Carbon Trading, Emission Balance, Types of Carbon Credit, Voluntary Emissions Reduction (VER), Certified Emissions Reduction (CER), Price of Carbon Credit, Emissions Trading Systems (ETS), Carbon tax , How does carbon pricing work?, Carbon Markets, Trading of Carbon Credits, Trading of Carbon Credits in India
2. Carbon Credit
▪ A carbon credit is a tradable permit or certificate that
provides the holder of the credit the right to emit one
ton of carbon dioxide or an equivalent of another
greenhouse gas.
▪ It is best described as a permit that can be purchased
by a company so that it can emit a certain amount of
carbon dioxide on the understanding that any damage
to the environment is being offset by another
company elsewhere in the world.
Dr. Parveen Kaur Nagpal
3. Carbon Credit
▪ The main goal for the creation of carbon credits is the
reduction of emissions of carbon dioxide and other
greenhouse gases from industrial activities to reduce
the effects of global warming.
▪ The scheme allows developing countries to sell the
carbon whose emissions they have avoided by
installing less-polluting equipment in industries,
switching to renewable energies or protecting forests
▪ Richer countries can buy carbon credits to offset their
own emissions.
Dr. Parveen Kaur Nagpal
4. Carbon Credit
▪ For some companies, the immediate reduction of the
emission is not economically viable.
▪ Therefore, they can purchase additional carbon credits
to comply with the emission cap from companies that
can reduce the emissions immediately
▪ Companies that achieve the carbon offsets (reducing
the emissions of greenhouse gases) are usually
rewarded with additional carbon credits. The sale of
the credits’ surplus may be used to subsidize future
projects for the reduction of the emissions
Dr. Parveen Kaur Nagpal
5. Carbon Credit
▪ The introduction of carbon credit was ratified in
the Kyoto Protocol.
▪ The Paris Agreement validates the application of
carbon credits to reduce emissions of the greenhouse
gases and sets the provisions for the further
facilitation of the carbon credits markets.
▪ https://youtu.be/lQyrnq4CEEw
Dr. Parveen Kaur Nagpal
7. Types of Carbon Credit
1. Voluntary Emissions Reduction (VER): A carbon offset
that is exchanged in the over-the-counter or voluntary
market for credits.
2. Certified Emissions Reduction (CER): Emission units (or
Carbon credits) created through a regulatory framework
with the purpose of offsetting a project’s emission.
The main difference between the two is that there is a
third party certifying body that regulates the CER as
opposed to the VER.
Dr. Parveen Kaur Nagpal
8. Types of Carbon Credit
▪ One carbon credit (or carbon 'offset') is a closely
regulated certificate representing a reduction of one
metric ton of carbon dioxide being released into the
atmosphere.
▪ The phrase is gaining momentum among countries and
business to put a price on carbon pollution as a means
of bringing down emissions and drive investment into
cleaner options.
Dr. Parveen Kaur Nagpal
9. Price of Carbon Credit
1. An Emissions Trading Systems (ETS) – Sometimes
referred to as a cap-and-trade system, caps the total level
of greenhouse gas emissions and allows those industries
with low emissions to sell their extra allowances to larger
emitters.
By creating supply and demand for emissions allowances,
an ETS establishes a market price for greenhouse gas
emissions. The cap helps ensure that the required
emission reductions will take place to keep the emitters
(in aggregate) within their pre-allocated carbon budget.
Dr. Parveen Kaur Nagpal
10. Price of Carbon Credit
2. A carbon tax directly sets a price on carbon by defining
a tax rate on greenhouse gas emissions or – more
commonly – on the carbon content of fossil fuels.
Dr. Parveen Kaur Nagpal
11. How does carbon pricing work?
Essentially, policy makers have three options to reduce
greenhouse gas emissions.
1. Set a specific limit that a company cannot exceed.
2. Introduce a carbon tax where the company pays for the
amount of CO2 they produce. Businesses may invest in
cleaner options as long as it is cheaper than paying taxes.
3. Implement an emission trading scheme – to create a
carbon market. In this scenario, companies buy and sell
the ‘right to pollute’ from each other.
Dr. Parveen Kaur Nagpal
13. Company A emits less than its target amount of CO2; this
means that Company A has a surplus of Carbon Credits.
Company B, on the other hand, emits more than its target
amount of hydrocarbon, so either Company B pays a fine
or tries to buy Carbon Credits from Company A.
At this point, Company A and Company B get to an
agreement and trade Carbon Credits: Company A sells its
surplus to Company B, earns money and a positive image
feedback, while Company B buying Carbon Credits from
Company A avoids paying a fine.
