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SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                      VAIBHAV GODSE, MBA OI...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                       VAIBHAV GODSE, MBA O...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                        VAIBHAV GODSE, MBA ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                         VAIBHAV GODSE, MBA...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                        VAIBHAV GODSE, MBA ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                    VAIBHAV GODSE, MBA OIL ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                    VAIBHAV GODSE, MBA OIL ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                    VAIBHAV GODSE, MBA OIL ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                    VAIBHAV GODSE, MBA OIL ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                             VAIBHAV GODSE,...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY AN INDIAN PERSPECTIVE                                            ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                       VAIBHAV GODSE, MBA O...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                    VAIBHAV GODSE, MBA OIL ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                                           ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY AN INDIAN PERSPECTIVE                                            ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                                        VAI...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                                           ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                                           ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                                           ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                                           ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY AN INDIAN PERSPECTIVE                                            ...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                     VAIBHAV GODSE, MBA OIL...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                         VAIBHAV GODSE, MBA...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                          VAIBHAV GODSE, MB...
SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE                           VAIBHAV GODSE, M...
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
Carbon trading report
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Carbon trading report

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  1. 1. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE 1
  2. 2. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 SUSTAINABILITY OF CARBON TRADING IN ADEVELOPING ECONOMY- AN INDIAN PERSPECTIVEDissertation submitted to College of Management & Economic Studies for the partial fulfillment of the degree of MBA (Oil and Gas Management) Guided by: Dr. Tarun Dhingra Assistant Professor College of Management & Economic Studies University of Petroleum & Energy Studies Dehradun – 248 006 Submitted by: Vaibhav Godse Enrollment No: R020209074 SAP ID: 500006887 College of Management and Economic Studies University of Petroleum and Energy Studies, Dehradun, Uttarakhand, India April, 2011 2
  3. 3. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 CertificateThis is to certify that dissertation report on “Sustainability of Carbon Trading in aDeveloping Economy – An Indian perspective.” completed and submitted to UPES,Dehradun by “Vaibhav Godse” in partial fulfillment of the requirements for the award ofdegree of Masters of Business Administration (Oil and Gas Management), is a bonafidework carried out by him under my supervision and guidance.To the best of my knowledge and belief the work has been based on investigation made,data collected and analyzed by him and this work has not been submitted anywhere elsefor any other university or institution for award of any degree or diploma.Dr. Tarun DhingraAssistant ProfessorCollege of Management and Economics StudiesUniversity of Petroleum and Energy Studies 3
  4. 4. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 ACKNOWLEDGMENTFirst of all, it is my profound privilege and pleasure to express the overwhelming sense ofgratitude and regards to project guide Dr. Tarun Dhingra for his expert guidance,valuable suggestions and continuous encouragement throughout this project work.Without his advice, guidance and blessings it would have been impossible to achieve theobjective. Vaibhav Godse 4
  5. 5. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 DECLARATIONI Vaibhav Godse hereby declares that the project work entitled “Sustainability of carbontrading in a developing economy- An Indian perspective” is a bona fide work done byme under the guidance and supervision of Dr. Tarun Dhingra. The work has not formedpart of any earlier studies or the award of degree/ diploma/ fellowship.Place: Dehradun, UttaranchalDate: 25th April 2011 Signature of the Student. 5
  6. 6. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011TABLE OF CONTENTS PAGESI.NO. TOPIC NO. LIST OF TABLES LIST OF GRAPHS1 EXECUTIVE SUMMARY 10-12 INTRODUCTION EMISSION OVERVIEW2 13-19 CARBON TRADING- INTRODUCTION3 LITERATURE REVIEW 20-22 RESEARCH METHODOLOGY NEED FOR RESEARCH PROBLEM STATEMENT4 RESEARCH FLOW 23-31 ANALYTICAL MODELS HYPOTHESIS STATISTICAL TECHNIQUES DATA ANALYSIS AND INTERPRETATION PRICE COMPARISON SCENARIO ANALYSIS CO2 EMISSION PER CAPITA VS. GDP PER CAPITA5 CO2 EMISSION PER CAPITA VS. ELECTRIC POWER CONSUMPTION PER 32-56 CAPITA CO2 EMISSION PER CAPITA VS. FOSSIL FUEL CONSUMPTION CAPTURING THE FUTURE SCENARIO DEMAND SUPPLY CENTERS 6
  7. 7. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 SECTORAL CDM PROJECTS IN INDIA AND OPPORTUNIES IN6 57-67 OIL AND GAS SECTOR7 MARKET RISKS 68-708 LIMITATIONS OF THE RESEARCH 719 CONCLUSION 72-7510 REFERENCES 76-70 7
  8. 8. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011LIST OF TABLESSI NO. PARTICULARS PAGE NO.1 CORRELATION FOR PRICE 342 SCENARIO SUMMARY 353 CORRELATION FOR CO2 EMISSION VS. GDP 40,414 CORRELATION FOR CO2 EMISSION VS. POWER 44,45 CONSUMPTION5 CORRELATION FOR CO2 EMISSION VS. FOSSIL FUEL 48,49 CONSUMPTION6 FORECAST FOR TRANSACTION OF CARBON CREDITS 527 REGISTERED CDM PROJECTS IN OIL AND GAS INDUSTRY 65-67 8
  9. 9. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011LIST OF GRAPHSSI PARTICULARS PAGENO. NO.1 GHG EMISSION ESTIMATE FOR INDIA 152 SCATTER PLOT BETWEEN CER PRICE VS. CRUDE OIL AND 33 NATURAL GAS3 PRICE COMPARISON BETWEEN ENERGY COMMODITIES 364 SCATTER PLOT BETWEEN CO2 EMISSION VS. GDP 38,395 SCATTER PLOT BETWEEN CO2 EMISSION VS. ELECTRIC 42 POWER CONSUMPTION6 SCATTER PLOT BETWEEN CO2 EMISSION VS. FOSSIL FUEL 46,47 ENERGY CONSUMPTION7 FORECASTED VOLUME OF CER TRANSACTED VOLUME 51 AND PRICE8 PERCENTAGE SHARE OF BUYER COUNTRIES 539 PERCENTAGE SHARE OF SELLER COUNTRIES 5510 PERCENTAGE SHARE OF CDM PROJECTS IN VARIOUS 56 SECTORS 9
  10. 10. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 EXECUTIVE SUMMARY 10
  11. 11. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011EXECUTIVE SUMMARYCarbon is a fundamental element of the earth, the fossil fuel discovery by man hasunleashed the energy of carbon which has proved bone and bane for the mankind. In therecent years there has been a rise in one problem that is global warming and much istalked about the same, but very little is done to curb it. Carbon trading is one of the stepstowards mitigating the effects of global warming and moving towards green economy bydeveloped and developing economies. Greenhouse gas (GHG) emissions are invisibleand odorless. Although the impacts of climate variability and the ability to adapt varywidely, the global warming impact of these gases on the atmosphere is equal irrespectiveof where they are emitted. This indifference from an environmental perspective to wherethe greenhouse gas is emitted — or reduced — is the key insight that lends itself well to aglobal management system.The focus of this report is on the sustainability of carbon trading in a developingeconomy and its growth. The research work is restricted to project based transactions(CDM), that too taking the case of India only. This report consists of market scenario ofcarbon trading in developing economies, future projections of project based transactions,and various demand and supply centers. Further various economic indicators are used tocorrelate with CO2 emission both for the World and India in order to determine theinfluential factors in an economy which would indirectly or indirectly drive the carbonmarkets. The economic indicators used for the same are Gross Domestic Product (GDP)per capita, electric power consumption per capita, and fossil fuel consumption. Therelationships obtained between carbon dioxide emissions and above mentioned economicindicators showed positive correlation and hence, increase in any one of the indicatorwhether GDP, Power consumption or Fossil fuel consumption would result in increase incarbon dioxide emissions. Since growth in economy and increase in energy consumptionhas shown a related increase in CO2 emission. This means that, for any developing orgrowing economy the hindrance in growth is the energy consumption, which wouldfurther add to global warming. In order to strike a balance between the economic growth 11
