Carbon Trading


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This a presentation made for an economics class, hope you find it informative.

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Carbon Trading

  1. 1.
  2. 2. Structure<br /><ul><li>Kyoto Protocol
  3. 3. EU ETS
  4. 4. CCX
  5. 5. India
  6. 6. China
  7. 7. African Countries</li></li></ul><li>
  8. 8. Global Warming<br />
  9. 9.
  10. 10. UNFCC<br />
  11. 11. UNFCCcont..<br />Annex I Countries<br /> >>Industrialized Nations<br /> >>agree to reduce their emissions below the 1990 levels<br /> >>Examples: Australia, USA, United Kingdom, Germany, Canada, France<br /> In all 40 countries<br />Developing Countries<br /> >> not expected to de-carbonize their economy unless developed countries supply enough funds and technology<br /> >> May volunteer to become Annex I countries when they are sufficiently developed<br />Some opponents of the Convention argue that the split between Annex I and developing countries is unfair, and that both developing countries and developed countries need to reduce their emissions unilaterally.<br />
  12. 12.
  13. 13. What is Emissions Trading ?<br />Standard Definition:<br />Emissions trading (or emission trading) is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. It is sometimes called cap and trade.<br />Overall Goal<br />“To Reduce Emissions”<br />The cap is usually lowered over time - aiming towards a national emissions reduction target.<br />
  14. 14. What is Emission Trading?<br />How Does Emission Trading Work?<br />Both have 10% Reduction Commitments<br />& Same GHG Emission Levels<br />More Affordable<br />Reduces 15%<br />Less Affordable<br />Reduces 5%<br />Pays for the Reduced Emissions<br />
  15. 15. Cap & Trade Mechanism<br />
  16. 16. Economics Of Emissions Trading<br />
  17. 17.
  18. 18. What is Carbon Trading?<br />Carbon emissions trading<br /> is emissions trading specifically for carbon dioxide (calculated in tones of carbon dioxide equivalent or tCO2e) and currently makes up the bulk of emissions trading.<br />The financial instrument used for this trade is called Carbon Offset/ Carbon Credit which is equivalent to one metric tone of CO2-equivalent<br />
  19. 19. Allowance Based Markets<br />Allowance Based Transactions<br />The buyer purchases emission allowances created and allocated (or auctioned) by regulators under cap-and-trade regimes<br />
  20. 20. Projects Based Markets<br />Projects Based Transactions<br />The buyer purchases emission credits from a project that can verifiably demonstrate GHG emission reductions compared with what would have happened otherwise.<br />
  21. 21. Carbon Footprints v/s Carbon Credits<br />CARBON <br />CREDITS<br />CARBON <br />FOOTPRINTS<br /><ul><li>Carbon offsets is the total emissions whereas credits/offsets is the total reduction in emissions.
  22. 22. Offsets are bought to compensate for footprints</li></li></ul><li>Who is Buying?<br />Who is Buying?<br />European private buyers interested in the EU ETS<br />North American companies with voluntary but legally binding compliance objectives in the Chicago Climate Exchange (CCX).<br />Government buyers interested in Kyoto compliance<br />Japanese companies with voluntary commitments under the Keidanren Voluntary Action Plan<br />U.S. multinationals operating in Japan and Europe<br />power retailers and large consumers regulated by the New South Wales (NSW) market in Australia<br />
  23. 23. Country wise Distribution<br />
  24. 24. Who is Buying?<br />Who is Selling?<br />
  25. 25. Who is Selling?<br />Asian Dominance<br />
  26. 26.
  27. 27. EU ETS<br />
  28. 28. CCX<br />
  29. 29. NSW<br />
  30. 30. Kyoto Protocol<br />
  31. 31. Kyoto Protocol<br />The parties at UNFCC agreed to these terms :<br /><ul><li>Share of GHG emissions
  32. 32. Originated in Developed Nations
  33. 33. Developing countries still relatively low
  34. 34. Will grow to meet their social and developmental needs</li></ul>even without the commitment to reduce according to the Kyoto target, developing countries do share the common responsibility that all countries have in reducing emissions<br />
  35. 35. Kyoto’s ‘Flexible Mechanisms’<br />Emissions<br />Trading<br />Joint <br />Implementation<br />Clean<br />Development<br />Mechanism<br />
  36. 36. Joint Implementation<br />While the cost of limiting emissions varies considerably from region to region, the benefit for the atmosphere is in principle the same, wherever the action is taken.<br />
  37. 37. What is CDM?<br />The Clean Development Mechanism (CDM) is a cooperative mechanism that allows emission reduction projects that assist in creating sustainable development in developing countries to generate “certified emission reductions” for use by the investor.<br /><ul><li> The ‘’investor’’ is generally an Annex I country, where emission reduction is costlier and investing in a developing nation proves to be a better alternative
  38. 38. The developing Countries generate CERs( Certified Emission Reductions, also known as Carbon Credits) for the use of the ‘’investor’’</li></li></ul><li>Importance & Benefits of CDM<br />The CDM aims to assist developing countries in achieving sustainable development by promoting environmentally friendly investment from industrialized country governments and businesses.<br />SOCIAL<br />Benefits<br />ECONOMIC<br />Benefits<br />ENVIRONMENTAL<br />Benefits<br />
  39. 39.
  40. 40. India<br />Market Share 12%, second position<br />India holds a total of 179 out of 550 registered CDM projects at UNFCC<br />But the total share in CERs is one-tenth of China<br /><ul><li> Small size of current projects(70 per cent deliver 50 MtCO2e per annum)
  41. 41. Efforts to increase participation of banks and Financial Intermediaries
  42. 42. difficult negotiations, High price expectations from the seller’s side</li></li></ul><li>China’s Influence<br />China’s Influence<br />China commands significant clout in CER Pricing on account of being the largest supplier of Emission Reductions.<br />Set a minimum floor price<br />Used as a benchmark for trading<br />Slightly more for Floating Price<br />Slightly less for New Markets<br />
  43. 43. The Bias<br />The Bias – Vicious Cycle<br />
  44. 44. African Countries<br />Upshot: the countries most threatened by climate change are left on the sidelines of what could become an important stream of revenue dedicated to meeting the challenges of global warming.<br /><ul><li>sub-Saharan Africa accounts for only one percent of projects and 0.2 percent of total registered credits through 2012
  45. 45. Out of the 40 countries ratified only 4 have shown registered projects</li></ul>Worst Sufferer (climate change) :<br /><ul><li>30 per cent coastal area will be lost by 2080
  46. 46. 40 per cent specie’s habitats will be altogether destroyed
  47. 47. Arable land-serious decrease-causing food shortages, hunger and malnutrition
  48. 48. Rainfall would decline by 10 per cent by 2050</li></li></ul><li>
  49. 49. Observations<br />Observations<br />