Department of Chemistry
Our earth is undoubtedly warming. This warming is
largely the result of emissions of carbon dioxide and
other Greenhouse Gases (GHG’s) from human
activities including industrial processes, fossil fuel
combustion, and changes in land use, such as
deforestation etc. Addressing climate change is not a
simple task. To protect ourselves, our economy, and
our land from the adverse effects of climate change,
we must reduce emissions of carbon dioxide and other
greenhouse gases. To achieve this goal the concept of
Carbon Credit has come into vogue.
Rapid Industrial Growth
Increased energy consumption
Increased CO2 and other GHG emissions
Global Warming due to increased concentration of
Increase in sea
Changes in wind
Changes in crop
According to the World Bank Economist Mr. Stern,
the effect of climate change could be worse than the
two World Wars.
Carbon credits are certificates issued to countries
that reduce their emission of GHG (greenhouse
gases) which causes global warming.
Carbon credits are measured in units of certified
emission reductions (CERs). Each CER is
equivalent to one tonne of carbon dioxide
Under IET (International Emissions Trading)
mechanism, countries can trade in the international
carbon credit market. Countries with surplus
credits can sell the same to countries with
quantified emission limitation and reduction
commitments under the Kyoto Protocol.
Developed countries that have exceeded the levels
can either cut down emissions, or borrow or buy
carbon credits from developing countries.
What is Carbon Credit?
“A carbon credit is a generic term for
any tradable certificate or permit
representing the right to emit one
tone of carbon dioxide or the mass of
another greenhouse gas with a carbon
dioxide equivalent (CO2) to one tone
of carbon dioxide.”
Carbon credits and carbon markets
are a component of national and
international attempts to mitigate the
growth in concentrations of
If a cement manufacturer reduces its CO2 emissions by
one ton by adapting some changes into its process or by
any other means; say just by planting some trees
around its plant, it is awarded “one carbon credit”. This
carbon credit can be sold to any industry, allowing it to
emit one extra ton of CO2 than its allowable limit.
Nike has sold emission reduction credits equaling
100,000 tons to the utility company Entergy. Entergy
has also purchased carbon credits from DuPont and
Other companies dealing in carbon credits include
Expedia, Whole Foods, and Haynes International, Inc,
CARBON CREDITS are generated by enterprises in the
developing world that shift to cleaner technologies
and thereby save on energy consumption,
consequently reducing their greenhouse gas
emissions. For each tonne of carbon dioxide (the major
Green house gases) emission avoided, the entity can
get a carbon emission certificate which they can sell
either immediately or through a futures market, just
like any other commodity.
The certificates are sold to entities in rich countries,
like power utilities, who have emission reduction
targets to achieve and find it cheaper to buy 'offsetting'
certificates rather than do a clean-up in their own
This trade is carried out under a UN-mandated
international convention on climate change to help
rich countries reduce their emissions.
Global warming potential (GWP) for the 6 GHGs are
•GWP is the global warming impact that a GHG would have over a 10-year timeframe
•By definition, CO2 is used as the reference benchmark.
Greenhouse gases (GHG) are components of the
atmosphere that contribute to the greenhouse
Some greenhouse gases occur naturally in the
atmosphere, while others are the result from
human activities such as burning of fossil fuels
such as coal.
GHG include water vapor, carbon dioxide,
methane, nitrous oxide, and ozone.
Carbon exists in the Earth's atmosphere primarily
as the gas carbon dioxide (CO2). The overall
atmospheric concentration of these greenhouse
gases has been increasing in recent decades,
contributing to global warming.
What are the needs for Credit
The credit carbon mechanism was formalized
in the Kyoto protocol, an international
agreement between more than 170 countries,
and the market mechanisms were agreed
through the subsequent Marrakesh Accords.
The main aim of this agreement is to reduce
the carbon emission in the global atmosphere
to balance the natural environment.
How Carbon Credit deals with the
Carbon emission reduction?