  12. 12. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011and green economy, Indian economy should move aggressively towards cleandevelopment mechanism (CDM).The most driving force for any commodity business is its market price and same is thecase with carbon trading. As the carbon markets have grown across the globe so as theprice per certified emission reduction (CER). The markets are growing complex withaddition of derivative trading and thus markets are becoming more and more pricesensitive and speculation driven. In this research study a price comparison betweencarbon prices with other energy commodity such as crude oil and natural gas has beendone. The result showed the positive correlation between carbon credit price and crudeoil and natural gas. The variation in crude oil and natural gas would influence carbonprices and thus carbon market would follow the same pattern as that of crude oil andnatural gas markets.The sustainability of any business lies in its future growth or future scenario. A forecastof project based transactions is calculated based on previous nine year data both in valueand volume traded. The forecast for next six years (2011 to 2016) showed a stable patternof the project based transactions. The market potential of the same in future would behovering between 5229.18 million US$ to 6478.61 million US$ and the volume of carbontraded would be around 387.92 to 468.33 million tons for project based transactions.For any trade to begin the two utmost entities required are seller and the buyer. The mostdominant demand and supply centers for the year 2001 to 2009 along with theirpercentage share over the period is mentioned. India has been second largest seller ofcarbon credits under project based transactions and holds an average of 16 percent shareover the period 2002 to 2009. Whereas, India’s the Asian counterpart China has thelargest share and Brazil being the third largest supplier of credits under the samemechanism. 12
  13. 13. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 INTRODUCTION 13
  14. 14. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011BACKGROUNDEMISSION OVERVIEWIndia is the world’s fourth largest economy and fifth largest greenhouse gas (GHG)emitter, accounting for about 5% of global emissions. India’s emissions increased to 65%between 1990 and 2005 and are projected to grow another 70% by 2020. By othermeasures, India’s emissions are low compared to those of other major economies. Indiaaccounts for only 2% of cumulative energy-related emissions since 1850. On a per capitabasis, India’s emissions are 70% below the world average and 93% below those of theUnited States.India remains home to the world’s largest number of poor people, with nearly 35% livingon less than a dollar a day. Its economy is growing rapidly, however, with GDP risingabout 8% a year over the past five years. As the economy has grown, emissions intensity(GHGs per unit of GDP) has declined significantly. India’s GHG intensity is currently20% lower than the world average (and 15% and 40% lower than the United States’ andChina’s, respectively). Factors contributing to the decline in energy intensity includeimproved energy efficiency, increased use of renewable and nuclear power, expandedpublic transport, and energy pricing reform. The government projects energy demandgrowth of 5.2% a year for the next 25 years, driven by annual GDP growth rates of 8-10%. The coal accounts for 39% of total primary energy demand, followed by biomassand waste (29%), oil (25%) and natural gas (5%). The high proportion of biomass andwaste reflects the fact that some 500 million people have no access to electricity or othermodern energy services. Coal is projected to remain the primary energy source, withdemand growing nearly three-fold by 2030.India is a party to both the UN Framework Convention on Climate Change and the KyotoProtocol. As a non-Annex I (developing) country, India has no binding emission limits 14
  15. 15. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011under the Protocol. However, India is an active participant in the Clean DevelopmentMechanism (CDM) established by the Protocol. (The CDM grants marketable emissioncredits for verified reductions in developing countries. Developed countries buying thesecredits can apply them toward their Kyoto targets.) India has more than 500 registeredCDM projects, more than any other country, and about a third of all projects globally (Interms of the overall volume of CDM reductions, China ranks first with 51% followed byIndia at 14%). The largest project categories are biomass and wind power. Most projectsin India are undertaken on a unilateral basis— developed independently by localstakeholders without the direct involvement of Annex I countries.GHG Emission Estimates for India:Source: IEA 15
  16. 16. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011CARBON TRADING- AN INTRODUCTIONCarbon Credits Trading or Emission Trading refers to trading in Greenhouse gasemission certificates within the legal framework. It is a market-based scheme forenvironmental improvement that allows parties to buy and sell permits for emissions orcredits for reductions. Emissions trading allow established emission goals to be met in themost cost-effective way by letting the market determine the lowest-cost pollutionabatement opportunities.Under such schemes, the environmental regulator first determines the total acceptableemissions and then divides this total into tradable units (often referred to as credits orpermits).These units are then allocated to scheme participants with dual purpose while allowingthe flexibility to meet their emission targets according to their own strategy. Participants who emit pollutants must obtain sufficient tradable units to compensate for their emissions. Participants who reduce emissions may have surplus units that they can sell to others, who find emission reduction more expensive or difficult.Carbon TransactionsThese are defined as purchase and sale of contracts. These transactions can be groupedinto two main categories namely, Allowance based transactions and Project basedtransactions. Greenhouse gas emissions are capped and then markets are used to allocatethe emissions among the group of regulated sources. The goal is to allow marketmechanisms to drive industrial and commercial processes in the direction of lowemissions or less carbon intensive approaches than those used when there is no cost toemitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation 16
  17. 17. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011projects generate credits, this approach can be used to finance carbon reductionschemes between trading partners and around the world.There are also many companies that sell carbon credits to commercial and individualcustomers who are interested in lowering their carbon footprint on a voluntary basis.These carbon off setters purchase the credits from an investment fund or a carbondevelopment company that has aggregated the credits from individual projectsThere are three basic types of emissions trading programmes these are as follows: ‘capand trade’, ‘baseline and credit’ and ‘offset’.Source: Carbon Credits Trading-Young and Emerging Market by Tata ConsultancyServices 17
