In today's milieu we all are facing an issue of global warming. Global warming occurs when carbon dioxide (CO2) and other air pollutants collect in the atmosphere and absorb sunlight and solar radiation that have bounced off the earth’s surface. Normally, this radiation would escape into space—but these pollutants, which can last for years to centuries in the atmosphere, trap the heat and cause the planet to get hotter. So, To combat with this issue a KYOTO PROTOCOL agrrement signed in 1977.

1. Carbon Credit and Carbon Trading: A Literature Review
Anuj Kumar
PGDM (Finance), Institute of Technology & Science, Mohan Nagar Ghaziabad
23rd
March, 2015
Abstract:
In today’s scenario, we all are living in an industrial era. Industrialization leads to
climate change and climate change is the greatest challenge threatening humanity at
present. Global warming is the main reason for the changing in an environment.
Global warming is the result of industrialization because an industry produces many
harmful and toxic gases in the form of pollution. As we all know, carbon dioxide, the
most important green house gas produced by combustion of fuels and the temperature
of an earth has been increasing. This is also the reason of depletion of ozone layer.
This has created an opportunity for the establishment of “CARBON MARKET” where
we can trade of carbon credit. To make stringent plan for the protection of
environment the KYOTO PROTOCOL was organized in 1977. Under this
arrangement the “CARBON” free gift of nature has been converted into “Economic
Commodity”.
In India Kyoto protocol take all decision related to the carbon credit under united
national framework for climate change (UNFCC). Increase in population, pollution,
IIP etc. will impact on carbon credit. The objective of this paper is to discuss the basic
concepts and importance of carbon credit.
Keywords: Industrialization, Global warming, Kyoto Protocol and UNFCC.

2. Introduction:
In Today’s milieu, the problem of global warming is face by each and every country
that’s why global warming becomes the international alarm. Every country
government spend a lot of time, money and efforts to find a solution for the problem
of global warming. As we have heard the proverb, “Problem is the mother of
solution”. The recent important steps taken by the government in India towards the
protection of environment is that government banned the old vehicle because they
discharge carbon in an enormous amount than newer one. Increasing the amount of
carbon gives a birth to the new concept by the name of “CARBON CREDIT or
CARBON MARKET”. Carbon market is the brainchild of Kyoto Protocol for
controlling Green House Gas (GHG) emissions. The GHG’s include Carbon dioxide
(CO2), Methane (CH4), Nitrous oxide (NH20), Hydro fluorocarbons (HFC’s), Sulphur
Hexafluoride (SF6) and Per fluorocarbons (PFC’s).
If you are aware about the present actions and occurrence, chances are you have heard
about CARBON CREDIT. Hundreds of companies are being founded everyday to
trade carbon credit. The scope of carbon credit and carbon trading is very good in near
future because the industrialization will increase and industrialization produces
harmful and toxic gases. There are various contributors to carbon dioxide in this
environment.

3. Carbon credit
One carbon credit is equal to one metric tonne of carbon dioxide, or in some markets,
carbon dioxide equivalents gases which is an entitled certificate by UNFCCC (United
Nations framework convention on climate change).
Kyoto Protocol
The Kyoto Protocol is an agreement signed under the United Nations conference on
climate change (UNFCCC) in December 1997 in Kyoto, Japan and came into effect in
2007. Currently, there are 192 parties in Kyoto Protocol: 191 states (including all the
UN members except Andorra, Canada, South Sudan and the United States) and the
European Union. In India Kyoto Protocol take all decision related to the carbon credit.
The objective of Kyoto Protocol is to reduce green house gas emission. Under Kyoto
protocol countries are segregated into three parts: Annex 1, Annex 2, Non-Annex 1.
Annex 1
Annex 1 countries are developed countries and 41 industrialized countries (UK, USA,
New Zealand, Australia, Canada, Spain, France etc.) are listed in Annex 1 countries.
Annex 1 countries agreed to reduce their GHG’s by 5.2% below 1990 levels in 1st
commitment period 2008-2012.
Annex 2
Annex 2 countries are a Sub-group of annex 1 countries. Developed countries which
pay for costs of developing countries if they cannot reduce their emissions, they must
buy emission credits from developing countries or invest in conservation are included
in this category. United States of America, United Kingdom, Japan, New Zealand,
Canada, Australia, Austria, Spain etc are included in Annex- II.
Non-Annex 1
India, Srilanka, Afghanistan, China, Brazil, Iran, Kenya, Kuwait, Malaysia, Pakistan,
Saudi Arabia, Singapore, South Africa and Philippines etc. are included under Non-
Annex 1 countries. They serve three purposes under this protocol:
 They get money and technology from developed countries in Annex 2 countries.

