Foundation Course II

Project

Prof. SanghamitraPresented to:-

Group Members:-1. Sarvesh Kumar Tiwari – 3315

S.Y.Bcom / C

2. Dhaval .V .Shah – 3266 S.Y.Bcom / C

3. Bharat Suresh Kumar – 3266 S.Y.Bcom / C

CARBON CREDIT&

Carbon Banking

• Growth in concentrations of Greenhouse Gases(GHGs).

• One Carbon Credit is equal to one ton of Carbon.

• Application emissions trading approach.

• Low emissions or less "carbon intensive" approaches

What is Carbon credit and Carbon Banking

Meaning Of Carbon CreditBurning of fossil fuels is a major source of

industrial greenhouse gas emissions.The major greenhouse gases emitted by these

industries are carbon dioxide, methane, nitrous oxide, hydro fluorocarbons (HFCs).

The concept of carbon credits came into existence as a result of increasing awareness of the need for controlling emissions. The IPCC (Intergovernmental Panel on Climate Change) has observed.

Emission AllowancesMaximum amount of Greenhouse gases for developed and

developing countries, listed in its Annex.Quotas on the emissions of installations run by local

business and other organizationsEach 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.

By permitting allowances to be bought and sold, an operator can seek out the most cost-effective way .

Since 2005, the Kyoto mechanism has been adopted for CO2 trading.

From 2008, EU participants must link with the other developed countries who ratified Annex I of the protocol.

Kyoto’s ‘Flexible mechanisms’Originally allocated or auctioned by the

national administrators of a cap-and-trade program, or it can be an offset of emissions.

Offsetting and mitigating activities can occur in any developing country which has ratified the Kyoto Protocol.

The Kyoto Protocol provides for three mechanisms:-

1. Joint Implementation (JI).2. Clean Development Mechanism (CDM).3. Emissions Trading (IET)

Emission MarketsA. IntroductionOne allowance or CER is considered equivalent to one

metric tonne of CO2 emissions.These allowances can be sold privately or in the

international market.Climate exchanges have been established to provide a

spot market in allowances.It help discover a market price and maintain liquidity.Carbon prices are normally quoted in Euros per tonne of

carbon dioxide or its equivalent (CO2e).These features reduce the quota's financial impact on

business.

B. There are five exchanges trading in carbon allowances:-

Chicago Climate Exchange. European Climate Exchange. Nord Pool. Power Next. European Energy Exchange

Setting a Market Price For CarbonA. IntroductionEmission levels are predicted to keep rising over

time. Thus the number of companies needing to buy credits will increase.

An individual allowance, such as a Kyoto (AAU) or its near-equivalent (EUA), may have a different market value . This is due to the lack of a developed secondary market for CERs.

Carbon project under the Clean Development Mechanism are potentially limited in value because operators in the EU ETS.

B. University Economics Prof. William Nordhaus.The price of carbon needs to be high enough

to motivate the changes in behavior and changes in economic production systems.

It will provide signals to consumers about what goods and services are high-carbon ones.

It will provide signals to producers.It will give market incentives for inventors

and innovators to develop and introduce low-carbon products.

A high carbon price will economize on the information that is required to do all three of these tasks.

A harmonized carbon tax would raise the price of a good proportionately to exactly the amount of CO2 that is emitted in all the stages of production .

He has suggested, based on the social cost of carbon emissions, that an optimal price of carbon is around $30(US) per ton .

The social cost of carbon is the additional damage caused by an additional ton of carbon emissions.

Buying Carbon Credits Can Reduce EmissionsCarbon credits create a market for reducing greenhouse

emissions by giving a monetary value to the cost of polluting the air.

For example:- Consider a business that owns a factory putting out 100,000

tonnes of greenhouse gas emissions in a year. Its government is an Annex a country that enacts a law to limit the emissions that the business can produce. So the factory is given a quota of say 80,000 tonnes per year. The factory either reduces its emissions to 80,000 tonnes or is required to purchase carbon credits to offset the excess. After costing up alternatives the business may decide that it is uneconomical or infeasible to invest in new machinery for that year. Instead it may choose to buy carbon credits on the open market from organizations that have been approved as being able to sell legitimate carbon credits.

Consider the impact of manufacturing alternative energy sources.

For example:- The energy consumed and the Carbon emitted in

the manufacture and transportation of a large wind turbine would prohibit a credit being issued for a predetermined period of time.

One seller might be a company.Another seller may have already invested in new

low-emission machinery.

