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Carbon credi business

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  • 1. An Eco friendly business – Carbon Credits Carbon credits The concept of carbon credits came into force as part of an international agreement, known as Kyoto protocol which conveys a word "Carbon neutral". This word refers to balancing the amount of carbon dioxide you release with that amount that you can set off. Carbon credits is a way to help entities reduce their CO2 emission by offsetting them in more environmentally friendly way. It is basically a monetary value given by an organisation that can be bought and used to pay for carbon dioxide offsetting services that fund renewable energy research, development and other environmental practice. Carbon transactions are defined as purchase contracts / emission reductions purchase agreements (ERPAs). The entities who want to reduce their carbon emission ratio in environment can purchase carbon credits at prevailing market rate with other environmental organisations. These organisations have been approved to sell carbon credits and provide services to reduce CO2 emission. These services help pay for renewable energy sources like wind, solar and geothermal energy, bio fuels, energy efficiency technology, reforestation practices, low pollution ambition mechanism, waste energy development and organic farming projects. CO2 emission limits and trading rules are different country by country. Carbon credit is one commodity and like other commodity international price of carbon credit depends over demand and supply factors. Benefits of carbon trading Carbon credits trading is new international business gateway for developing countries to earn foreign currency by eco friendly way. By setting of carbon emission through carbon credits, we directly helping the environment and reducing carbon footprint. Some of major benefits of carbon trading are: Reduces CO2 emissions in environment, which helps to stabilise global CO2 levels and reduce terrible effects of global warming. Saves energy New projects provide employment opportunities. Insists research and development activities for low emission of CO2 in environment. Conserves natural resources, habitats and trends. Concept of Clean Development Mechanism (CDM) The word clean development mechanism was introduced in Kyoto Protocol. The joint green house gases mitigation project was introduced under Article 12 of Kyoto Protocol which enables Annex-I Countries are required to reduce GHG emission by average 5.2% relative to 1990 levels. These emission reductions must be achieved by 2008-12, this period called first commitment period. The worlds 39 developed countries with emission reduction targets are called Annex- I countries and whereas, those without targets are non Annex-I countries. The clean development mechanism is a project based financing mechanism, whereby eligible Annex-I parties may purchase carbon credits generated by projects hosted in developing non Annex-I countries. Article 17 of Kyoto An Eco friendly business – Carbon Credit Page 1 of 7
  • 2. Protocol provide an opportunity to Annex-I parties to reduce CO2 emission with help of non Annex-I parties where the project establishment cost are much low, this enables parties to make use of lower cost opportunities to reduce emissions. With help of carbon trading developing nations can enhance their social and economical developments. CDM Mechanism introduced with two eminent goals: To assist developing countries who host CDM project to achieve sustainable developments. To provide developed countries with flexibility for achieving their emission reduction targets by allowing them to take credits from emission reducing project undertaken in developing countries. Certified Emission Reductions (CERs) Certified Emission Reductions (CERs) are carbon credits generated by CDM projects which have completed the registration process with CDM Executive Board. Each CER are represents the abatement of one tonne of CO2 equivalent. CER are issued by CDM Executive Board once estimated abatement volumes have been validated independently, and a stringent verification process is in place for ongoing monitoring. CDM Executive Board (EB) The main functions of EB are, assess request for registration, review and approve new methodologies related to baseline and monitoring plan, accreditation of operational entities, develop recommendations on small scale methodologies and develop and maintain the CDM registry etc. The EB may constitute panels or working groups for smooth operations. Currently EB having five panels / working groups: Clean Development Mechanism Registration and Issuance Team Meth Panel Afforestation and reforestation working group Small scale working group Accreditation Panel Project Participant (PP) Every CDM projects involves a standard set of key participants (PP). While the range and types of stakeholders may vary from project to project. Governmental bodies, local authorities like municipalities, financial institutions, public and private companies, NGOs can develop and operate CDM projects. An investor is an entity that purchases CERs from a CDM project. The role of PP are develop the CDM project activity, implement/operate the CDM project and monitoring the CDM project activity Designated National Authority (DNA) As per the terms of Kyoto Protocol parties participating in CDM should designate a National Authority. The functions of DNS are validate CDM activities at the An Eco friendly business – Carbon Credit Page 2 of 7
