Term assigned to reduction or offset of greenhouse gas emissions.
Key component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs).
A permit that allows the holder to emit one tonne of carbon dioxide (CO2).
1 Carbon Credit = 1 tonne CO2 saved from the atmosphere
Credits are like certificates awarded to countries or groups that have reduced their green house gases below their emission quota
Projects that prevent the generation of greenhouse gases or remove greenhouse gases from the atmosphere earn these credits, which can in turn then be "sold" to other businesses and individuals to "offset" the emissions they generate.
Developed under the UNFCCC( United Nations Framework Convention on Climate Change (UNFCCC or FCCC), aimed at fighting global warming.
UNFCCC is an international environmental treaty with the goal of achieving "stabilization of GHGs .
Initially adopted on 11 December 1997 in Kyoto, Japan and entered into force on 16 February 2005
Goal was to see participants collectively reduce emissions of GHGs by 5.2% below the emission levels of 1990 by 2012.
If participants continue with emissions above the targets set by Kyoto Protocol, then they are required to engage in emissions trading; i.e. buying "credits" from other participant countries.
US and Australia have not signed the Kyoto Protocol.
In Copenhagen 2009 UNFCCC met to renew the Kyoto Protocol which runs out in 2012.
CDM Case Study PGPM 2010 ISME Bangalore Assume that BP is running a plant in the UK. Say, that it is emitting more gases than the accepted norms of the UNFCCC. It can tie up with its own subsidiary in, say, India or China under the CDM. It can buy the 'carbon credit' by making Indian or Chinese plant more eco-savvy with the help of technology transfer. It can tie up with any other company like Indian Oil , or anybody else, in the open market. Later an audit will be done of their efforts to reduce gases and their actual level of emission. China and India should ensure that new technologies for energy savings are adopted so that they become entitled for more carbon credits which they can sell to their counterparts in Europe. This is how a market for carbon credit is created. Every year European companies are required to meet certain norms, beginning 2008. By 2012, they will achieve the required standard of carbon emission. So, in the coming five years there will be a lot of carbon credit deals.
Carbon Credits in India - Facts PGPM 2010 ISME Bangalore
India signed the Kyoto protocol in August 2002
India is the second-largest seller of carbon credits globally with 489 registered CDM projects till date (24% of total projects registered under CDM globally).
By 2012 Indian companies are expected to generate at least US$ 8.5 billion
The average annual CERs from registered projects during July 2008 to February 2009 grew by 20.92%
India consistently ranked no.1 on CDM country ranking for the past year. Over 75% of India’s CDM potential lies in the energy sector.
Carbon Credits in India - Challenges PGPM 2010 ISME Bangalore
Even though India is the second largest generator of environment friendly projects for carbon emission reductions, Indian companies hesitate to generate monetary benefits through trade.
Indian domestic firms, including the public and private hold back over 90 percent of such credits, as they are timid about the uncertainties in the global carbon market.
Indian companies are holding on to their CERs because they feel they would fetch them better prices later.
The lack of interest in future contracts is also primarily due to the small size of most projects.
Since the carbon revenues from small projects are comparatively low, companies are not really depending upon that incentive to upgrade themselves.
Carbon Credits in India – MSW Management PGPM 2010 ISME Bangalore
According to CDM Board, the total CO2-equivalent emissions in India in 1990 was approximately 3% of global emissions.
Other than Industries and transportation, major sources of GHG’s emission in India:
Enteric fermentation from cattle and buffaloes
Municipal Solid Waste (MSW)
MSW can be treated and then converted into energy. This project can be executed using a Public-Private Partnership approach in which both the parties can invest and share the benefits.
Investment and operating cost is recovered through sale of CERs.
Carbon Credits in India - MSW Management PGPM 2010 ISME Bangalore
Gaining annual CER revenues for the country
Reduction in poverty by creating jobs for urban poor.
Better environmental quality.
Enhanced public awareness on Solid Waste Management and recycling.
Improvement in the quality of life of the city.
Efficient resource utilization
Considerable amount of power to the city.
Reduction in cost on Solid Waste Management by municipalities.
Foreign Direct Investment (FDI)
Reduction in emissions of GHG’s from dumping grounds which are responsible for Global Warming.
Environmental restrictions and activities have been imposed on businesses through regulation.
Kyoto mechanism is the only internationally agreed mechanism for regulating carbon credit activities. The Kyoto trading period only applies for five years between 2008 and 2012. There is general uncertainty as to what will be agreed in Post-Kyoto Protocol negotiations on greenhouse gas emissions. As business investment often operates over decades, this adds risk and uncertainty to their plans.
As several countries responsible for a large proportion of global emissions (notably USA, Australia, China) have avoided mandatory caps, this also means that businesses in capped countries may perceive themselves to be working at a competitive disadvantage against those in uncapped countries as they are now paying for their carbon costs directly.
There is no standard way of validating of CDM credits.
To get a CDM project approved it takes a lot of effort and time.