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Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs) one carbon credit is equal to one metric tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.
Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs) one carbon credit is equal to one metric tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.
Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs) one carbon credit is equal to one metric tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.
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 (tCO 2 e) equivalent to one tonne of carbon dioxide. [1][2][3]
Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon credit is equal to one metric tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources. The goal is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon intensive approaches than those used when there is no cost to emitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction schemes between trading partners and around the world. There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint on a voluntary basis. These carbon offsetters purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. Buyers and sellers can also use an exchange platform to trade, such as the Carbon Trade Exchange, which is like a stock exchange for carbon credits. The quality of the credits is based in part on the validation process and sophistication of the fund or development 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. [4]
What is carbon credit? As nations have progressed we have been emitting carbon, or gases which result in warming of the globe. Some decades ago a debate started on how to reduce the emission of harmful gases that contributes to the greenhouse effect that causes global warming. So, countries came together and signed an agreement named the Kyoto Protocol. The Kyoto Protocol has created a mechanism under which countries that have been emitting more carbon and other gases (greenhouse gases include ozone, carbon dioxide, methane, nitrous oxide and even water vapors) have voluntarily decided that they will bring down the level of carbon they are emitting to the levels of early 1990s. Developed countries, mostly European, had said that they will bring down the level in the period from 2008 to 2012. In 2008, these developed countries have decided on different norms to bring down the level of emission fixed for their companies and factories. A company has two ways to reduce emissions. One, it can reduce the GHG (greenhouse gases) by adopting new technology or improving upon the existing technology to attain the new norms for emission of gases. Or it can tie up with developing nations and help them set up new technology that is eco-friendly, thereby helping developing country or its companies 'earn' credits. India, China and some other Asian countries have the advantage because they are developing countries. Any company, factories or farm owner in India can get linked to United Nations Framework Convention on Climate Change and know the 'standard' level of carbon emission allowed for its outfit or activity. The extent to which I am emitting less carbon (as per standard fixed by UNFCCC) It get credited in a developing country. This is called carbon credit. These credits are bought over by the companies of developed countries -- mostly Europeans -- because the United States has not signed the Kyoto Protocol. How are carbon credits created? The carbon market can be divided into two: the voluntary market and the regulatory (compliance) market. In the compliance market, carbon credits are generated by projects that operate under one of the United Nations Framework Convention on Climate Change (UNFCCC) approved mechanisms such as the Clean Development Mechanism (CDM).Credits generated under this mechanism are known as Certified Emissions Reductions (CERs). In the voluntary market, carbon credits are generated by projects that are accredited to independent international standards such as the Verified Carbon Standard (VCS). These credits are known as Verified Emission Reductions (VERs). Carbon Trade Exchange supports the trading of both voluntary and compliance credits. It is important to note that carbon credits differ from carbon allowances although the term carbon credit is interchangeably used to represent both. Although in most cases they both represent one tonne of carbon dioxide equivalent, allowances do not originate from carbon projects but are allocated to companies under a cap and trade system such as the EU Emissions Trading Scheme therefore, they represent the right to emit. How do carbon credits impact global emissions? Carbon credits are an immediate answer to reducing the amount of Green House Gas (GHGs) emissions in the atmosphere. The generation and sale of carbon credits funds carbon projects which would not have gone ahead i.e additional to business as usual. Carbon credits also help lower the costs of renewable and low carbon technologies as well as assisting in the technology transfer to developing countries. What are the different types of carbon projects? Carbon credits can be generated from various types of projects including: Renewable energy: a switch from fossil fuels to a clean energy e.g. wind and solar energy Forestation and Afforestation: The planting of new trees as trees sequester and store CO2 e.g. forest regeneration Energy efficiency: reducing emissions though an increase in energy efficiency e.g. installation of energy-efficient machinery Methane capture: avoiding methane emissions through capture and burning to create energy e.g. landfill methane capture Project eligibility for carbon credits depends on whether a project follows one of the Kyoto Protocols project-based mechanisms or an independent voluntary standard. How are carbon credits issued? 