  • 3. outset of the project, making publicly available CDM project design documents, receiving public comments on the CDM documents, incorporating stakeholder comments and verification and certification of CERs during the operation of the project etc. Accordingly the Government of India constituted the National Clean Development Mechanism Authority, the communication address of DNA India is: Designated National Authority (DNA) - India Member Secretary The National Clean Development Mechanism (CDM) Authority Ministry of Environment and Forests 115, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi, India Procedure for submitting CDM Project Reports to the National CDM Authority (Host Country Approval process) Project participants/ promoters are required to submit one soft copy of Project Concept Note (PCN) and Project Design Document (PDD) through online form and twenty hard copies of PCN & PDD along with two CDs containing all information to DNA. The project report should be properly bound and forwarded through covering letter duly signed by project participants / promoter. The National CDM Authority examines the documents and if there are any preliminary queries the same are asked from project participants/ promoters. Than project proposals are put up for consideration by the National CDM Authority. Project participants/ promoters and his consultants are given about 10 to 15 days previous notice to come the authority meeting and give brief power point presentation regarding their CDM project proposal. During the power point presentation members of authority may demand more clarification or information about project proposal. Once the members of authority are satisfied, the Host Country Approval is issued by the Member Secretary of the National CDM Authority. Designated Operational Entity (DOE) Designated Operational Entity (DOE) is an independent organization accredited by Executive Board to validate proposed CDM project, verify the resulting emission reductions, and certify those emission reductions as CERs. A DOE could be a private company such as auditing and accounting firm, consulting company, and law firm. The functions of DOE are: Validate proposed CDM project activities; Verifies emission reduction of a registered CMD project; Submit an annual activity report to the EB etc. An Eco friendly business – Carbon Credit Page 3 of 7
  • 4. Where is CDM Applicable Renewable Energy Wind Power Solar Energy Biomass Power Hydro Power Energy Efficiency measures Boilers related to Pumps Turbines Installation of variable speed drives Efficient cooling system Back pressure turbines etc. Waste Management Capturing of landfill methane emission to generate power. Utilization of waste and waste water emission for generation of energy for captive use power generation. Transportation IC Engine at Micro level Fuel switch from gasoline and diesel to natural gas. Model shift from air to train, road to train at micro level Replacement of shipment of certain raw materials through road to pipelines. Fuel Switching Fossil fuel to green fuel Forestry Afforestation project Power Sector New technologies that are efficient reduction in technical transmission and distribution losses. CDM Project Cycle CDM Project Cycle divided in to two parts, pre project implementation which is one time project and post project implementation process which is on going process until the validity of project. An Eco friendly business – Carbon Credit Page 4 of 7
  • 5. PRE PROJECT IMPLEMENTATION CYCLE One time process ⇓ Authority ⇒ Step -1 Project Idea Note (PIN)Preparation The first general information about Project Participant the project (PP) ⇒ Step -2 Project Design Preparation Document (PDD) Project Participant (PP) PDD containing following information General description of project activity Baseline methodology Crediting period Monitoring methodology and plan Calculation of GHG emission reductions by sources Environmental impacts Stakeholders comments ⇒ Step -3 Host Country Approval Designated National Authority (DNA) ⇒ Step -4 Project Validation Designated National Project developer hires a Designated Authority Operational Entity (DOE) for Project (DNA) Validation Required documents for validation Project Design Document PDD. Summary of comments by local stakeholders and how comments were collected. Documentation on the environmental impact assessment of the project. DNA’s Letter of Approval. ⇒ Step -5 Project Registration Executive Board (EB) The formal acceptance of the EB of a validated project as a CDM activity. An Eco friendly business – Carbon Credit Page 5 of 7
  • 6. POST PROJECT IMPLEMENTATION CYCLE Continues process Authority ⇒ Step -6 Project Monitoring Designated National Monitoring Plan(MP) must be Authority developed according to an approved (DOE) methodology by EB or new methodology. If MP is based on a new methodology, the methodology must be approved by EB. Project monitoring plan is part of the PDD. Monitoring involves collection & archiving of all relevant data during the crediting period. ⇒ Step -7 Project Verification and Certification Conducted by a DOE based on a Designated National Monitoring Report. Authority Verification is a periodic review of ex (DOE) post measurement of GHG emissions reductions in the project in the verified period. DOE will conduct on-site inspections. Make publically available the verification report. Issue a certification report which constitutes a request for issuance to the EB of CERs equal to verified reductions. ⇒ Step -8 Issuance of Carbon Credits Executive Board (EB) PP must choose a crediting period for the project from one of the following alternative approaches A maximum of seven years which may be renewed at most two times (maximum of 21 years); or A maximum of ten years with no option for renewal CDM Projects to date According to sources as on 31st March 2009, 1431 projects have been registered which reduce greenhouse gas emissions by an estimated 220 million ton CO2 equivalent per year. There are about 4,000 projects yet to be certified which would reduce CO2 emission by over 2.5 billion tons until the end of 2012. An Eco friendly business – Carbon Credit Page 6 of 7
  • 7. Key Players of Carbon Credits Bank of America The European Union Emission Trading Scheme (EU ETS) BP The Chicago Climate Exchange (CCX) The Multi-Commodity Exchange of India (MCX) An Eco friendly business – Carbon Credit Page 7 of 7

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