4.  It means that they cannot sell emissions credits to industrialized nations to
permit those nations to over-pollute.
 Avoids restrictions on growth because pollution is strongly linked to industrial
growth, and developing economies can potentially grow very fast.
Review of literature:
Gupta Ms. Yuvika (2011) has worked on The Carbon Credit: A Step towards Green
Environment. She Said that the Global Warming is Costing a Lot of Money, So Green
Environmentalist aims to Promote Policy and Business that Works for the
Environment. As We all Know, Carbon Dioxide, The Most Important Greenhouse Gas
Produced by Combustion of Fuels, has become a Cause of Global Panic. As its
Concentration in the Earth's Atmosphere has been Rising Alarmingly. This has created
an Opportunity for the Trade of Carbon Credits both within and Outside of the
Regulated Area, Thereby Creating a Global "Carbon Market". In this System of
Carbon Trading, Controls are imposed on Greenhouse Gas (GHG) Emissions under
the Kyoto Protocol, and the Pre-Decided Emission Limits are then allocated across
countries, which have to control the Greenhouse Gas Emissions from the various
Industries and Commercial Units Operating within them. Kumari, Divya, Revanth and
L.Swetha (2013) revealed that an analysis on carbon credits (india). They have dealt
with the effect of Carbon Credits on Stock Market and Investigate relative factors
which Influence Stock Market in India. The following are the different determinates
which we have considered Like Carbonex, Greenex, Powered, Msci, Population, Gold,
Exports, Imports, IIP (Index of Industrial Production). In India Carbon Credit decision
are taken by Kyoto Protocol under United National Frame Work of Climate Change
(UNFCC).Any fluctuations on Population, Pollution, IIP, etc. will Impact on Carbon
Credits. Chotaliya Dr. Meghna (2014) worked on the Accounting for Carbon Credits
in India. A Carbon Credit is a Generic Term for any Tradable Certificate or permit
representing the right to emit one tonne of Carbon Dioxide or the mass of another
Greenhouse Gas with a Carbon Dioxide Equivalent (Tco2e) Equivalent to one tonne
of Carbon Dioxide. Carbon Credits and Carbon Markets are a Component of National
and International Attempts to mitigate the growth in concentrations of Greenhouse
Gases (GHGs). The Quality of the Credits is based in part on the validation process
and sophistication of the fund or developments company that acted as the sponsor to
the Carbon Project. This is reflected in their Price; Voluntary units typically have less
value than the units sold through the rigorously validated ‘Clean Development
Mechanism’. There are different accountings treatment options under consideration
which are impacted by the method with which the Carbon Credits are acquired,

5. whether by Internal Creation, Purchase or Donation to the Organization. The different
accounting treatment options also consider. The Intended use of the Credits – will they
be used for an organization’s own compliance purposes or sold to Market Participants.
Birla, Singhal, Birla and Gupta (2012) examined the carbon trading–the future money
venture for India. They revealed that Carbon Trading is a Advances Format, Where
firms or Countries Buy and Sell Carbon permits as Part of a program to Trim Out
Carbon Emission. It is a Widespread Method Countries utilise in order to meet their
obligations specified by International Kyoto Protocol (1997) of United Nations
Framework Convention on Climate Change; Namely the reduction of Carbon
Emissions in order to mitigate future climate changes. It specifically targets carbon
dioxide calculated in terms of CO2 equivalent or CO2. Currently, future contracts in
carbon credits are actively traded in European Exchanges (ECX).The European Union
Emission Trading Scheme (EU ETS) is the largest multinational, greenhouse
emissions scheme in the world and is committed to reduce 8% 1990 levels of emission
in 2008-2012.Carbon Development Mechanism (CDM) is another trading project
which is administered by the CDM executive which reports and is accountable to the
Conference of Parties (COP) Carbon Trading in India. Though we are potentially the
largest market for carbon credits on the MCX, we still need to implement proper
policies to allow trading of Certified Emission Reductions (CERs), carbon credit. To
increase the market for carbon trading Forward Contracts (Regulation) Amendment
Bill has been introduced in the Parliament. Thus we see that Carbon Trading is
definitely the “Greenest” pastures for business trading for the small and large scale
private and governmental sectors in India with opportunities for everyone. Rajput and
Chopra (2014) have dealt with the Carbon Credit Market in India: Economic and
Ecological Viability. They have revealed that Climate change is the greatest challenge
threatening humanity at present. Global warming due to excessive release of toxic
gases, pollution of ecological endowments are glaring examples of reckless human
behaviour in pursuit of economic motives. It is call of the time for us to give back to
Mother Nature. What all we have robbed her off and efforts are made world over to
reduce the negative imprints as a priority call. To make stringent plan of action for
environment protection the Kyoto Protocol was organized in 1997 where stakeholders
from across the globe brainstormed a mechanism whereby it was decided to
incorporate carbon (main green house gas) reduction endeavors with economic
motives of enterprises to motivate sustainability efforts on their part. Under this
arrangement “carbon” a free gift of nature has been converted to an “economic
commodity”, which is actively traded in the form of carbon credits. Fisher (2009) has
worked on the Carbon Offsets & Climate Finance in India. Climate change is arguably
the greatest challenge humanity has ever faced. Eminent scientists from around the
world warn that unless we drastically reduce global greenhouse gas emissions, the

