of an upper threshold limit on the amount of pollutant that can be
emitted (measured in Assigned Amount Units or AAUs) by a country.

❑ Emission permits or equivalent number of allowances or credits are issued to emit a

specific amount of carbon dioxide (cap) to the country.
1 credit= 1 ton of carbon dioxide

❑ TRADE- the transfer or trade of allowances

❑ Excess or unused allowances/credits can be traded to the countries whose emissions
have exceeded their assigned cap.

❑ The purchased allowances can be used to increase the allowance limit by the
purchasing country.

Countries whose emissions are less than their assigned amount or the CAP can
sell or TRADE the excess amount to countries whose emissions have exceeded
their assigned amount.
 CARBON OFFSETTING:

❑ Offset Credits for eco-friendly technologies are purchased by developed

nations to avoid or substitute reduction in their own emission.

❑ Investments in green technologies and harness alternative forms of energy in the

developing nations.

Example:

•A landowner plants an acre of field and can generate credits for how much Carbon Dioxide
is reduced as a result of the plantation

•The credits are known as Offset Credits

•The landowner can sell the offset credits to the potential investors or industrial facilities

•The facility can buy the offset credits and count it in favor of its emission responsibilities.

•It attests that the same amount of carbon dioxide is reduced in the atmosphere as a result
of the plantation process.
Carbon Trading Implementation Mechanisms:
• EMISSION TRADING (ET)

❑ Countries whose emissions are less than their assigned amount can sell the
excess amount to countries whose emissions have exceeded their assigned
amount

❑ The Assigned amounts can be defined as a tradable allowances, or commodity, and this
free market is known as the “CARBON MARKET."
• CLEAN DEVELOPMENT MECHANISM (CDM)

❑ Developed countries can fund emission reduction projects (e.g. Solar energy, wind energy
and other green technologies) in developing nations that did not sign Kyoto Protocol.

❑ In exchange, the developed countries earn legally recognized emission credits called CERs
(Certified Emission Reduction) to offset their emission obligations.

• JOINT IMPLEMENTATION (JI)

❑ Developed countries can implement emission reduction projects in another

developed or developing country and earn Emission Reduction Units (ERUs)

❑ ERUs can be used to meet the carbon allowance or can be sold

in the market.
CASE STUDY: EUROPEAN UNION EMISSION TRADING SCHEME

The EUROPEAN UNION EMISSION SCHEME has been divided into 3 phases:
❑ Phase I (2005-2007)
❑ Phase II (2008-2012)
❑ Phase III (2013-2020)

For each EU ETS Phase, the total quantity to be allocated is defined by National
Allocation Plan (NAP)

Highlights of Phase I: (2005-2007)

▪15 member countries participated

▪Over allocation of allowances and

distribution of free permits at the
beginning

▪From May 2006 to December of

2007, carbon prices dropped from
€30/ton to €0.03/ton.

▪Overall emissions increased by 1.9%

between 2005 and 2007
 Highlights of Phase II : 2008-2012

❑ CDM and JI were introduced

❑ An average allowance cut of nearly 2.6% below the 2005 emission levels

❑The carbon price increased to over 20 Euro/tCO in the first half of 2008 but decayed to
2

13 Euro/tCO2 in the first half of 2009

❑The assigned cap is expected to result in an emission reduction in 2010 of about 2.4%
compared to expected emissions without the cap (business-as-usual emissions)

mTonnes
Highlights of Phase III: ( 2013-2020)

The European Commission has proposed a number of changes:

❑ Tighter limits on the use of offsets

❑ Replacing allowances by auctioning

❑ Establishment of an overall fixed cap and then assignment to the members

Projections for 2020:

20% cut in EU emissions relative to 1990 levels with carbon price of around or below
30 Euro/tCO2
Benefits of CARBON TRADING:
• REDUCTION IN GREEN HOUSE GAS EMISSION

❑ Stringency in the cap or the upper threshold limit is

contributing to lower emission over the years

• SOURCE OF REVENUE FOR DEVELOPING NATIONS

❑ Developing nations can earn revenue by selling carbon credits to countries with

more fossil fuel demand.

• SUPPORTS A FREE MARKET SYSTEM

❑ The carbon trade market is without any economic intervention and regulation
by government except to regulate against force or fraud

• IMPETUS FOR ALTERNATIVE SOURCES OF ENERGY OR GREEN

TECHNOLOGY

❑ Threshold limits encourages industries to harness alternative sources of

energy and invest in green technology globally or in indigenous research.
Disadvantages of CARBON TRADING:
• RIGHT TO POLLUTE

❑ Industries in the ratified nations are purchasing legal rights to pollute

the atmosphere

• SLOW PROCESS

❑ Industries are opting the easy way– purchase more allowances

than implementing greener technologies

• LACK OF CENTRALIZED SYSTEM OR GLOBAL FRAMEWORK

❑ Absence of a centralized and accepted global standards/act are missing

• NO EFFECTIVE CARBON REDUCTION IN THE ATMOSPHERE

❑ Leads to carbon reduction in one place and results in carbon emission in

some other place
CONCLUSION:
❑ Carbon Trading brings forth financial incentives to reduce carbon dioxide
emission and implement eco-friendly/green technologies.

❑ Stringent assignment of the caps or the upper threshold limits over the years can
ameliorate the green house gas emission problem.

❑ The alternative/renewable sources of energy like wind, solar and hydro are
supposed to get financial boost to substitute fossil fuels.

❑ Absence of a standard measuring technique in carbon sequestration or

storage questions the feasibility of Carbon Offsetting techniques.

❑ Presently, the market is primarily driven by financial interest or gains by the

investment farms as opposed to seeking environmental remedy.