1. All projects listed on CTX are certified, verified and registered, ensuring that actual emission reductions take place before the credits are issued thus providing a secure and transparent environment for carbon trading. The process of getting credits issued varies depending on the credit type i.e (CERs vs VERs). However, below is a very general overview of the process a project developer needs to follow before credits can be issued: The selection of a approved methodology which quantifies the GHG benefits of a project 2. The development of a Project Design Document (PDD) which describes the whole project in detail including the project crediting period and the demonstration of additionality 3. An independent auditor reviews the PDD and validates the project 4. The project is monitored to ensure that GHG reductions are occurring 5. The monitoring reports are verified by an independent auditor 6. The project gets credits issued into a appropriate registry account Where are carbon credits held? Carbon credits are stored electronically in registries. Registries are essential for issuing, holding, and transferring carbon credits. Once a carbon project is issued with credits, the registry gives each one a unique serial number so that they can be tracked through their entire life-cycle. Registries also facilitate the retirement (surrendering) of credits for carbon neutrality purposes, ensuring credits are not resold at a later date. In the voluntary carbon market, the largest registry is the Markit Environmental Registry which CTX is directly connected to. In the compliance markets, each scheme has its own arrangements with regards to registries. CTX is connected to various national registries in the EU via CDC Climats Registry Electronic Interface (REI). How does MCX trade carbon credits? This entire process was not understood well by many. Those who knew about the possibility of earning profits, adopted new technologies, saved credits and sold it to improve their bottom line. Many companies did not apply to get credit even though they had new technologies. Some companies used management consultancies to make their plan greener to emit less GHG. These management consultancies then scouted for buyers to sell carbon credits. It was a bilateral deal. However, the price to sell carbon credits at was not available on a public platform. The price range people were getting used to was about Euro 15 or maybe less per tonne of carbon. Today, one tonne of carbon credit fetches around Euro 22. It is traded on the European Climate Exchange. Therefore, you emit one tonne less and you get Euro 22. Emit less and increase/add to your profit.
INDIA AND CARBON CREDITS ANALYZING INDIAN SCENARIO India being a developing country has no emission targets to be followed. However, she can enter into CDM projects. As mentioned earlier, industries like cement, steel, power, textile, fertilizer etc emit green houses gases as an outcome of burning fossil fuels. Companies investing in Windmill, Bio-gas, Bio- diesel, and Co-generation are the ones that will generate Carbon Credits for selling to developed nations. Polluting industries, which are trying to reduce emissions and in turn earn carbon credits and make money include steel, power generation, cement, fertilizers, waste disposal units, plantation companies, sugar companies, chemical plants and municipal corporations.
DELHI METRO RAIL CORPORATION (DMRC): A must mention project is The Delhi Metro Rail Corporation (DMRC): It has become the first rail project in the world to earn carbon credits because of using regenerative braking system in its rolling stock. DMRC has earned the carbon credits by using regenerative braking system in its trains that reduces 30% electricity consumption. Whenever a train applies regenerative braking system, the released kinetic energy starts a machine known as converter-inverter that acts as an electricity generator, which supplies electrical energy back to the Over Head Electricity (OHE) lines. This regenerated electrical energy that is supplied back to the OHE that is used by other accelerating trains in the same service line. DMRC can now claim 400,000 CERs for a 10-year crediting period beginning December 2007 when the project was registered by the UNFCCC. This translates to Rs 1.2 crore per year for 10 years. India has the highest number of CDM projects registered and supplies the second highest number of Certified Emission Reduction units. Hence, India is already a strong supplier of Carbon Credits and can improve on it. (Refer Annexure No. 3 & 4 for projects registered and expected average annual CERs generated respectively)