  18. 18. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011Carbon Trading Market in India:There is a new financial sector called carbon market waiting to take India by storm.Carbon is now a financial commodity, according to Karan Capoor, senior financialspecialist, World Bank. Carbon is now priced and business managers take the carbonprice into consideration along with other factors while making business decisions. Indiacorners almost 16 per cent share of this market. India is a party to the United Nationsframework on Convention on Climate Change. It acceded to Kyoto Protocol in August2002 and one of the objectives of acceding was to fulfiII pre-requisites forimplementation of Clean Development Mechanism (CDM) projects, in accordance withthe national sustainable priorities, where a developed country would take up greenhousegas reduction project activities in developing countries and where the cost of greenhousegas reduction projects are much lower. The Indian carbon market has the potential tosupply 30-50 per cent of the global market by 2012.Future of Indias Climate Change Policy:After the Copenhagen summit on climate change in 2009, India has come up along withChina with many initiatives which both countries are working upon. Although both thecountries have not accepted any reduction targets but voluntarily set targets for carbonemission reduction. India has proposed 25 percent decline in its carbon dioxide emissionby 2030 while China has proposed 40 percent reduction in its carbon intensity by 2020.Presently, a variety of approaches are being implemented to reduce carbon emissions.These range from efforts by individuals and firms to reduce their climate footprints toinitiatives at city, state, regional and global levels. Among these are the commitments ofgovernments to reduce emissions through the 1992 United Nations FrameworkConvention on Climate Change (UNFCCC) and its 1997 Kyoto Protocol.Under the Kyoto Protocol, emission caps were set for each Annex-I countries, amountingin total to an average reduction of 5.2% below the aggregate emission level in 1990. Each 18
  19. 19. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011country has a predetermined target of emission reduction as compared to 1990 level. Noemission cap is imposed on Non – Annex I countries. However, to encourage theparticipation of Non-Annex I in emission reduction process a mechanism known as CleanDevelopment Mechanism (CDM) has been provided. The carbon markets are a prominentpart of the response to climate change and have an opportunity to demonstrate that theycan be a credible and central tool for future climate mitigation. The outcome was theKyoto Protocol, in which the developed nations agreed to limit their greenhouse gasemissions, relative to the levels emitted in 1990 or pay a price to those that do. At thispoint comes the carbon trading. 19
  20. 20. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 LITERATURE REVIEW 20
  21. 21. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011LITERATURE REVIEWThe world community faces a major test of its resolve in tackling the realities of climatechange. While the Kyoto Protocol has provided a valuable platform for policy andinternational cooperation, it has failed in its aim to apply downward pressure onemissions. In fact, with emissions increasing, the world requires a fundamentaltechnology revolution in energy production, distribution and usage. Till date manyresearch papers, journals, articles etc. have been published regarding the carbon tradingmechanism, some of these papers highlighted the benefits and some highlighted the loopholes in the mechanism. The research works done earlier mainly focuses on financialrisk, political play, involved in carbon trading the flaws related in registering the CDMprojects, the issues and delays associated with the same. Some articles even highlightedthe policy issues and political intervention of developed nations. Studies were also basedon describing whether carbon trading could be replaced by any other mechanism or not.Almost all the studies were more or the sort of qualitative rather than quantitative.Carbon Trading- How it works and why it fails- Discusses on the issue how the pollutingcompanies are awarded and has caused social and environmental injustice.Carbon market and financial risks- This paper highlights how the trading schemes withdifferent rules would instead encourage a “race to the bottom,” with capital migratingtowards those with the weakest environmental protections and the loosest caps. It willonly enrich "Wall Street" banks while posing new systemic financial risks.Carbon productivity challenge- Curbing climate change and sustaining economic growth-Discusses concept of carbon productivity- amount of GDP produced per unit of carbonequivalent emitted. Increasing carbon productivity can tackle the challenge of mitigatingclimate change and maintaining economic growth 21
  22. 22. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011Speculating on carbon, the next toxic asset- Developed countries claiming for thecreation of carbon derivatives, the market would enable big financial institutions to drivecarbon prices up and down, confusing and distorting the market, just as Wall Streetspeculators did with food and energy prices in 2007 and 2008.India’s climate change policy and carbon trading market- This report focuses on India’sparticipation in carbon trading. India can gain in terms of transfer of technology andenjoy foreign investments in its clean development mechanisms (CDM) projects.Carbon credit trading- Young and emerging market- Describes about carbon tradingmechanism, how it is an administrative approach used mainly to control pollution byproviding economic incentives for achieving reduction in emissions. This market basedinstrument encourages the transition to a more sustainable economy.The clean development mechanism- user guide- Discuses CDM mechanisms and variousissues related to it such as the -common but differentiated responsibilities, whether CDMshifts the economic burden of emission reductions from those who are responsible –industrialized countries – to the developing countries.Carbon 2010- Return of sovereign- The increased complexities is certainly making aglobal climate deal more difficult, Carbon trading is a part of an international strategicgame between major countries and involve issues of trade, energy and outright powerpolitics. There is a general dissatisfaction among the nations about Copenhagen outcome.The fool’s gold of carbon trading- Clearly describes that carbon trading does not solvethe emission problem, policies driven by politicians. The emerging carbon marketscapable of making a significant dent in the world’s surging carbon emissions. 22
  23. 23. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 RESEARCH METHODOLOGY 23
  24. 24. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011NEED FOR RESEARCHCarbon credits and carbon markets are a component of national and international attemptsto mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon creditis equal to one ton of carbon dioxide, or in some markets, carbon dioxide equivalentgases.There is a lot of skepticism associated with carbon emissions both in developed anddeveloping economies, which directly impacts its growth in future. Whether this newtrading mechanism will continue or crash. Carbon trading sustainability depends onvarious economic, regulatory and marketing factors, whether the CDM mechanismapproach for India and developing economies will be continued or any other mechanismsuch as carbon tax would be adopted. The main purpose of carbon trading is to reduce thegreen house gas emission by adopting cleaner methods either through transfer oftechnology or by using renewable sources of energy across various industries. Thismethod of GHG abatement should be effective in the sense of turning the high carbonemission into low carbon emission economy. Since sustainability of this business lie in itsultimate goal of reducing GHG emission, now to check whether any economy is headingtowards lowering its emission without affecting overall economic growth is an issue.There is a lot of demand for carbon credits from Europe, Japan, and Canada which wouldbenefit the development of CDM projects in India. But at the same time the increase indemand and supply are directly linked to carbon productivity (ratio of GDP to emissions),carbon intensity, price per certified emission reduction, power consumption, fossil fuelconsumption, U.S participation (U.S withdrawal weakened the market for CDM, sinceU.S constitute for about 40% of the total Kyoto market for emission reduction),regulatory policies, developing of trading instruments and issuance of CERs (durationand quantity). The entire study is focused on the sustainability of carbon trading in Indiaand developing economies, its market indicators, demand and supply centers, futuretransactions, price variation based on other energy commodities and forecasting thefuture project based transactions. 24
