MEANING Carbon credits are a key components of national and international emissions trading that have been implemented to mitigate global warming. A generic term to the attempt to mitigate the growth in concentrations of GHG
Climate change Rapid Industrial Growth Increased Energy Consumption Increased CO2 and other GHG Emissions Global Warming due to Increased Concentration of GHG Increased changes in wind Changes in Sea Level and Precipitation crop yields
Contributors to CO2!
CARBON CREDIT 1 CARBON CREDIT ≈ 1 ton of CO2 or its equivalent greenhouse gas (GHG) which is an entitled certificate by UNFCCC (United Nations Framework Convention on Climate Change)
How buying carbon credits can reduce emissions? Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets.
What is Kyoto Protocol? The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change(UNFCCC) passed on 11 December 1997 in Kyoto, Japan but came in force on 16 February, 2005. Countries that ratify this protocol commit to reduce (a) their emissions of carbon dioxide and (b) five other greenhouse gases, or (c)engage in emissions trading if they maintain or increase emissions of these gases.
Features of Kyoto protocol It sets legally binding targets for emissions of 6 major greenhouse gases in industrialised countries and defines a specific time period for reaching those targets. It creates a new commodity (carbon) that can be traded through new international market-based mechanisms. It will facilitate the initials of sustainable development while providing additional support to developing nations to achieve this goal.
United Nations FrameworkConvention on Climate Change
Act signed by 165 nations in 1992 at Rio de Janeiro, presently 194 countries.
Annex 1 & Non-Annex 1 countries.
Annex 1 (developed countries) agreed to reduce their GHGs by 5.2% below 1990 levels in 1st commitment period 2008 – 2012.
Mechanisms Under the Protocol Clean Development Mechanism (CDM): This mechanism allows developed (or Annex 1) nations to receive emission credits towards their own emission targets by participating in certain projects in developing (or Non-annex 1) countries. These Clean Development projects must be approved by members of the Protocol and must contribute to sustainable development and greenhouse gas emission reductions in the host developing country.
Cont.……. Joint Implementation: This mechanism allows Annex 1 nations to receive emission credits towards their own emission targets by participating in certain projects with other Annex 1 nations. These Joint Implementation projects must be approved by all nations participating in the project, and must either reduce greenhouse gas emissions or contribute to enhanced greenhouse gas removal through emission sinks (i.e. reforestation).
Cont.……. Emissions Trading: This mechanism allows Annex 1 nations to purchase emission ‘credits’ from other Annex 1 countries. Some countries will be below the emission targets assigned to them under the Protocol and, as such, will have spare emission credits. Under the emissions trading system, other nations may purchase these spare credits and use them towards their own emission targets.
Exchanges Traded In Chicago Climate Exchange. European Climate Exchange Nord Pool Power Next European Energy Exchange
17 KYOTO Protocol Annex I Non-Annex I Not ratified
Non -Annex-1 India Bangladesh Brazil China Afghanistan Algeria Nepal Argentina Bolivia Srilanka Pakistan Malaysia Mauritius Annex I Australia(Not ratified) Austria Belgium Monaco Canada Netherland New zealand United Kingdom Germany Spain Switzerland Greece
INDIAN SCENARIO INDIAN SCENARIO
Conditions In INDIA
No fixed norms of emission reduction by government.
India – Non Annex I country, has a large scope in emissions trading.
India and China together contribute to $5 billion of the global carbon trade estimated at $30billion.
One of the leading generators of CERs (Certified Emission Reductions) through CDM (Clean Development Mechanism).
India has also bagged the world’s largest carbon credit project which will prevent 40 million tones of carbon entering the atmosphere annually.
Estimates are - one third of the total CDM projects registered with UNFCCC are from India
India claims 31% of the total world carbon credit trade.
Carbon Trading In India Multi Commodity Exchange (MCX) has launched futures trading in carbon credits in India with the help of Chicago Climate Exchange in 2005. Asia’s first commodity exchange trading in carbon. India has already generated over 72 million units of carbon credits and is expected to touch 246 million units by 2012.