Assignment - Carbon Credits Ppt

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By Pooja Mathur Sangeetha Radhakrishnan Linda Thomas Taha Ibtisam

Transcript of Assignment - Carbon Credits Ppt

Page 1: Assignment - Carbon Credits Ppt

By

Pooja MathurSangeetha RadhakrishnanLinda ThomasTaha Ibtisam

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• THE BEGINNING

• KYOTO PROTOCOL

• CARBON CREDITS

• HOW DOES IT WORK

• CLEAN DEVELOPMENT MECHANISM (CDM)

• FEW CASES

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THE BEGINNING The concept of carbon credits came into existence as a result of increasing awareness of the need to control greenhouse gas emissions.(Greenhouse gases are mainly Water vapour, Carbon dioxide, Methane, Nitrous oxide, Ozone and CFCs)

The IPCC (Intergovernmental Panel on Climate Change) has observed that:“Policies that provide a real or implicit price of carbon could create incentives for producers and consumers to significantly invest in low-GHG products, technologies and processes. Such policies could include economic instruments, government funding and regulation…”

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KYOTO PROTOCOLThe Protocol was initially adopted on 11 December 1997 in Kyoto, Japan and entered into force on 16 February 2005. As of February 2009, 183 nations have signed and ratified the protocol.The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC or FCCC), aimed at combating global warming by reducing the emissions of green house gases.Under the Protocol, industrialized countries agreed to reduce their collective greenhouse gas emissions to atleast 5% of 1990 level.The European Union decided it aims to reduce the emission level between 2008-2012.Kyoto signatories are divided into three categories:

1. Annex 1 countries: Developed nations like Australia, Canada, European Union (high emitters of GHG).

2. Annex 2 countries: Subgroup of Annex1 nations, developed nations that pay for the cost of developing nations, such as Japan, UK, USA, France (high emitters of GHG).

3. Developing countries: Best examples are India and China (low emitters of GHG).

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CARBON CREDITSCarbon credits are measured in tonnes of carbon dioxide. 1 credit = 1 tonne of CO2. 1 tonne of CO2 would fill a swimming pool the size of 10x25 meters and 2 meters deep.The credits need to be authentic, scientifically based and comply with a regulatory body for these to be traded with confidence. Verification is essential. These tradable carbon credits are then given a monetary value set by the market and can be bought and sold between groups on state, national and international markets. The owner the carbon credits has the right to emit 1 tonne of CO2  per credit or trade if not needed.Credits may also be retired, meaning taken off the market. They can be donated to non-profit groups and are tax deductible in countries where trading is taking place. Large amounts of credits can be bought and retired, thus driving the price up and forcing organization to decrease their carbon emissions which is fantastic for the environment. As an individual or business you can purchase carbon credits to offset your UNAVOIDABLE carbon emissions (i.e. car and air travel) under a voluntary or mandatory scheme.

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HOW DOES IT WORKBeing developing countries, India, China etc. have the advantage. Any company, factories or farm owner can get linked to United Nations Framework Convention on Climate Change and know the 'standard' level of carbon emission allowed for its outfit or activity. The extent to which I am emitting less carbon (as per standard fixed by UNFCCC) I get credited in a developing country. This is typically what we call carbon credit.A company in a developed nation can reduce its GHG emissions by:

a. Adopting new technology or improving upon the existing technology to attain the new norms for emission of gases, or

b. Tie up with developing nations and help them set up new technology that is eco-friendly, thereby helping the developing country or its companies reduce their GHG emission levels and 'earn' carbon credits. These credits can later be sold.Alternatively, an organization from a developed nation exceeding its GHG emission allowance can purchase carbon credits from an organization in a developing nation.Carbon offset: One carbon offset represents the reduction of one metric tonne of carbon dioxide or its equivalent in other greenhouse gases.

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CLEAN DEVELOPMENT MECHANISM

Under the CDM and the UNFCCC, any company from the developed world can tie up with a company in the developing country that is a signatory to the Kyoto Protocol.

The industrialized nation and its companies set up new eco friendly technologies in developing nations that aim to further reduce emission level of GHG, thereby increasing carbon credits.

The companies in developing countries must adopt the newer technologies, emitting lesser gases, and save energy. Consequently, earning credits.