  25. 25. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011PROBLEM STATEMENTSustainability of Carbon Trading in a developing economy- An Indian perspective.To study the carbon trading mechanism in India and to investigate the sustainability ofcarbon trading in a developing economy. Understanding the perspective of carbon trading in terms of Indian industry, whether it is sustainable or not. Economic factors which are related to carbon trading mechanism. To study the market trends and forecasting the future project based transactions. Price comparison with energy commodities (crude oil and natural gas price). Market potential in India, scope in oil and gas industry, trading mechanisms and risk involved. 25
  26. 26. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY AN INDIAN PERSPECTIVE ECONOMY- VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011RESEARCH FLOWAt first exploratory research work was conducted through secondary data, whichinvolved collecting the data from articles, journals, white papers, news updates,presentations, reports, government publications and statistical sites. This was followed by andconclusive research design, which involved formulation and testing of hypothesis. Withinconclusive, causal research was carried out for finding the cause and effect of variouseconomic indicators, price of energy commodities, time (years) on carbon trading. Thefollowing flow diagram provides the insight of area covered in order to justify theobjective and for collecting the secondary data. Research work flow Market share in project Factors related to carbon based transactions of Forecasting trading-Quantitative Factors Sectoral CDM various participating countries CO 2emission traded Vs GDP Demand and supply centers- Time series forecasting gowth rate (World and India) Indicating the percentage Indicating various sectoral technique- moving avaerage CO2 emission/capita vs share of buyers and sellers projects involved in CDM and exponential smoothening gdp/capita over 8-9 years period CO2 emission/capita vs Future project based electric energy consumption CDM projects in Indian Oil transactions in value and /capita and gas industry volume Future Price of CER and its CO2 emission/capita vs trend. Fossil fuel energy consumption( % of total) Price comparison of carbon credit with crude oil and natural gas 26
  27. 27. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011ANALYTICAL MODELSPrice of certified emission reduction vs. crude oil and natural gas price:A comparison between carbon price and energy commodities like crude oil and naturalgas is being done in order determine whether any relation exists or not. Both correlationand regression analysis is done in order to understand the trend of carbon prices.A scenario analysis is done for determining the price of carbon credits depending uponthe price variation of crude oil and natural gas. The current values are the prices of crudeoil, natural gas and CER price during October 2010. A total of four scenarios were beingtaken in order to know the price of carbon credits under various circumstances.Carbon dioxide emission vs. Gross domestic product (GDP): Carbon productivityCarbon productivity refers to level of gross domestic product (GDP) output per unit ofCO2 emitted. Improvements in emissions productivity and reductions in energyconsumption can serve as complementary indicators of progress to emissions reductions.This is particularly true for firms that are experiencing rapid growth, when emissionsreductions are simply not compatible with the organization’s mission. Ultimate goal ofcarbon trading is to move the industrial world towards low carbon economy by bringingabout technological changes. To measure whether an economy is moving towards greeneconomy or not could be measure by the level of GHG emission in relation with growthof an economy. 27
  28. 28. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011Carbon dioxide emission vs. Electric power consumption:The primary factors that alter CO2 emissions from electricity generation from year to yearare the growth in demand for electricity, the type of fuels or energy sources used forgeneration, and the thermal efficiencies of the power plants. The fuel or energy sourceused to generate electricity is the most significant factor affecting the year-to-yearchanges in CO2 emissions. CDM projects can play an important role in India for rulingout the challenges of providing sufficient power up to the remote areas and reducing theCO2 emissions can be taken up by replacing coal and fossil fuels by renewable energysource.Carbon dioxide emission vs. Fossil fuel consumption:The percentage of fossil fuel consumption in total energy basket for world and India hasbeen related with CO2 emission level for the period 1997 to 2007. The fossil fuelsinvolved are coal, crude oil and natural gas. The correlation and regression analysisprovide the information that CO2 emission for the world and India is due to the fossil fuelconsumption and as the years advanced the fossil fuel consumption has increased. Inorder to reduce the emission the country needs to increase the efficient use of energy andby using effective technology in various refinery processes, chemical industries,manufacturing industries etc. so that the release of flue gases and GHG emissions wouldreduce significantly even if the fossil fuel consumption increases.Ultimate goal of carbon trading is to move the industrial world towards low carboneconomy by bringing about technological changes. To measure whether an economy ismoving towards green economy or not could be measure by the level of GHG emission inrelation with growth of an economy, electric power consumption and fossil fuelconsumption. Since sustainability of carbon trading dependents on whether, this newconcept of trading is able to mitigate the effect GHG emission or not, to check the same a 28
  29. 29. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011relationship between CO2 emission with GDP, electric power consumption and fossil fuelconsumption is drawn.Time series forecasting technique:The strength of any business lies in its future trend, how the business will grow whetherhave an upward trend or downward or reach maturity or remain constant. 29
  30. 30. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011HYPOTHESISNull hypothesis: Price variation of crude oil and natural gas does not have significanteffect on variation in carbon credit price.Alternate hypothesis: Carbon credit price is not entirely dependent on crude oil andnatural gas prices.Null hypothesis: GDP per capita of an economy does not have significant effect on CO2emission of that particular economy.Alternate hypothesis: CO2 emission per capita is not entirely dependent on GDP percapita of an economy.Null hypothesis: Electric power consumption per capita does not have significant effecton CO2 emission per capita.Alternate hypothesis: CO2 emission per capita is not entirely dependent on electricpower consumption per capita.Null hypothesis: Fossil fuel consumption does not have significant effect on CO2emission per capita.Alternate hypothesis: CO2 emission per capita is not entirely dependent on fossil fuelconsumption. 30
  31. 31. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011STATISTICAL TECHNIQUES Time series forecasting technique is to be used for analyzing the future scenario of carbon trading markets. Correlation and regression tools are to be used for analyzing the statistical data. Bars and pie charts showing the carbon market trends. 31
  32. 32. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 DATA ANALYSIS AND INTERPRETATION 32
  33. 33. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011PRICE COMPARISONA comparison between carbon price and energy commodities like crude oil and naturalgas is being done in order determine whether any relation exists or not. Both correlationand regression analysis is done in order to understand the trend of carbon prices.The correlation between CER prices and crude oil price was 0.66 and whereas betweenCER prices and natural gas price came out to be 0.78. The result relates that carbon creditprice has positive correlation between crude oil and natural gas price. Therefore whencrude price increases, 66% of times CER price also increases, similarly when natural gasprice increases, 78% of times CER price also increases. 120 9 WTO crude spot price ($/barrel) Natural gas price ($/ 000cubic 100 8 7 80 6 5 feet) 60 4 40 3 2 20 1 0 0 0 10 20 0 10 20 CER spot price ($/CER) CER spot price ($/CER)Plot between crude oil and carbon Plot between natural gas andcarbon price carbon priceThe regression analysis was done where CER price was dependent variable andindependent variables were crude oil and natural gas prices. The coefficient ofdeterminant thus obtained was 0.723, which means 72.3% variation in CER prices can beexplained by crude oil and natural gas prices. 33
