This document provides an overview of carbon credits and the Kyoto Protocol. It discusses how the Kyoto Protocol established a carbon trading system to reduce greenhouse gas emissions. Countries receive carbon credits for emission reduction projects that can be traded on the market. There are three mechanisms for implementing emission reductions: emissions trading, the clean development mechanism, and joint implementation. Factors like supply and demand influence carbon credit prices. While carbon trading encourages cleaner technologies and investment, challenges remain in fully implementing the system and deterring environmental abuse.

1. Himanshu Goyal
CARBON CREDITS

2. Agenda
• Background
• Emission Source
• How did it all start
• Kyoto protocol
• Carbon Credits
• Methods of implementation
I. Emissions Trading
II. Clean Development Mechanism (CDM)
III. Joint implementation (JI)
• Factor influencing CC prices
• Challenges
• Position of India

3. Background
• World is reliant on fossil fuels for its energy needs.
• Deriving energy from such means inevitably releases
carbon and other greenhouse gases (GHGs) into the
atmosphere.
• Greenhouse gases (GHGs) have a direct impact on
climate change.
• Ex: Earths surface would be 33 degree Celsius colder without
GHG
• Primary six greenhouse gases - carbon dioxide,
methane, nitrous oxide, sulfur hexafluoride,
HFCs(Hydrofluro Carbon), and PFCs.

4. Emission Source
• Large majority of the worlds energy needs are met using
fossil fuels.

5. • Developed countries are the primary contributors WRT
global emissions.

6. How did it all start?
• United Nations Framework Convention on Climate Change
(UNFCCC) was adopted in 1992.
• Primary objective -- limiting the concentration of Green House
Gases (GHGs1) in the atmosphere.
• To implement the Convention, the Kyoto Protocol signed in
1997 and came into force in February 2005.
• More than 141 countries signed this agreement in committing
themselves to reduce carbon emissions.

7. Kyoto Protocol
• Agreement made under UNFCCC in 1997.
• Commits 39 developed countries to reduce their GHG
emissions by at least 5% below their 1990 baseline
emission by the commitment period of 2008-2012.
• Developing and least-developed countries are not bound
by GHG emissions restrictions.
• Each country has a prescribed number of 'emission
units' which make up the target emission.

8. Kyoto Protocol – cur data

9. Carbon Credits
• Carbon credits are certificates issued to countries that
reduce their emission of GHG (greenhouse gases).
• Measured in units of certified emission reductions
(CERs).
• Represents the removal of one tonne of carbon dioxide
• Countries can trade CERs in the national/international
carbon credit market.
• Countries with surplus credits can sell the same to
countries unable to meet emission reduction
commitments.

10. • Developed countries that have exceeded the levels can
either cut down emissions or buy carbon credits from
developing countries.
• Carbon Credits or CER are just like stock. They are
given by CDM executive board to certify they have
reduced GHG emissions by one ton of CO2 per year.

11. Cumulative Carbon Emissions || 1960 : 2010

12. Method of implementation
• The UNFCCC divides countries into two main groups:
• A total of 39 industrialized countries are currently listed in the
Convention’s Annex-I.
• Developing countries are known as non-Annex-I countries. They
currently number 153.
• Annex I countries agree to reduce their emissions
(particularly carbon dioxide) to target levels below their
1990 emissions levels.
• If they cannot do so, they must buy emission credits
from developing countries or invest in conservation.

13. • The first phase of the Kyoto protocol ended in 2007.
Second phase started in 2008.
• Penalty for non compliance in 1st phase was 40 euro per
ton of co2 emission. Hiked to 100 euro in 2nd phase
• Developing countries (non-Annex I) have no immediate
restrictions under the UNFCCC.
• Countries can trade through European Climate
Exchange, NASDAQ, PowerNext, Commodity Exchange
Bratislava and European Energy Exchange.

14. The Kyoto Mechanisms
I. Emissions Trading
II. Clean Development Mechanism (CDM)
III. Joint implementation (JI)

15. Emissions Trading
• Emissions trading (ET) is a mechanism that enables countries
with legally binding emissions targets to buy and sell
emissions allowances among themselves.
• E.g. a country that stays within its target can sell the surplus
allowances to another country that has exceeded its limit.
Developed
Country A
Developed
Country B
Needs CC to meet targets Holds excess CC
Country A buys CC
from Country B to
meet deficit.

