Carbon Credit

CONTENTS INTRODUCTION KYOTO PROTOCOL GREENHOUSE GASES EMISSION ALLOWANCE EMISSION MARKET EFFECT OF CARBON CREDIT CRITICISM CONCLUSION

INTRODUCTION CARBON CREDIT: IS A GENERIC TERM FOR PERMIT REPRESENTING THE RIGHT TO EMIT ONE TONNE OF CARBON(GREEN HOUSE GASES) Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). The concept of carbon credits came into existence as a result of increasing awareness of the need for controlling emissions The mechanism was formalized in the Kyoto Protocol, an international agreement between more than 170 countries, and the market mechanisms were agreed The Kyoto Protocol envisages reduction of Green House Gases by 5.2% in the period CARBON CREDIT: IS A GENERIC TERM FOR PERMIT REPRESENTING THE RIGHT TO EMIT ONE TONNE OF CARBON(GREEN HOUSE GASES) Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). The concept of carbon credits came into existence as a result of increasing awareness of the need for controlling emissions The mechanism was formalized in the Kyoto Protocol, an international agreement between more than 170 countries, and the market mechanisms were agreed The Kyoto Protocol envisages reduction of Green House Gases by 5.2% in the period

WHAT HAPPEN WHEN May 1992: UN FCCC* establishes framework for containing global warming Dec 1997: Following intense negotiations in Kyoto (Japan), a protocol is agreed upon by over 100 countries Feb 2005: 141 countries, including EU, Japan, Canada, and Russia sign the Kyoto Protocol and it gets ratified w.e.f. 16-Feb-05 – The US remains a key non-signatory The Kyoto Protocol sets legally binding targets for reducing green house gases (GHGs) – Developed countries have a target to reduce GHG emissions by 5.2% below 1990 levels, by year 2012 – EU members committed to reduce their average emissions by 8 % – India, China, and Brazil are classified as emerging countries and hence exempted from this protocol May 1992: UN FCCC* establishes framework for containing global warming Dec 1997: Following intense negotiations in Kyoto (Japan), a protocol is agreed upon by over 100 countries Feb 2005: 141 countries, including EU, Japan, Canada, and Russia sign the Kyoto Protocol and it gets ratified w.e.f. 16-Feb-05 – The US remains a key non-signatory The Kyoto Protocol sets legally binding targets for reducing green house gases (GHGs) – Developed countries have a target to reduce GHG emissions by 5.2% below 1990 levels, by year 2012 – EU members committed to reduce their average emissions by 8 % – India, China, and Brazil are classified as emerging countries and hence exempted from this protocol

GREEN HOUSE GASES Green house gases (GHGs) are gases that result in global warming – Degree of warming caused by a specific GHG depends upon its CO2 equivalence (CO2e) 6 GHGs are regulated under the Kyoto Protocol – Carbon dioxide (CO2) – Methane (CH4) – Nitrous oxide (N2O) – Hydrofluorocarbons (HFCs) – Perfulourocarbons (PFCs) – Sulphur Hexafluoride (SF6) There are at least 25 other gases, including chloroform, CO, and water vapour that influence climate-change – Above-mentioned six are key ones, that can be controlled by human intervention

Kyoto protocol

CLIMATE CHANGE According to the World Bank Economist Mr. Stern, the effect of climate change could be worse than the two World Wars. A famous ecologist says that 20 billion tonnes of carbon dioxide is generated by humanity, every year and absorbed by Nature. This tolerance of Nature could be reversed, if the carbon dioxide levels increase unabatedly. Prof. James Lovlock, USA believes that the 90 % of mankind may be wiped out if the planet heats up.

GREENHOUSE GASES TYPE OF GREENHOUSE GASES Sulphur Hexafluoride 6 5 Perfluoro carbons Hydrofluoro Carbons 4 3 Nitrous oxide Methane 21 1 Carbon dioxide 1 Global Warming Potential (GWP) S. Greenhouse Gas TYPE OF GREENHOUSE GASES Sulphur Hexafluoride 6 5 Perfluoro carbons Hydrofluoro Carbons 4 3 Nitrous oxide Methane 21 1 Carbon dioxide 1 Global Warming Potential (GWP) S. Greenhouse Gas

WHY CITIES MATTER ? In 1800, 2% of world’s population lived in cities. Currently, it is 50% and heading towards 60% by Urban populations are expected to grow by 2 billion people within 30 years. Cities in developing countries are expected to absorb 95 percent of this increase. Over, 1 billion people live in urban slums. In the least developed nations, slums house 70% of the urban population. Droughts and floods in rural areas have increased migration to cities. By 2030, if nothing is done, slum population will reach 2 billion

KEELING CURVE

GLOBAL CLIMATE CHANGE SCENARIO 5 outreach countries – Brazil, China, India, Mexico and South Africa have challenged G-8 countries to reduce their GHG emissions by more than 80% by 2050 and by 25 – 40% by Switzerland wants a carbon tax imposed on emissions of all countries above a certain level of per capita emissions. Stern Committee had recommended a carbon tax on all coal, natural gas and oil based industries so that social cost of carbon production could be countered by using this fund for developing renewable energy. Sweden has a carbon tax since 1991 on power generating plants and aviation fuel used in air travel

Emission allowance countries set quotas on the emissions of installations run by local business and other organizations, generically termed 'operators'. Countries manage this through their national registries, which are required to be validated and monitored for compliance by the UNFCCC. 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. 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. As demand for energy grows over time, the total emissions must still stay within the cap, but it allows industry some flexibility and predictability in its planning to accommodate this.

Emission market For trading purposes, one allowance or CER is considered equivalent to one metric ton of CO2 emissions. These allowances can be sold privately or in the international market at the prevailing market price. These trade and settle internationally and hence allow allowances to be transferred between countries. Each international transfer is validated by the UNFCCC. Currently there are six exchanges trading in carbon allowances: the Chicago Climate Exchange, European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava and the European Energy Exchange

Effect of carbon credit Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets

criticism Environmental restrictions and activities have been imposed on businesses through regulation. Many are uneasy with this approach to managing emissions. The Kyoto trading period only applies for five years between 2008 and The first phase of the EU ETS system started before then, and is expected to continue in a third phase afterwards, and may co-ordinate with whatever is internationally agreed at but there is general uncertainty as to what will be agreed in Post–Kyoto Protocol negotiations on greenhouse gas emissions. As business investment often operates over decades, this adds risk and uncertainty to their plans As several countries responsible for a large proportion of global emissions (notably USA, Australia, China) have avoided mandatory caps