  34. 34. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011Correlation result: CER Spot price WTO world spot Natural Gas($/000 cubic in $ price($/barrel) feet)CER Spot price in $ 1WTO world spot 0.660056034 1price($/barrel)Natural Gas($/000 cubic 0.78660666 0.477316492 1feet)Regression result: The regression line is Y (CER price) = 2.914+ 0.0404 Crude price+ 0.958 LNG price. R2 is 0.723 which shows that 72.3% variation in average CER price is explained by crude oil and natural gas prices. Standard error of slope coefficients of crude oil price and natural gas price are 0.013 and 0.191 respectively. For 24 degrees of freedom, t-value at 5% significance level is 2.064. Thus for 95 out of 100 cases the value for coefficient of crude oil price will lie between 0.0127 to 0.068. Also, for 95 out of 100 times the value for coefficient of natural gas price will lie between 0.56 to 1.35. The value of t-statistics at 5% significant level for intercept, two independent variables, crude oil and natural gas are 3.15, 3.01 and 5.00 respectively. The F- statistics is 31.42, which is greater than the critical value, thus the overall model is highly significant. Regression result: (CER price) Y = 2.914+ 0.0404 Crude price+ 0.958 LNG price Se = (0.92) (0.013) (0.191) T = (3.15) (3.018) (5.0) R2 = 0.723, adjusted R2 = 0.70, F = 31.42, d.f = 24 34
  35. 35. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011SCENARIO ANALYSIS: For Carbon credit priceA scenario analysis is done for determining the price of carbon credits depending uponthe price variation of crude oil and natural gas. The current values are the prices of crudeoil, natural gas and CER price during October 2010. A total of four scenarios were beingtaken in order to know the price of carbon credits under various circumstances.Scenario Summary Current Values(oct- Scenario A Scenario B Scenario C Scenario D 2010):Changing Cells: Crude_price 79.35 39 114 39 114 LNG_price 3.5 2.5 8.21 8.21 2.5Result Cells: CER_price 9.48049 6.89185 15.394885 12.364885 9.92185Notes: Current Values column represents values of changing cells attime scenario Summary Report was created. The Scenario A relates to determining the CER price at lowest level of crude oil and natural gas price during the period August 2008 to October 2010. The Scenario B relates to determining the CER price at highest level of crude oil and natural gas price during the period August 2008 to October 2010. The Scenario C relates to determining the CER price at lowest level of crude oil and highest level of natural gas price during the period August 2008 to October 2010. The Scenario D relates to determining the CER price at highest level of crude oil and lowest level of natural gas price during the period August 2008 to October 2010. Overall price of CER according to these four scenarios varied between 6.89 US$/tCO2 to 15.39 US$/tCO2. 35
  36. 36. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY AN INDIAN PERSPECTIVE ECONOMY- VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 WTO world spot price($/barrel) CER Spot price in $ Liquified Natural Gas($/000 cubic feet) 120 16 14 100 12 80 10 60 8 6 40 4 20 2 0 0 nov nov nov june june Jan-09 aug Jan-10 aug april april oct oct oct sep may sep may sep july july Aug-08 dec dec dec feb march feb marchPrice comparison between energy commoditiesThe above graph shows the comparison between price of carbon with crude oil andnatural gas.It is seen that carbon prices almost follow the similar pattern as that of crude oil andnatural gas. The world markets were hit by recession in late 2007, there by affecting thecrude oil prices which raised to about 100 $/barrel in 2008, similarly carbon pricesmoved up to 15 $/tCO2e. However in early 2009 the prices fell dramatically as the fellconsumption of energy commodities were lowered due to declining industrial demand,the carbon prices were also decreased because of decrease in demand of certifiedemission reduction (CER) by developed economies. Thus prices of carbo credits are carbonvolatile in nature and depend upon their demand and supply. CERs as all othercommodity are subject to economic shocks that will ultimately affect their price. Thereare instruments available in market which provides desirable level of protec protection against 36
  37. 37. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011market risks, but at the same time these instruments make this business sensitive andspeculation driven. The average price of CERs ranged between US$ 9 to US$ 11 during2008-2010. Further in future if the carbon prices are high to moderate and gas prices aremoderate to low this would help Indian power generation units to shift from coal based togas based, thereby reducing the GHG emission in air and moving towards low carboneconomy. Moreover in Indian energy basket coal and oil has 52% and 32% sharerespectively, hence there is an ample opportunities for CO2 reduction through so-called fuelswitching. 37
  38. 38. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011CO2 EMISSION/ CAPITA AND GROSS DOMESTIC PRODUCT/CAPITA: CARBON PRODUCTIVITY For World: 4.8 4.7 CO2 emission (metric 4.6 tonnes/capita) 4.5 4.4 4.3 4.2 4.1 4 3.9 0 5000 10000 GDP per capita Scatter plot between CO2 emission and GDP for World.A relationship between CO2 emission and GDP is determined; the scatter plot shows asignificant relation between the two quantities. The correlation between the quantities forthe world and India is 0.966 and 0.979 respectively. The correlation between CO2emission and GDP per capita is highly positive that is both the parameters are positivelycorrelated. The above result indicates that, 1% increase in GDP per capita will lead to0.96% increase in CO2 emission for world and 0.97% increase in CO2 emission for India.The only difference in the world and Indian data is the steepness of slope of the twoscatter plots for the period 1997 to 2007. For the world, the small increase in GDP forshorter period would lead to higher increase in carbon emission. Further, comparing thepercentage growth in CO2 emission and GDP during the period 1997 – 2007 for world is10.9% and 63.27% respectively and for India it is 30% and 157.27% respectively. This 38
  39. 39. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011clearly shows that in order to have sustainable growth the entire world has to movetowards green technologies in order to strike a balance between growth and emission.As for India, the correlation is 0.97, but the slope in less inclined since this is due to thefact that during 2000 to 2007 India has moved significantly towards mitigating the carbonemission by adopting and implementing clean development mechanism (CDM) acrossvarious sectors. Further it can be inferred that Indian industrial growth could be high dueto increasing non manufacturing or service industries like information technology (IT),which obviously does not involve any GHG emissions.For India: 1.6 1.4 CO2 emission metric 1.2 tonnes/capita 1 0.8 0.6 0.4 0.2 0 0 500 1000 1500 GDP/capitaScatter plot between CO2 emission and GDP for IndiaIn terms of CO2/GDP, India has continuously improved the efficiency of its economy andreduced the CO2 emissions per unit of GDP by 21% between 1990 and 2008. India aimsto further reduce emissions intensity of GDP by 20-25% by 2020 compared with the 2005level. 39
  40. 40. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011For world:Correlation result: GDP per capita (in CO2 emission(metric tons/ capita) US$)GDP per capita (in US$) 1CO2 emission(metric tons/ capita) 0.96685797 1Regression result: The regression line is Y (CO2 emission) = 3.121+ 0.0001 GDP. R2 is 0.93 which shows that 93% variation in CO2 emission is explained by GDP. For 9 degrees of freedom, t-value at 5% significance level is 2.262. Thus for 95 out of 100 cases the value for coefficient of GDP will lie between 0.00015 to 0.0002. The values of t-statistics at 5% significant level for intercept, independent variable, GDP are 30.33 and 11.36 respectively. The F- statistics is 129, which is greater than the critical value, thus the overall model is highly significant. Regression result: (CO2 emission) Y = 3.121+ 0.0001 GDP Se = (0.102) (0.0000166) T-stat = (30.33) (11.36) R2 = 0.934, adjusted R2 = 0.927, F = 129, d.f =9 40
