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Carbon Trading- Pollution control

for Profit«.

- Darshit Pathak (EBT- 37)

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Contents

CDM Project

Carbon credits

Carbon credits in India

Global Scenario

Conclusion

Kyoto Protocol

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Kyoto Protocol

It is a pact agreed by governments at a 1997 UN

conference in Kyoto, Japan, to reduce greenhousegases emitted by developed countries by 5.2 percentof 1990 levels from 2008 to 2012.

Governments agreed to tackle climate change at an³Earth summit´ in Rio de Janeiro in 1992. Kyoto isthe follow up and is the first legally binding globalagreement to cut greenhouse gases.

only 39 relatively developed countries have targetlevels for 2008-12 under a principle that richer countries are most to blame and so should take thelead.

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Kyoto Protocol

Rich nations¶ emissions were 5.9% below 1990 levels

in 2003 but this was mainly due to a college of Soviet-

era industries. Many other nations are above target-U.S. emissions were up 13.1%.

The Kyoto Protocol provides for three mechanisms thatenable countries or operators in developed countries to

acquire greenhouse gas reduction credits Under Joint Implementation (JI) a developed country

with relatively high costs of domestic greenhousereduction would set up a project in another developedcountry.

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Under the Clean Development Mechanism (CDM) a

developed country can 'sponsor' a greenhouse gasreduction project in a developing country where thecost of greenhouse gas reduction project activities isusually much lower, but the atmospheric effect isglobally equivalent. The developed country would begiven credits for meeting its emission reduction targets,while the developing country would receive the capitalinvestment and clean technology or beneficial changein land use.

Under International Emissions Trading (IET) countriescan trade in the international carbon credit market tocover their shortfall in allowances. Countries withsurplus credits can sell them to countries with capped

emission commitments under the Kyoto Protocol.

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Global Kyoto commitment..

R.FED &

UKRAINE

0%W&E EUROPE

-8%

CANADA

- 6%

US

- 7%

AUSTRALIA

+8%

JAPAN

-6%

38 countries facedreduction/limitationcommitments - overallreduction of 5.2% from1990 emission levels

U.S. has not ratified andare engaged in voluntarymarket andstate/regional-levelactivities at this time

Kyoto Parties also agreed to successive commitment periods (2013-2017and 2018-2022) but have not agreed on reduction targets

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Green House Gases..

Green house gases (GHGs) are gases that result in global warming

± Degree of warming caused by a specific GHG depends upon itsCO2 equivalence (CO2e)

6 GHGs are regulated under the Kyoto Protocol

± Carbon dioxide (CO2)

± Methane (CH4)

± Nitrous oxide (N2O)

± Hydro fluorocarbons (HFCs)

± Perfulourocarbons (PFCs)

± Sulphur Hexafluoride (SF6)

Above-mentioned six are key ones, that can be controlled by humanintervention with relative ease

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GWP for 6 gases are as below«

GHG GWP

1) Carbon dioxide - 1

2) Methane - 21

3) Nitrous oxide - 310

4) Hydrofluorcarbons - 140 ± 11,700

5) Perfluorcarbons - 6500 ± 9,200

6) Sulphur hexafluoride - 23,900

Global Warming Potential..

GWP is the global warming impact that a GHG would have over a 100-year timeframe«GWP is the global warming impact that a GHG wouldhave over a 100-year timeframe ± By definition, CO2 is used as thereference benchmark, with GWP of Carbon is 1«

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Developedcountries canreduce emissionsanywhere in the

world

They can countthese reductions

towards their owntargets

CDM allowsdeveloped countries

to generate µcarbon

credits¶ (Certified

Emission

Reductions, CERs)

in developingcountries

Advantages for developed

countries:

relatively low-cost &

politically acceptable

Advantages for developing

countries:inward investment,

environmental & technology

benefits

Role of CDM

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Carbon energy..

Use of renewables (e.g. hydro power)to supply electricity to the grid, to local

communities and to commercialfacilities

Use of biomass residues for energygeneration / cogeneration ± e.g.

bagasse from the sugar industry,coffee husks from the coffeeindustry«and marine algae

Applications of CDM«

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Animal waste

Sewage / wastewater

Landfill

Waste management..