Dr. Parveen Kaur Nagpal
14. Trading of Carbon Credits
▪ Buyers and sellers can also use an exchange platform to
trade, which is like a stock exchange for carbon credits
▪ The prices of carbon credits are primarily driven by the
levels of supply and demand in the markets.
▪ Due to the differences in the supply and demand in
different countries, the prices may fluctuate.
▪ In some situations, it may be more economic to pay a
fine than to buy Carbon Credits due to their high price.
Dr. Parveen Kaur Nagpal
15. Trading of Carbon Credits
▪ Carbon Credits do not have the same value mainly
because the Carbon Credits market, like any other
voluntary market, doesn’t have a central authority that
dictates the rules or the approach to pricing them.
▪ Carbon Credits price can be determined by the market
dynamics (supply and demand), the costs of a specific
project or the sponsor supporting the carbon project (i.e.
a business initiative that receives funding because of the
cut the emission of greenhouse gases).
▪ In general, voluntary units tend to have less value than
the unit sold through a regulated system.
Dr. Parveen Kaur Nagpal
16. Trading of Carbon Credits in India
▪ One of India's main goals at the recent UN climate talks
was to win the right to sell the carbon credits it has
earned over the years.
▪ India had earned millions of carbon credits or emission
reduction certificates (CERs) by investing in low-carbon
intensive technologies, switching to renewable energy
and protecting forests. But since this happened under an
earlier climate agreement - the Kyoto Protocol - the
meeting in Madrid was expected to finalise rules for a
new global carbon market as part of the Paris Agreement
Dr. Parveen Kaur Nagpal
17. Trading of Carbon Credits in India
▪ For carbon credit trading, India follows a scheme called
Clean Development Mechanism (CDM), that is an
arrangement under Kyoto Protocol allowing industrialized
countries with a greenhouse gas reduction commitment
to invest in emission reducing projects in developing
countries as an alternative to what is generally considered
more costly emission reductions in their own countries.
Dr. Parveen Kaur Nagpal
18. Class Assignment (10 marks)
▪ In India, there has been a long history of farming that is
based on traditional and environment-friendly practices.
The state of Sikkim became the first-ever organic state in
the world and was awarded the UN Future Policy Gold
Award, 2018.
(The Economic Times, May 29, 2020, 10:25 PM IST
In the light of the above statement, how do you foresee
the future of carbon trading in India
Dr. Parveen Kaur Nagpal
19. Paris Agreement: Will India lose millions of carbon credits?
(By Navin Singh Khadka, Environment correspondent, BBC World Service)
One of India's main goals at the recent UN climate talks or
COP25 was to win the right to sell the carbon credits it has
earned over the years. But the talks ended in Madrid on 15
December without agreeing on rules for future carbon trading,
leaving the fate of billions of carbon credits on the line. This is a
bad sign for India.
Carbon trading is a market-based system to reduce greenhouse
gases contributing to global warming, particularly carbon
dioxide. Countries and companies that earn carbon credits by
cutting emissions can then sell those credits for money.
Dr. Parveen Kaur Nagpal
20. Paris Agreement: Will India lose millions of carbon credits?
(By Navin Singh Khadka, Environment correspondent, BBC World Service)
India had earned hundreds of millions of carbon credits or
emission reduction certificates (CERs) by investing in low-
carbon intensive technologies, switching to renewable energy
and protecting forests. But since this happened under an
earlier climate agreement - the Kyoto Protocol - the meeting in
Madrid was expected to finalise rules for a new global carbon
market as part of the Paris Agreement.
Dr. Parveen Kaur Nagpal
21. 'A key issue for us’
India is the world's third-largest emitter of greenhouse gases,
and it earned a lot of money by selling its carbon credits in the
international market. But it still has hundreds of millions of
CERs left over that it wants to sell.
"It is one of the key issues for us," Ravi S Prasad, India's chief
negotiator, told the BBC.
"Our private sector all these years has invested so much in low-
carbon technology and renewable energy because we were
continually assured that we would get to sell the carbon
credits."
Dr. Parveen Kaur Nagpal
22. Trading of Carbon Credits
Class Activity/ Group Discussion -
Discuss the pros and cons of carbon trading
in India
Dr. Parveen Kaur Nagpal
23. In today's scenario, global warming is having biggest damage
potential for the whole world. Hence, Green
Environmentalists are striving hard to promote policy and
business that works for the environment As we all know,
Carbon dioxide the most greenhouse gas produced by
combustion of fuels, has become a serious cause of global
panic as its concentration on Earth's atmosphere is rising
alarmingly. But this has also created an opportunity for the
trade of carbon credits both within and outside the country,
thereby creating a global carbon market.
Explain what is Carbon Credit and how this is traded (10
Marks)
Dr. Parveen Kaur Nagpal