  41. 41. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011For India:Correlation result: GDP/capita (US$) CO2 emission metric tons/ capitaGDP/capita (US$) 1CO2 emission metric tons/ capita 0.979495695 1Regression result: The regression line is Y (CO2 emission) = 0.945+ 0.00048 GDP. R2 is 0.959 which shows that 95.9% variation in CO2 emission is explained by GDP. For 9 degrees of freedom, t-value at 5% significance level is 2.262. Thus for 95 out of 100 cases the value for coefficient of GDP will lie between 0.00041 to 0.00056. The values of t-statistics at 5% significant level for intercept, independent variable, GDP are 44.4 and 14.58 respectively. The F- statistics is 212, which is greater than the critical value, thus the overall model is highly significant. Regression result: (CO2 emission) Y = 0.945+ 0.00048 GDP Se = (0.021) (0.000033) T-stat = (44.4) (14.58) R2 = 0.959, adjusted R2 = 0.957, F = 212, d.f =9 41
  42. 42. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011CO2 EMISSION PER CAPITA AND POWER CONSUMPTIONFor World: 4.7 4.6 CO2 emission (metric 4.5 tonnes/capita) 4.4 4.3 4.2 4.1 4 3.9 0 500 1000 1500 2000 2500 3000 Electric power consumption ( kwh/capita)Scatter plot between CO2 emission and electric power consumption for World.For India: 1.6 CO2 emission in metric tonnes/ 1.4 1.2 1 capita 0.8 0.6 0.4 0.2 0 0 100 200 300 400 500 600 Electric power consumption in Kwh/ capitaScatter plot between CO2 emission and electric power consumption for India.The correlation between CO2 emission and power consumption for world is 0.93 and forIndia it is 0.97. The scatter plot clearly shows that there is a high positive correlationbetween the two quantities. Both the plots for India and world clearly shows that as the 42
  43. 43. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011consumption of electricity is increasing year on year the emission is also increasing, thisreflects that still most of the power generating units in the world are fossil fuel fed,specially coal fed.The primary factors that alter CO2 emissions from electricity generation from year toyear are the growth in demand for electricity, the type of fuels or energy sources used forgeneration, and the thermal efficiencies of the power plants. 43
  44. 44. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011For world:Correlation result: Electric power CO2 emission(metric tons/ consumption(Kwh/capita) capita)Electric power 1consumption(Kwh/capita)CO2 emission(metric tons/ 0.931383645 1capita)Regression result: The regression line is Y (CO2 emission) = 1.57+ 0.00108 electric power consumption. R2 is 0.86 which shows that 86% variation in CO2 emission is explained by electric power consumption. For 9 degrees of freedom, t-value at 5% significance level is 2.262. Thus for 95 out of 100 cases the value for coefficient of power consumption will lie between 0.00076 to 0.00139. The values of t-statistics at 5% significant level for intercept, independent variable, power consumption are 4.48 and 7.67 respectively. The F- statistics is 58.9, which is greater than the critical value, thus the overall model is highly significant. Regression result: (CO2 emission) Y = 1.57+ 0.00108 electric power consumption Se = (0.352) (0.00014) T-stat = (4.48) (7.67) R2 = 0.86, adjusted R2 = 0.85, F = 58.9, d.f =9 44
  45. 45. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011For India:Correlation result: Electric power CO2 emission metric tons/ consumption(Kwh/Capita) capitaElectric power 1consumption(Kwh/Capita)CO2 emission (metric tons/ 0.979673946 1capita)Regression result: The regression line is Y (CO2 emission) = 0.349+ 0.002 electric power consumption. R2 is 0.959 which shows that 95.9% variation in CO2 emission is explained by electric power consumption. For 9 degrees of freedom, t-value at 5% significance level is 2.262. Thus for 95 out of 100 cases the value for coefficient of power consumption will lie between 0.0017 to 0.0023. The values of t-statistics at 5% significant level for intercept, independent variable, power consumption are 5.71 and 14.65 respectively. The F- statistics is 124, which is greater than the critical value, thus the overall model is highly significant. Regression result: (CO2 emission) Y = 0.349+ 0.002 electric power consumption Se = (0.061) (0.00013) T-stat = (5.71) (14.65) R2 = 0.959, adjusted R2 = 0.955, F = 214, d.f =9 45
  46. 46. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011CO2 EMISSION PER CAPITA AND FOSSIL FUEL CONSUMPTIONFor world: 4.7 CO2 emission (metric tonnes/capita) 4.6 4.5 4.4 4.3 4.2 4.1 4 3.9 79.5 80 80.5 81 81.5 Fossil fuel energy consumption (% of total)Scatter plot between CO2 emission and fossil fuel energy consumption for World.The correlation between CO2 emission and fossil fuel consumption is 0.95. The sign ofcoefficient of correlation is positive which shows that both the variables will move insame direction. The value indicated that when Fossil fuel consumption increases, 95% oftime the CO2 emission also increases. 46
  47. 47. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011For India: 1.6 CO2 emission (metric tonnes/ capita) 1.4 1.2 1 0.8 0.6 0.4 0.2 0 62 64 66 68 70 72 Fossil Fuel Energy Consumption in %Scatter plot between CO2 emission and fossil fuel energy consumption for India.The correlation between CO2 emission and fossil fuel consumption is 0.95. The sign ofcoefficient of correlation is positive which shows that both the variables will move insame direction. The value indicated that when Fossil fuel consumption increases, 95% oftime the CO2 emission also increases. 47
  48. 48. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011For world:Correlation result: fossil fuel energy CO2 emission(metric tons/ consumption(% of total) capita)fossil fuel energy 1consumption(% of total)CO2 emission(metric tons/ 0.952589756 1capita)Regression result: The regression line is Y (CO2 emission) = -30.34+ 0.43 fossil fuel consumption. R2 is 0.90 which shows that 90% variation in CO2 emission is explained by fossil fuel consumption. For 9 degrees of freedom, t-value at 5% significance level is 2.262. Thus for 95 out of 100 cases the value for coefficient of fossil fuel consumption will lie between 0.32 to 0.53. The values of t-statistics at 5% significant level for intercept and fossil fuel consumption are -8.2 and 9.3 respectively. The F- statistics is 88, which is greater than the critical value, thus the overall model is highly significant. Regression result: (CO2 emission) Y = -30.34+ 0.43 fossil fuel consumption Se = (3.68) (0.04) T-stat = (-8.2) (9.3) R2 = 0.90, adjusted R2 = 0.89, F = 88, d.f =9 48
  49. 49. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011For India:Correlation result: Fossil fuel energy CO2 emission (metric tons/ consumption(% of total) capita)Fossil fuel energy 1consumption(% of total)CO2 emission (metric tons/ 0.953175508 1capita)Regression result: The regression line is Y (CO2 emission) = -1.95+ 0.048 fossil fuel consumption. R2 is 0.90 which shows that 90% variation in CO2 emission is explained by fossil fuel consumption. For 9 degrees of freedom, t-value at 5% significance level is 2.262. Thus for 95 out of 100 cases the value for coefficient of fossil fuel consumption will lie between 0.036 to 0.059. The values of t-statistics at 5% significant level for intercept and fossil fuel consumption are -5.7 and 9.4 respectively. The F- statistics is 89.4, which is greater than the critical value, thus the overall model is highly significant. Regression result: (CO2 emission) Y = -1.95 + 0.048 fossil fuel consumption Se = (0.33) (0.005) T-stat = (-5.7) (9.4) R2 = 0.90, adjusted R2 = 0.89, F = 89.4, d.f =9 49