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TAKE A LOOK…

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CDM/CARBON CREDIT PROJECT

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http://www.carbonplanet.com/

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• CARBON OFFSETS

• COC’S AND CRC’S

• MARKET PRICE FOR CARBON

• CARBON OR EMISSIONS TRADING (CAP AND TRADE)

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CARBON OFFSETSA carbon offset is a financial instrument aimed at a reduction in greenhouse gas emissions. Carbon offsets are measured in metric tons of carbon dioxide-equivalent (CO2e) and may represent six primary categories of greenhouse gases.

One carbon offset represents the reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases.Offsets are typically achieved through financial support of projects that reduce the emission of greenhouse gases in the short- or long-term. The most common project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams. Others include energy efficiency projects, the destruction of industrial pollutants or agricultural by-products, destruction of landfill methane, and forestry projects.There are two types of markets for carbon offsets:

a. In the larger, compliance market, companies, governments, or other entities buy carbon offsets in order to comply with caps (quotas) on the total amount of carbon dioxide they are allowed to emit.

b. In the much smaller, voluntary market, individuals, companies, or governments purchase carbon offsets to mitigate their own greenhouse gas emissions from transportation, electricity use, and other sources.

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COC’S AND CRC’SCarbon Offset Credits (COC's)

Consist of clean forms of energy production, wind, solar, hydro and bio fuels, which emit less GHG and help reduction of GHG levels.

Carbon Reduction Credits (CRC's) Consists of the collection and

storage of Carbon from our atmosphere through bio sequestration (reforestation, forestation), ocean and soil collection and storage efforts.

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MARKET PRICE FOR CARBON

Unchecked, energy use and hence emission levels are predicted to keep rising over time. Thus the number of companies needing to buy credits will increase, and the rules of supply and demand will push up the market price, encouraging more groups to undertake environmentally friendly activities that create carbon credits to sell.In anticipation that Europeans are unable to meet their target of reducing the emission levels by 2012, the demand for the carbon will increase and more money earned by trading carbon credits.

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WORDS OF WILLIAM NORDHAUS

Yale University economics professor William Nordhaus argues that the price of carbon needs to be high enough to motivate the changes in behavior and changes in economic production systems necessary to effectively limit emissions of greenhouse gases.

Raising the price of carbon will achieve four goals:

First, it will provide signals to consumers about what goods and services are high-carbon ones and should therefore be used more sparingly.

Second, it will provide signals to producers about which inputs use more carbon (such as coal and oil) and which use less or none (such as natural gas or nuclear power), thereby inducing firms to substitute low-carbon inputs.

Third, it will give market incentives for inventors and innovators to develop and introduce low-carbon products and processes that can replace the current generation of technologies.

Fourth, and most important, a high carbon price will economize on the information that is required to do all three of these tasks. Through the market mechanism, a high carbon price will raise the price of products according to their carbon content.

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CARBON OR EMISSIONS TRADING

Emissions trading is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. It is sometimes called cap and trade (capping and trading).A central authority (usually a government or international body) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level.Companies that need to increase their emission allowance must buy credits from those who pollute less. The transfer of allowances is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed. Thus, in theory, those who can easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society.There are active trading programs in several countries, for greenhouse gases the largest is the European Union Emission Trading Scheme. In the United States there is a national market to reduce acid rain and several regional markets in nitrogen oxide.

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• MULTI COMMODITY EXCHANGE

• EUROPEAN CLIMATE EXCHANGE

• ECX TODAY

• LOW CARBON ECONOMY

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MULTI COMMODITY EXCHANGE

MCX is an independent commodity exchange based in India which was established in 2003 and is based in Mumbai. MCX launched trading of carbon credits in India. MCX is the futures exchange. Price signals for carbon are available publically on MCX. The exchange is only for Indians and Indian companies. People who are coming to buy from Indians are actually financial investors. The price of carbon credits is expected to rise in the near future. Investors are willing to buy now to sell later. There is a huge requirement of carbon credits in Europe before 2012. Only those Indian companies that meet the UNFCCC norms and take up new technologies will be entitled to sell carbon credits.With India expected to be a major supplier of carbon credits, the introduction of carbon trading is expected to ensure better price discovery.MCX has power, energy and metal companies who are involved in carbon trading. These companies are high-energy consuming companies in need for better technology to emit less GHG.