16. Clean Development Mechanism (CDM)
• CDM creates carbon credits called Certified Emission
Reductions (CERs) through emission reduction projects in
developing countries.
• Emitters who have exceeded their emission allocations can
purchase these CERs to make up the difference.
• Only a portion of the total earnings of carbon credits of the
company can be transferred.
Developing
Country A
Developed
Country B
Country B invests in country
A to reduce its emissions.
CC generated in Country A
are transferred to country B.

17. Real Life Example
• Assume that British Petroleum is running a plant in the
United Kingdom. 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 Clean
Development Mechanism. 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.

18. Joint implementation (JI)
• Any Annex I country can invest in emission
reduction projects in another Annex I country and
receive credit for the emission reductions or
removals achieved through that project.
• It allows a developed country to finance emission
reductions in another industrialized country where
the emission reductions are less expensive.
Developed
Country A
Developed
Country B
Joint Investment
CC generated by emission
reductions in the project.

19. How it solves the problem?
• Countries are encouraged to reduce their emissions on a
global level.
• Encourages investments and development of cleaner
technologies.
• Environmental benefits.
• Technology transfer from developed to developing
countries
• Serves as an additional source of revenue for countries
having surplus CC.

20. Factors influencing CC prices
• Transaction size.
• Demand supply.
• Foreign exchange
fluctuations.
• Type of project.
• Crude oil prices Coal
prices.
Credits are quoted in Euros (e) or US Dollars (US$)
for sale on the global market.
Factors affecting credit prices include

21. Challenges
• The extent to which the Kyoto Protocol guidelines
are implemented & followed.
• The US which is the biggest polluter had signed but
not intending to ratify the treaty.
• It does not deter people from abusing the
environment. Instead, it allows rich companies that
produce too much will just buy what they need to
offset their emissions.

22. • Difficult to plan a mutually agreeable timeframe
• Slow process facing multiple barriers with respect
to approvals, agreement on timeframe, agreement
on investments and division of credits earned.
• Stealing of CC – cyber hackers.

23. Position of India
• India signed the Kyoto protocol in August 2002.
• Second-largest seller of carbon globally with 489
(24% of Global) registered CDM projects till date.
• India, early in beginning, generated 30 million
units, and by 2012,revenued approximately Rs. 97
billion. It is expected to grow as Europe will be
relying on coal as fuel and will need to buy credits.
• Considered as the largest beneficiary, claiming
about 31% of the total world carbon trade through
CDM.

24. • Exempted from emission restrictions. (Non-Annex 1
Countries). That means, Annex 1 companies can buy
carbon credits from these countries.
• Now companies in India can use Carbon credits to get
liberal loans, incentives by multinationals in their
countries and benefits like better social and ecological
visibility.
• Some of the leading Indian companies trading Carbon
Credits
• NTPC
• ONGC
• Reliance Industries (Power Sector)
• Gujarat Flurochemicals

25. Carbon Trading at MCX
• The MCX (Multi Commodity Exchange) of India Ltd
entered into an alliance with the Chicago Climate
Exchange in 2005 to introduce carbon credit trading
in India.
• The Indian government has not fixed any norms
nor has it made it compulsory to reduce carbon
emissions to a certain level. So, people who are
coming to buy are actually financial investors.
• Before MCX, these companies were not getting
best-suited price. Some were getting Euro 15 and
some were getting Euro 18 through bilateral
agreements.

26. Planned outlook
In Doha, Qatar, on 8 December 2012, the "Doha
Amendment to the Kyoto Protocol" was adopted.
The amendment includes:
• New commitments for Annex I Parties to the Kyoto
Protocol who agreed to take on commitments in a
second commitment period from 1 January 2013 to
31 December 2020.
• During the first commitment period, 37
industrialized countries and the European

27. community committed to reduce GHG emissions to
an average of five percent against 1990 levels.
• During the second commitment period, Parties
committed to reduce GHG emissions by at least 18
percent below 1990 levels in the eight-year period
from 2013 to 2020;
• However, the composition of Parties in the second
commitment period is different from the first.

28. Conclusion
• Carbon Trading brings forth financial incentives to
reduce carbon dioxide emission and implement eco-
friendly technologies.
• The renewable sources of energy like wind, solar and
hydro are supposed to get financial boost to substitute
fossil fuels.
• Presently, the market is primarily driven by financial
interest or gains by the investment farms as opposed to
seeking environmental remedy.

29. Questions? 

30. Thanks! 