  50. 50. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011CAPTURING THE FUTURE SCENARIOThe strength of any business lies in its future trend, how the business will grow whetherhave an upward trend or downward or reach maturity or remain constant. The projectbased market has shown a tremendous rise from mere 13 million tons of CO2e transactedin 2001 to approx. 283 million tons of CO2e transacted in 2009. The future projections ofproject based transactions from 2010 to 2016 shows a stable and constant trade involume. The volume of CO2e transacted would be hovering around 406 to 468 milliontones to CO2e and the value would be around US$ 5500 million to US$ 6470 million ofproject based transaction during the year 2011 and 2016. The growth potential in thefuture based on CDM projects depends on the demand for CER’s from Annex 1countries.The graphs shows a steeping growth during 2004 to 2007, during this period the demandfor CER in developed nations were very high in order to meet their emissioncommitments, also markets were new and were developing rapidly across variouscontinents. The market for project-based emission reductions weakened considerably inthe second half of 2008 under the weight of the financial downturn and due to thelingering questions about the rules of post-2012 eligibility.During the year 2008 to 2009 the fall in CER transaction continued due to recession. TheCDM markets started regaining during 2009 and 2010, and thus in future there seems asteady and constant growth. 50
  51. 51. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY AN INDIAN PERSPECTIVE ECONOMY- VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011Graph showing the past and forecasted volume of CO2e transacted in million tons howingfor years 2001 to 2016 700 Volume of CO2e Transacted in Million 600 500 400 tones 300 Volume in 200 Million Tones CO2e(Y) traded 100 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 YearSource: World Bank 18 Annaul avg price in US$/tCO2e 16 14 12 10 Annaul average 8 price in US$/tCO2e (Y) 6 4 2 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 YearSource: BlueNext ExchangeGraph showing the past and forecasted annual average price in US$ per tones CO2etransacted for years 2001 to 2016. 51
  52. 52. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011As far as price of certified emission reduction is considered a similar pattern is seen asthat of volume transacted. The projected average price of CER would be around 13 to 14US$/tCO2e in the upcoming years 2011 to 2016. The primary CER prices in 2008 werean average of 16% higher at US$16, the value of transactions decreased by 12% from2007 levels to US$6.5 billion. The 2008 average price reflects higher prices paid prior tothe financial meltdown, compared to much lower prices in the handful of transactions inthe remainder of 2008.Table showing the volume and value of CO2e transacted in past and projected forthe future.Year Volume in Million Annual average Value Transacted Tones CO2e(Y) price in in US$ million traded US$/tCO2e (Y) 2001 13 3.8 49.4 2002 29 4 116 2003 55 4.8 264 2004 65 3.2 208 2005 382 7 2674 2006 611 10 6110 2007 636 13 8268 2008 486 16 7776 2009 283 12.5 3537.5 2010 468.333333 13.83333333 6478.611105 2011 412.4444444 14.11111111 5820.049382 2012 387.9259259 13.48148148 5229.816186 2013 422.9012346 13.80864198 5839.691741 2014 407.7572016 13.80041152 5627.217182 2015 406.1947874 13.69684499 5563.587039 2016 412.2844079 13.76863283 5676.592634Source: State and trend of Carbon markets- World BankNote: The transactions include both CDM and JI 52
  53. 53. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011DEMAND AND SUPPLY CENTERSBUYERSBuyers are governments, public-private partnerships like the Prototype Carbon Fund(PCF), and increasingly private companies, especially from Japan. Private sector actingalone now represents more than 40% of all the volume of emission reductions purchasedin developing countries. The demand will vary based on the rate of corporate growth,actual output, efficiency measures undertaken as well as weather patterns and fuel prices. 100% 90% PCF Australia & New Zealand 80% Canada 70% USA 60% Other & UNSP 50% Italy 40% Other Europe 30% Japan 20% Netherlands Europe-Baltic 10% Spain 0% U.K 2002 2003 2004 2005 2006 2007 2008 2009Source: Carbon FinanceGraph showing the percentage share of major buyer countries of carbon credits(includes CDM & JI)The major buyers of carbon credits through CDM and JI for the years 2002 to 2009 wereUnited Kingdom (U.K), Spain, Europe Baltic, Netherlands, Japan, Italy, U.S.A, Canada,Australia and New Zealand. Among these the consistent buyers were U.K, Spain, Japan,Netherlands and other European countries. 53
  54. 54. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011The major buyer countries which had more than 10% market share over the period 2002to 2009 were U.K, Japan, Europe Baltic and Netherlands. For the years 2009, 2008, 2007,and 2006 the U.K showed aggressive buying of carbon credits with market shareaveraging to 46%. Also for the years 2002 to 2009 Japan had an averaging buying shareof 23%.In 2002 Carbon Market report showed Netherland, Japan, PCF and Canada had strongbuying pattern with more than 10% share each. Japan completely dominated the marketfor project-based transactions in 2005 with buying share of 46%. Buyers from Japancontinued to be dominant by originating large trading houses. Almost all Japanesecontracts signed were with the private sector.Within Europe, Italy (11%) and Spain (5%) sharply increased their purchasing in 2004,while the share of the Netherlands ─ one of the earliest buyers in the market and thebiggest European buyer in 2004 ─ declined and the same trend was followed in 2005with share of 8% in both the consecutive years. Within Europe, buyers from the BalticSea Group (including Finland, Sweden, Norway, Germany, Denmark and Iceland) alsomade significant purchases. The private sector clearly emerged in 2005 as the dominantbuyers in the project-based market with over 80% of the volume transacted. Towards theend of 2005 and in early 2006, nearly all European project-based transactions had aprivate buyer.In 2007, buyers continued to show strong interest in the CDM and JI, and this wassupported by higher flows of capital into the carbon market. While transacted volumesgrew slightly to 636 MtCO2e for finalized primary project-based transactions. Thedynamics of the project-based market changed in early 2008 and the total transaction wasdropped to 485MtCO2e, as buyers became more cautious in response to a combination ofmounting delivery and issuance challenges, higher perceived credit risks amid thegenerally bearish sentiment in the financial markets, as well as continuing uncertaintyabout the role of and demand for CDM and JI in the post-2012 climate regime(s). 54
  55. 55. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011SELLERS 100% 90% Australia & Newzealand 80% USA & Canada 70% OECD 60% Rest of Latin America 50% Brazil 40% Others 30% Africa 20% Rest of Asia 10% India China 0% 2003 2004 2005 2006 2007 2008 2009Source: Carbon FinanceGraph showing the percentage share of major seller countries of carbon credits(includes CDM & JI)In early years (mostly 1996 to 2000), the majority of project-based transactions tookplace in industrialized countries, i.e., both buyers and sellers were located inindustrialized countries. A majority of reductions came from projects in Latin Americabut, in 2003, Asia joined the list of major sellers specially India with share of around50%. In particular, about 10 agreements for project activities were signed in India andonly one project in China, which has become a major player from 2005.In 2006, China dominated the CDM market on the supply side with a 61% market shareof volumes transacted, down slightly from 71% in 2005. Next was India at 12%,recovering from 3% in 2005. Asia as a whole led with an 80% market share. LatinAmerica – an early pioneer of the market – accounted for 10% of CDM transactionsoverall with Brazil alone at 4%. The share of Africa remained constant, at about 3%. 55
  56. 56. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011China had with an 84% market share in 2008, in the primary CDM market. Over theperiod 2003-08, China accounted for 66% of all contracted CDM supply in the market.With 4% and 3% market share each, India and Brazil rank second and third, respectively,on the list of sellers in terms of volumes transacted. On a cumulative basis, Brazilaccounted for about 8% of primary CERs contracted cumulatively over 2002-2008. India,on the other hand, accounts for 9% of CERs contracted cumulatively over 2002-2008.The total value of the primary CDM market in 2009 fell to US$2.7 billion, 59% less thanthe US$6.5 billion transacted in 2008. Africa and Central Asia doubled their marketshares in 2009 to 7% (15 million tons) and 5% (10 million tons), respectively. Chinaremained the most viable large-scale seller, maintaining its overall dominance with a72% share of the market. However, China’s market share did decline from 2008.India is still the second biggest carbon credits supplier after China in the market. Indianaverage carbon market share over the period 2003 to 2009 has been around 16% to 17%. 56