6. world will face ecological and economic collapse. India is particularly vulnerable.
Glaciers of the Himalaya which supply India’s major river systems are receding at an
unprecedented rate. Rising sea levels threaten low lying coastal areas of India along
with large swaths of neighboring Bangladesh. More extreme weather could decimate
agricultural production and create an unprecedented famine. Mass migrations of
refugees whose homes have faced drought or floods could result in resource conflicts
between and within the nations of South Asia. Faced with an unprecedented crisis, the
majority of the world’s nations joined an international treaty in 1992 – The United
Nations Framework Convention on Climate Change (UNFCCC) – to advance
international cooperation to reduce the emission of greenhouse gases (GHGs). The
Kyoto Protocol, which set binding targets for GHG emission reductions, was adopted
in December 1997 under the UNFCCC, but did not enter into force until February
2005. Due in large part to pressure from the USA during the negotiation process, the
Kyoto Protocol uses a market-based mechanism of buying and selling the right to emit
GHGs. These mechanisms form what is commonly referred to as a “carbon market,”
because carbon is the principle GHG. Since the UN adopted the carbon market, global
GHG emissions have increased. Meanwhile, this market has provided a significant
new revenue source for corporations in India and other developing countries that can
sell the right to pollute to developed countries. Conversely, it has allowed developed
countries to escape emission reduction commitments by ostensibly paying other
countries to reduce emissions on their behalf. At the same time nations of the world
were working to address climate change within the UN framework, the World Bank,
with its undemocratic governing structure, was working to influence and benefit from
carbon trading. Shortly after its first of twelve “carbon funds” became operational in
2000.3 The World Bank entered into its first carbon transaction. The Bank’s goal was
to “pioneer” the market and influence the Kyoto Protocol’s carbon trading
mechanisms. More recently, the World Bank broadened its efforts and is now working
to establish a separate, parallel framework of climate change governance that threatens
to divert funding from, and effectively undermine the UN process. Similarly, the
Asian Development Bank (ADB) has followed suit by establishing its own carbon
funds and pushing its own climate agenda through “technical assistance” and media
campaigns. As one of the largest World Bank and ADB clients, India has become a
central focus in these institutions’ overall climate agenda. While the Indian
government supports the Kyoto Protocol, along with its flawed market mechanisms,
the World Bank and ADB have exploited it as a means to fund and rationalize their
most socially and environmentally destructive practices in India such as coal power
plants, massive dams and mono-culture tree plantations. Kumar worked on the
Carbon Trading .He suggests that in the absence of policy interventions the global

7. climate change could pose serious challenges to human life. At the outset it would
useful to take stock of the magnitude of the climate change problem. It is widely
believed that stabilization of atmospheric concentrations of greenhouse gases GTC) at
around 450 parts per million by volume (ppmv) would lead to about 2oC warming –
which is considered as relatively less dangerous‟. For such stabilization the
cumulative greenhouse gas emissions since industrial revolution should be about 670
gigatonne of carbon (GtC). Since the cumulative emissions so far are close to 300
GtC, the 450 ppmv stabilization target would leave the world with an atmospheric
carbon space of about 370 GtC. This would mean that the global emissions in 2050
should be reduced by 60 to 80 percent compared to the 1990 levels. Thus, responding
to climate change problem would involve significantly large reductions in global
emissions of greenhouse gases, plus learning to deal with committed change in climate
through appropriate adaptations. Policy responses to address climate change problem
are broadly discussed under two heads: mitigation of greenhouse gas emissions and
adapting to the climate change induced impacts.
References:
 Birla Vivek, Singhal Gunjan, Birla Rashi and Gupta Vaishali Gauri (2012).
Carbon trading–the future money venture for India. International Journal of
Scientific Research Engineering & Technology (IJSRET). Vol. (1), No. (1), pp
019-029.
 Chotaliya Dr. Meghna (2014). Accounting for Carbon Credits in India. Indian
Journal of Applied Research. Vol. (4), No. (5), pp. 1-2.
 Gupta Ms. Yuvika (2011). Carbon Credit: A Step Towards Green Environment.
Global Journal Of Management And Business Research. Vol. (11), No. (5),pp.
1-4.
 Fisher Konrad (2009). Carbon Offsets & Climate Finance in India: The
Corporate-driven Climate “Solutions” of the World Bank, Asian Development
Bank & United Nations. Occasional paper 7. pp. 1-39.
 Aruna Kumari Mahankali, Divya Kapulaneni, Revanth Mandali And Swetha L.
(2013). An Analysis on Carbon Credits (India). Asia Pacific Journal of
Marketing & Management Review. Vol. (2), No. (8), Pp. 62-68.
 Kumar k.s. kavi. Carbon Trading. pp. 1-18.