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EUROPEAN CLIMATE EXCHANGE

The European Climate Exchange (ECX) is the leading marketplace for trading carbon dioxide emissions in Europe and internationally.

ECX currently trades two types of carbon credits: EU allowances (EUAs) and Certified Emission Reductions (CERs). 

EU allowances (EUAs) is issued under the EU Emissions Trading Scheme. One EUA equals one tonne of CO2 (right-to-emit).

Certified Emission Reductions (CERs) are carbon credits issued by the Clean Development Mechanism (CDM).

CDM projects generates Certified Emission Reduction credits to qualifying greenhouse gas reduction projects that also provide development benefits to their non-Annex 1 host country.

The CERs will be transferable to industrial countries, where they can be applied toward emissions reduction targets.

Once a CER has been issued, it carries the same compliance value as an EUA.

EU ETS market participants will thus be able to import CER credits for domestic compliance to cover for some of their shortfall.

ECX is a member of the Climate Exchange Plc group of companies.

Other member companies include the Chicago Climate Exchange (CCX) and the Chicago Climate Futures Exchange (CCFE). 

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ECX TODAYMore than 100 leading businesses, including global companies such as Barclays, BP, Newedge, E.ON UK, Endesa, Fortis, Goldman Sachs, Morgan Stanley and Shell have signed up for membership to trade ECX products. In addition, several hundred clients can access the market daily via banks and brokers in a process called 'order-routing' without having to be a member themselves.

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ECX TODAY

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LOW CARBON ECONOMYLow Carbon Economy( LCE) or Low Fossil Fuel Economy(LFFE) is a concept that refers to an economy which has a minimal output of greenhouse gas (GHG) emissions to the biosphere, specially CO2 .

In a Low Carbon Economy all waste should be minimized- Reduce Reuse Recycle.Energy should be produced using low carbon energy sources and methods- renewable and alternative energy sources.All resources(in particular energy) should be used efficiently- more efficient energy conversion devices, combined heat and power.There is high awareness and compliance with environmental and social responsibility initiatives- industry, commerce and individuals.Costa Rica sources much of its energy needs from renewables and is undertaking reforestation projects. In 2007 the Costa Rican government announced the commitment for Costa Rica to become the first carbon neutral country by 2021.In China, the city of Dongtan is to be built to be produce zero net greenhouse gas emissions.

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• CRITICISM OF CARBON CREDITS

• CARBON CREDITS IN A NUT SHELL

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TAKE A LOOK

Seven people have been arrested and 27 residence and office locations were raided by police over a suspected £38 million pounds (62.8 million dollars) fraud involving the trade of carbon credits to avoid paying the value-added tax (VAT) which is required in the UK.

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CRITICISMIs anyone really surprised? a Duke University masters candidate Alan Abramson clearly identified the risk, as have many others:The [carbon offset] market requires valuators' and verifiers all over the world. The system is already short personnel with these skills. Then there is the question of who pays these people? Regulators need to keep in mind the failure of the credit rating agencies (Moody’s, S&P, etc.) in the recent credit crisis. Markets require trust. Respondents said the only reason certain investors purchased some MBS assets was the Triple-A rating.42 These same respondents say that a significant flaw in the system exists because the credit rating agencies are paid by the bond issuers. A disincentive exists for doing a thorough job. Currently, valuators and verifiers are paid by project developers. If we are to learn from the failings of the financial markets, this is an aspect of the carbon offset markets ripe for misconduct.

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CRITICISM"Anybody with any common sense can see that we're not going to get ourselves on the low-carbon economy we need if we're building new runways and new coal-fired power stations," he said.”"Carbon trading has been the false solution that has been thrown at us when we've held previous camps and we want to tackle that head-on today.”Another member of the climate camp, Kevin Smith, said the market-based approach of carbon trading to solving climate change had proven to be "spectacularly unstable and ineffective". The group's national co-ordinator Phil Thornhill said: "Some of them want to put a lot of money into the global economy.”"The way to do that is to spend on the things we need to do to fight climate change and reduce emissions.” "There's loads of things that need doing, massive infrastructure projects, new grids, renewable energy, marine wind farms, tidal power which has huge potential, all of this could be green jobs.”"This is doing two things at once, it wouldn't just be putting the money into a black hole which they are now."

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IN A

NUT SHELL

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