  57. 57. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011SECTORIAL CDM PROJECTS IN INDIA AND OPPORTUNITIES IN OIL AND GAS SECTOR 57
  58. 58. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011INDIAN SECTORIAL CDM PROJECTSTill date 506 projects have been registered by the CDM executive board, which accountfor about 20% of all the registered projects (as of 1 June 2010). In the initial stage ofCDM development in India, biomass utilization projects, waste gas/heat utilizationprojects, and renewable energy (wind, hydro) projects were mainly being implemented.Other than those projects, India has various types of registered CDM projects that includeenergy efficiency (cement, steel and etc.), fuel switch, HFC reduction, N2Odecomposition, afforestation and reforestation, and transportation. The following piechart shows percentage share of the CDM projects in various sectors.Source: IGES CDM Project databaseType of projects, which are being applied for CDM and which can be of valuablepotential, are:Energy efficiency projects Increasing building efficiency (Concept of Green Building/LEED Rating), eg. Technopolis Building Kolkata 58
  59. 59. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 Increasing commercial/industrial energy efficiency (Renovation & Modernization of old power plants) Fuel switching from more carbon intensive fuels to less carbon intensive fuels; and also includes re-powering, upgrading instrumentation, controls, and/or equipmentTransport Improvements in vehicle fuel efficiency by the introduction of new technologies Changes in vehicles and/or fuel type, for example, switch to electric cars or fuel cell vehicles (CNG/Bio fuels) Switch of transport mode, e.g. changing to less carbon intensive means of transport like trains (Metro in Delhi); and Reducing the frequency of the transport activityMethane recovery Animal waste methane recovery & utilization Installing an anaerobic digester & utilizing methane to produce energy Coal mine methane recovery Collection & utilization of fugitive methane from coal mining; Capture of biogas Landfill methane recovery and utilization Capture & utilization of fugitive gas from gas pipelines; Methane collection and utilization from sewage/industrial waste treatment facilities 59
  60. 60. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011Industrial process changes Any industrial process change resulting in the reduction of any category greenhouse gas emissionsCogeneration Use of waste heat from electric generation, such as exhaust from gas turbines, for industrial purposes or heating (e.g. Distillery-Molasses/ bagasse)Agricultural sector Energy efficiency improvements or switching to less carbon intensive energy sources for water pumps (irrigation). Methane reductions in rice cultivation. Reducing animal waste or using produced animal waste for energy generation (see also under methane recovery) and any other changes in an agricultural practices resulting in reduction of any category of greenhouse gas emissions. 60
  61. 61. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011OIL AND GAS SECTORThe O&G sector encompasses a wide variety of operations, ranging from the discoveryand production of O&G, to the delivery of products to consumers. In the scope ofupstream and downstream operations, O&G companies emit two primary types of GHGemissions: carbon dioxide and methane. The general scope of applicable emissionsources for companies in the O&G sector that have the potential for CDM/JI projects are: Combustion in flares and incinerators Physical or chemical process emissions such as from gas processing, oil refining, and petrochemical manufacture. Fugitive losses from equipment leaks (e.g. gas pipeline transmission, valves) Production of steam heat or electricity Production of work by engines and turbines (e.g. drive pumps/compressors)The principal aqueous waste streams resulting from exploration and production operationare: Produced water Drilling fluids, cuttings and well treatment chemicals Process wash and domestic wastes Cooling water Spills and leakageAlthough considerable emission reduction opportunities exist in the sector, in general theO&G sector has been relatively slow to implement projects under the CDM and JIMechanisms in their operations. Recently this mind-set has shifted as O&G companieshave come to realize the significant financial benefits of reducing GHG emissions. Theperiod of political uncertainty over the Kyoto Protocol and its instruments is over, and 61
  62. 62. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011early risk-takers in the carbon market have gained large financial rewards from investingin emissions reduction projects. The CDM has become a well established internationalfinancing mechanism creating billions of dollars in future carbon revenues, andleveraging billions more in investments in renewable energy and other sectors. Thecurrent status of the new carbon market presents excellent funding opportunities forcompanies to develop projects in the O&G sector.GHG abatement projects in upstream oil and gas sector:Installation of Gas Recovery Facilities to prevent emission of methane/CO2 to theatmosphere: Installation of compressors to recover low pressure (LP) gas and compress the same for further distribution Installation of ejector systems which uses the motive force to suck LP gases which were previously flared Installation of separators to separate gas at various pressures and recover very low pressure gas that was previously flared Up-gradation of process gas compressors (PGC) Optimal utilization of gas for internal consumption in gas lift wells/ gas re- injection Laying pipelines from gas rich areas to areas where there is scarcity of gas but greater demand (by identifying potential consumers).Common Grid of Power at Offshore: A common grid of power is setup by achieving interconnectivity across various process and well platforms. 62
  63. 63. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011 This interconnectivity can be achieved by laying submarine cables and transferring surplus power (NG based) to the shore for sale. The project replaces more carbon intensive power source (DG based) to relatively cleaner (NG based) power.Recovering Vapors from Storage Tanks: Recovery and utilization of vapors, previously being vented out from oil storage tanks, using ejector system.Carbon Capture & Storage (CCS): Capture of CO2 from large stationary sources, transportation of the gas to an appropriate injection site where it is pumped and stored into underground geological formations such as natural gas and oil fields. Storage may also be combined with Enhanced Oil Recovery (EOR) or Enhanced Gas Recovery (EGR).GHG abatement projects in downstream oil and gas sector:Energy efficiency Improvement measures in the existing system- Steam generation anddistribution system up-gradation: Enhanced heat utilization through installation of centralized flash steam recovery system to recover steam condensate Flash steam utilization in vapor absorption chiller to produce refrigeration effect Better steam trap management to reduce heat loss Improvement in the cogeneration/ self generation efficiency 63
  64. 64. SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011Steam optimization by installation of Dry-ejector system instead of steam-jet ejector inVDU: In Dry-ejector system vacuum gas oil is used as motive liquid and circulated in the system. This reduces generation of LP steam which is required as motive fluid in conventional steam-jet ejector.Other potential areas in refinery units where CDM may be applicable:Flare recovery system: utilization to cater to heat demand of refinery utilization in boilers/ Gas TurbineFuel switch projects: Fuel switching in furnace, heater etc Fuel switch in the thermal energy generation system/ cogeneration/ self generation equipmentsOptimization in H2 recovery from off gases from CRU, VGO hydro-treater etcApplication of Advanced Processes: Use of new generation catalysts which reduces coke deposition on the catalyst Application of energy-efficient Solvent De-asphalting technology instead of energy-intensive Cracking/Coking technology Novel bio-catalytic processes with very low energy consumption Application of membrane separation technology instead of conventional separation techniques H2 generation in the refinery through natural gas reforming instead of naphtha reforming 64

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