Currently there are six exchanges trading in carbon
Chicago Climate Exchange
European Climate Exchange
NASDAQ OMX Commodities Europe
Commodity Exchange Bratislava
European Energy Exchange
Kyoto Protocol is an agreement made under the
United Nations Framework Convention on Climate
The Kyoto Protocol is only binding on 'industrialized‘
or 'developed‘ countries.
The protocol commits developed countries to specific
targets for reducing their green house emissions
Each country has a prescribed number of 'emission
units' which make up the target emission
The Kyoto Protocol provides mechanisms for
countries to meet their emission targets
The mechanisms assists the parties meet their
emission reduction targets.
These mechanisms are:
Joint Implementation (JI)
Clean Development Mechanism (CDM)
Emission trading (ET).
Under CDM, an annex 1 country takes a green
house gas reduction project activity in a non-annex
The developed country gets credits for meeting its
emission reduction targets, while the developing
country receives the capital and clean technology to
implement the project.
The parties involved:
Must participate voluntarily;
Must establish national CDM authority;
Must have ratified the Kyoto Protocol;
World’s largest GHG emitter, has not ratified the
Short horizon: First phase of the Protocol covers up
to 2012– Extension?
Country reduction targets defined, but division of
that by industry and sector within countries not yet
Carbon sequestration can be defined as the capture
and secure storage of carbon
Carbon credits encompass two ideas:
1. Prevention/reduction of carbon emissions produced
by human activities from reaching the atmosphere
by capturing and diverting them to secure storage
2. Removal of carbon from the atmosphere by various
means and securely storing it.
Vast potential for carbon credit.
Member of Kyoto Protocol, Pakistan is eligible to benefit
from the projects under Clean Development Mechanism
(CDM) and exploring carbon credit potential in different
The ministry has identified tremendous potential of CDM in
“Carbon Credit Opportunities in the Power
Sector of Pakistan”
“Carbon Trading Workshop”,
High Profit of Pak Arab Fertilizers was contributed by
the “Clean Development Mechanism (CDM)” project,
which was achieved through sale of carbon credits in
the international markets.
By means of the CDM project–the first and only such
project in the country-the company has not only
increased its income but also earned valuable foreign
exchange for the country.
The company has managed to sell carbon credits in
Japan and the European Union.
Emissions trading (ET) is a mechanism that enables
countries with legally binding emission targets to
buy and sell emissions allowances among
Each country has a certain number of emission
allowances (amount of carbon dioxide it can emit)
in line with its Kyoto reduction targets.
The IET allows industrialized countries to trade their
surplus credits on the international carbon credit
Emissions trading transfers "assigned amount
units" or AAU
The buyer will then use the credits to meet their
A global Carbon Market is estimated to be around
Currently, futures contracts in carbon credits are
actively traded in the European exchanges (ECX)
Many companies actively participate to manage
the risks associated with trading in carbon credits
Developed Countries Developing Countries
The purpose of CDM is reduce to emissions and also contribute to
sustainable development in developing countries
The CDM is administered by the CDM Executive Board (CDM Board)
which reports and is accountable to the Conference of Parties
A Carbon emission reduction (CER) is given by the CDM Executive
One CER is equivalent to one tonne of carbon dioxide reduced
Projects between industrialized nations to earn
It is done because of geographical or cost
Emission reduction units (ERUs) created through
joint implementation is treated in the same way
as those from emissions trading
Carbon Emission Reduction
(CER) – Source of
Energy (renewable & non-renewable sources)
Mining and mineral production
Afforestation & reforestation
ECX is the most liquid marketplace for trading CO2 EU
There is a great opportunity awaiting Nigera in
carbon trading which is estimated to go up to $120
billion by 2015. If we develop and register CDM
projects, the country could emerge as one of the
largest beneficiaries of carbon trade. The countries
like US, Germany, Japan and China are likely to be
the biggest buyers of carbon credits which are
beneficial for India to a great extent.
Thus, by going through the all the above details
about carbon credit we come to know that credit
carbon has both social as well as monetary benefit .
As a part of nature it is our social responsibility or
our duty to give our participation to keep our
environment healthy and clean….