Capturing the methane from animalwaste, human waste (sewage),agricultural waste (biomass) and urban

landfills

Can be combined with electricitygeneration to produce a second stream

of carbon credits

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Bio-carbon..

Forestry plantations ± e.g. restoration of

mangrove forests

Agro-forestry ± e.g. shade crops,

nitrogen capture in soils

Bio-fuels ± e.g. bio-ethanol frommolasses, bio-diesel from palm oil

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What are carbon credits ?

Carbon Credits are certificates earned by projects that reduce emissions of greenhouse gases.

A company has two ways to reduce emissions. One, it can reduce theGHG (greenhouse gases) by adopting new technology or improvingupon the existing technology to attain the new norms for emission of gases. Or it can tie up with developing nations and help them set upnew technology that is eco-friendly, thereby helping developingcountry or its companies 'earn' credits.

One tonne of carbon dioxide reduced through the Clean DevelopmentMechanism (CDM) project, when certified by a designated entity,becomes a tradable CER.

By 2007, when actual trading will start, the cost of a tonne of CER wasestimated to rise to $45, said officials in the ministry of environmentand forests.

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India, China and some other Asian countries have the advantage becausethey are developing countries. Any company, factories or farm owner in Indiacan get linked to United Nations Framework Convention on Climate Changeand 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 called carbon credit.

These credits are bought over by the companies of developed countries --mostly Europeans -- because the United States has not signed the KyotoProtocol.

Carbon Credits are a new source of revenue that are in addition to revenuefrom energy production. Carbon credits are earned as part of the ³CleanDevelopment Mechanism (CDM)´.

continued..

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Carbon credits are certificates issued to countries that reduce their GHG emissions.

Surplus credits result when a country overshoots its reductiontarget«

These can be traded, with countries facing a shortfall in target able to

buy and meet their targets

Carbon credit trading encourages emission reduction, providesfinancial incentives to those who do..

Carbon credits can be acquired through

± Clean development mechanism (CDM): Project-based emissionreduction activities in developing countries

± Joint implementation (JI): Two developed countries can invest inemission mitigation projects, generating ERUs

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International emission trading (IET): Credit deficient and credit surpluscountries (that have ratified the Kyoto Protocol) can trade carboncredits at specialised exchanges (European Climate Exchange,Chicago Climate Exchange, UK¶s CO2 Exchange) .

The concept involves buying carbon units, mainly in tons, through amiddle entity that aggregates contracts from many farmers who meetthe criteria of carbon sequestration through adoption of a range of conservation practices.

The carbon units are then sold to a buyer in the industrial sector needing to offset the CO2 generated to the atmosphere through their manufacturing activities. The process by which agriculture practicescan mitigate atmospheric CO2 include..

Continued«

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The buyers and the sellers«

Buyers« ± EU and Japan main buyers (apx >60%)

± Private and government

Of total purchased volumes, private entities accounted for 69%

Govt of Netherlands single largest buyer, accounted for more than 16

Sellers« ± Mainly HFC producing countries

± Asia and Latin America main sellers (45% & 35%, respectively)

± India, Brazil, and Chile together account for ~58%

± India as of now the largest producer of carbon credits«

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How Carbon is traded ?

Cap and Trade system«

- Set a cap on emissions

- Allocate credit allowances

-Monitor emissions during compliance period

- Surrender credit allowances at end of compliance period

- Fines/penalties if emissions > credits

Example of conversion«

-1 tonne of Methane =23 tonnes of CO2

-1 tonne Methane = 23 tonnes CO2e

-1 tonne of Nitrous oxide =296 tonnes of CO2

-1 tonne Nitrous oxide = 296 tonnes CO2e

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Carbon credits- Indian Scenario..

More than 112 Indian companies, including Hindustan Lever Ltd andTata Steel are set to trade in carbon credits. These companies areready with clean technologies to bring down the emission levels of greenhouse gases and sell certified emission reductions (CERs) todeveloped countries.

According to World Bank estimates, India is expected to rake in $100million annually by trading in carbon credits and Indian companiesare expected to corner at least 10 per cent of the global market in theinitial years.

India is the world's sixth largest emitter of carbon dioxide with its

present share in global emissions estimated at 6 per cent.