Credit V/s TaxesCredits were chosen by the signatories to the

Kyoto Protocol as an alternative to Carbon taxes.The main advantages of a tradable carbon credit

over a carbon tax are:- The price is more likely to be perceived as fair by those paying

it. The flexible mechanisms of the Kyoto Protocol ensure that all

investment goes into genuine sustainable carbon reduction schemes.

if correctly implemented a target level of emission reductions is achieved with certainty, while under a tax the actual emissions would vary over time.

it provides a framework for rewarding people or companies who plant trees or otherwise sequester carbon.

Advantage Of Carbon Tax Possibly less complex, expensive, and time-consuming to

implement. perhaps some reduced risk of certain types of cheating,

though under both credits and taxes, emissions must be verified.

reduced incentives for companies to delay efficiency improvements prior to the establishment of the baseline if credits are distributed in proportion to past emissions.

when credits are grandfathered, this puts new or growing companies at a disadvantage relative to more established companies.

It is clear what effect the policy has on the price of energy.

Creating Real Carbon Credit.Internal abatement of emissions should take

precedence before a country buys in carbon credits.It also established the Clean Development Mechanism.This process has evolved as the concept of a carbon

project has been refined over the past 10 year.Carbon project has legitimately led to the reduction of

real, measurable, permanent emissions is understanding the CDM methodology process.

The CDM Executive Board, with the CDM Methodology Panel and their expert advisors, review each project and decide how and if they do indeed result in reductions that are additional.

Additionally and Its Importance. The concept of additionality addresses the question

of whether the project would have happened anyway, even in the absence of revenue from carbon credits.

Carbon projects that yield strong financial returns even in the absence of revenue from carbon credits.

Voluntary carbon offset projects must also prove additionality in order to ensure the legitimacy.

"GHG emission trading programs operate by capping the emissions of a fixed number of individual facilities or sources. Under these programs, tradable 'offset credits' are issued for project-based GHG reductions that occur at sources not covered by the program.”

The idea is to achieve a zero net increase in GHG emissions, because each tonne of increased emissions is 'offset' by project-based GHG reductions.

The difficulty is that many projects that reduce GHG emissions would happen regardless of the existence of a GHG program and without any concern for climate change mitigation.

The issuing offset credits for its GHG reductions will actually allow a positive net increase in GHG emissions.

Additionality is thus critical to the success and integrity of GHG programs that recognize project-based GHG reductions.

CriticismsEnvironmental restrictions and

activities have been imposed on businesses through regulation.

The Kyoto mechanism is the only internationally-agreed mechanism for regulating carbon credit activities, and, crucially.

The Kyoto trading period only applies for five years between 2008 and 2012.

The first phase of the EU ETS system started before then, and is expected to continue in a third phase afterwards.

A key concept behind the cap and trade system is that national quotas should be chosen to represent genuine and meaningful reductions in national output of emissions.

The costs of emissions trading are carried fairly across all parties to the trading system.

Countries within the EU ETS have granted their incumbent businesses most or all of their allowances for free.

Establishing a meaningful offset project is complex: voluntary offsetting activities outside the CDM mechanism are effectively unregulated and there have been criticisms of offsetting in these unregulated activities.

Conclusion There is a great opportunity awaiting India in carbon

trading which is estimated to go up to $100 billion by 2010. In the new regime, the country could emerge as one of the largest beneficiaries accounting for 25 per cent of the total world carbon trade, says a recent World Bank report. The countries like US, Germany, Japan and China are likely to be the biggest buyers of carbon credits which are beneficial for India to a great extent. The Indian market is extremely receptive to Clean Development Mechanism (CDM). Having cornered more than half of the global total in tradable certified emission reduction (CERs), India’s dominance in carbon trading under the clean development mechanism (CDM) of the UN Convention on

Climate Change (UNFCCC) is beginning to influence business dynamics in the country. India Inc pocketed Rs 1,500 crores in the year 2005 just by selling carbon credits to developed-country clients. Various projects would create up to 306 million tradable CERs. Analysts claim if more companies absorb clean technologies, total CERs with India could touch 500 million. Of the 391 projects sanctioned, the UNFCCC has registered 114 from India, the highest for any country. India’s average annual CERs stand at 12.6% or 11.5 million. Hence, MSW dumping grounds can be a huge prospect for CDM projects in India. These types of projects would not only be beneficial for the Government bodies and stakeholders but also for general public.

Referenceshttp://en.wikipedia.org/wiki/Carbon_credithttp://www.rediff.com/money/2008/feb/

05inter1.htmhttp://www.nswai.com/images/newsletters/

feb2007.pdfhttp://www.investopedia.com/terms/c/

carbon_credit.asphttp://www.carboncreditcapital.com/