According to industry estimates, some Indian companies haveentered into forward contracts with buyers from the European Union.These contracts are estimated at $325 million.

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Indian companies involved«

Tata Steel Gujarat Flurochemicals Ltd

Bharat Heavy Electricals Ltd

Kalpataru Power Transmission Ltd

Jindal Vijaynagar Steel

Essar Power

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The buyers and the sellers«

Buyers« ± EU and Japan main buyers (apx >60%)

± Private and government

Of total purchased volumes, private entities accounted for 69%

Govt of Netherlands single largest buyer, accounted for more than 16

Sellers« ± Mainly HFC producing countries

± Asia and Latin America main sellers (45% & 35%, respectively)

± India, Brazil, and Chile together account for ~58%

± India as of now the largest producer of carbon credits«

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Conclusions..

Climate change is one of the most challenging environmental issues of the21st century and it is not going away.

Any climate change policy which is implemented in the futurewill likelyinclude provisions for cap-and-trade, emissions trading and off-setprograms such as the CDM.

After several years of negotiations CDM financing is now a reality andcurrently provides opportunities for renewable energy project finance.

American companies participate in the CDM process, despite the UnitedStates¶ opposition to the Kyoto Protocol, either by

operating within a capped country (such as Europe, Japan, or Canada) or within a CDM host country (such as China, India,Brazil, or other developing nations).

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CDM Project involves..

Under the CDM you can cut the deal for carbon credit. Under the

UNFCCC, charter any company from the developed world can tie upwith a company in the developing country that is a signatory to theKyoto Protocol. These companies in developing countries mustadopt newer technologies, emitting lesser gases, and save energy.

The CDM defines a process whereby environmental benefit indeveloping countries can be captured and commoditised ± i.e.turned into credits which can be sold to entities with compliancetargets

The CDM process is overseen by 2 UN bodies: the Meeting of theParties and the CDM Executive Board.

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Green House Gases..

Green house gases (GHGs) are gases that result in global warming

± Degree of warming caused by a specific GHG depends upon itsCO2 equivalence (CO2e)

6 GHGs are regulated under the Kyoto Protocol

± Carbon dioxide (CO2)

± Methane (CH4)

± Nitrous oxide (N2O)

± Hydro fluorocarbons (HFCs)

± Perfulourocarbons (PFCs)

± Sulphur Hexafluoride (SF6)

Above-mentioned six are key ones, that can be controlled by humanintervention with relative ease

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GWP for 6 gases are as below«

GHG GWP

1) Carbon dioxide - 1

2) Methane - 21

3) Nitrous oxide - 310

4) Hydrofluorcarbons - 140 ± 11,700

5) Perfluorcarbons - 6500 ± 9,200

6) Sulphur hexafluoride - 23,900

Global Warming Potential..

GWP is the global warming impact that a GHG would have over a 100-year timeframe«GWP is the global warming impact that a GHG wouldhave over a 100-year timeframe ± By definition, CO2 is used as thereference benchmark, with GWP of Carbon is 1«

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How Carbon is traded ?

Cap and Trade system«

- Set a cap on emissions

- Allocate credit allowances

-Monitor emissions during compliance period

- Surrender credit allowances at end of compliance period

- Fines/penalties if emissions > credits

Example of conversion«

-1 tonne of Methane =23 tonnes of CO2-1 tonne Methane = 23 tonnes CO2e

-1 tonne of Nitrous oxide =296 tonnes of CO2

-1 tonne Nitrous oxide = 296 tonnes CO2e

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Thank you«.. .

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Market prices for credits..

Approximate price range in US market (2007) $3.30/tonne CO2e to$4.05/tonne CO2e

-Approximate price range in EU market (2007) $22/tonne CO2e to$30.30/tonne CO2e

Why are prices different between EU and US?

- Demand and supply!

- No trading between the two markets

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How credits can be created ?

Many different ways..

- Each market has specific guidelines for constitutes a credit

Common projects«

1) Emissions reductions

-Less energy use, new industrial technologies

-Capture landfill gases

2) Terrestrial sequestration

-Carbon sequestration in soils-Carbon sequestration in forest biomass (trees)

3) Geologic Sequestration (carbon capture and storage)

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