BENEFITS FOR INDIA By, switching to Clean Development Mechanism Projects, India has a lot to gain from Carbon Credits: a) It will gain in terms of advanced technological improvements and related foreign investments. b) It will contribute to the underlying theme of green house gas reduction by adopting alternative sources of energy c) Indian companies can make profits by selling the CERs to the developed countries to meet their emission targets. Financing support in India: Carbon Credits projects requires huge capital investment. Realizing the importance of carbon credits in India, The World Bank has entered into an agreement with Infrastructure Development Finance Company (IDFC), wherein IDFC will handle carbon finance operations in the country for various carbon finance facilities. The agreement initially earmarks a $10-million aid in World Bank-managed carbon finance to IDFC- financed projects that meet all the required eligibility and due diligence standards. IDBI has set up a dedicated Carbon Credit desk, which provides all the services in the area of Clean Development Mechanism/Carbon Credit (CDM). In order to achieve this objective, IDBI has entered into formal arrangements with multi-lateral agencies and buyers of carbon credits like IFC, Washington, KfW, Germany and Sumitomo Corporation, Japan and reputed domestic technical experts like MITCON. HDFC Bank has signed an agreement with Cantor CO2E India Pvt Ltd and MITCON Consultancy Services Limited (MITCON) for providing carbon credit services. As part of the agreement, HDFC Bank will work with the two companies on awareness building, identifying and registering Clean Development Mechanism (CDM) and facilitating the buy or sell of carbon credits in the global market. India Inc takes to carbon trading? More than 112 Indian companies, including Hindustan Lever Ltd and Tata Steel, are set to trade in carbon credits. These companies are ready with clean technologies to bring down the emission levels of greenhouse gases and sell certified emission reductions (CERs) to developed countries. According to World Bank estimates, India is expected to rake in $100 million annually by trading in carbon credits and Indian companies are expected to corner at least 10 per cent of the global market in the initial years. They can also buy CERs from developing countries, which do not have any reduction obligations, in case their industries are not in a position to lower the emission levels themselves. One tonne of carbon dioxide reduced through the Clean Development Mechanism (CDM) project, when certified by a designated entity, becomes a tradable CER. "It is cheaper for developing countries to reduce emissions than developed countries. As a result, buyers are coming to Indian shores," said Teri Associate Fellow Vivek Kumar. Brazil and China are emerging two of India's strong competitors. According to industry estimates, some Indian companies have entered into forward contracts with buyers from the European Union. These contracts are estimated at $325 million. The projects range from cement, steel, biomass power, bagasse co-generation and municipal solid waste to energy, municipal water pumping and natural gas power. While the ministry has given the host-country clearance, the CDM projects will have to be approved by the executive board of the UNFCCC. Of the 15 projects approved by the UNFCCC so far, four are Indian. These four are: Gujarat Flurochemicals, Kalpataru Power Transmission Ltd, the Clarion power project in Rajasthan and the Dehar power project in Himachal Pradesh. India is the world's sixth largest emitter of carbon dioxide with its present share in global emissions estimated at 6 per cent. How buying carbon credits attempts to reduce emissions? Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. This means that carbon becomes a cost of business and is seen like other inputs such as raw materials or labor. By way of example, assume a factory produces 100,000 tonnes of greenhouse emissions in a year. The government then enacts a law that limits the maximum emissions a business can have. So the factory is given a quota of say 80,000 tonnes. The factory either reduces its emissions to 80,000 tonnes or is required to purchase carbon credits to offset the excess. As emission levels are predicted to keep rising over time, it is envisioned that the number of companies wanting to buy more credits will increase, which will push the market price up and encourage more groups to undertake environmentally friendly activities that create for them carbon credits to sell. Another model is that companies that use below their quota can sell their excess as 'carbon credits.'
The possibilities are endless; hence making it an open market.
Companies who also offset their residual emissions include: Google Google have been carbon neutral since 2007 and recognise the importance of combatting climate change in order to preserve a sustainable environment for their business and the generations to come. They have a three-way approach to becoming a greener company: they optimise their energy by optimising their efficiency, maximise their renewable energy sources where they can and offset their residual emissions. At Google, they see carbon offsets as a tool that allows (them) to take full responsibility of (their) impact today. When considering an offset project, (they) carefully examine the projects environmental integrity, its ability to be monitored and verified, and ensure that the carbon savings of the project are real and additional to what would have happened without (their) investment. Climate cars Climate cars is a green car service company in London who take their environmental responsibility very seriously. Their policy adheres to the following key principles: investment in low-emission technology, reduction and recycling of waste, offsetting residual emissions and finally, ensuring a low carbon supply chain. Climatecars conduct an assessment annually of all of (their) hybrid cars emissions and then purchase carbon credits to offset all of them. PUMA PUMA published its first Environmental Profit and Loss Account (EP&L) in 2010, a sustainability initiative that reported the groups total environmental impact for key areas of greenhouse gas emissions. The EP&L valued PUMAs water, land air and waste pollution generated by its operations at 145 million for that year. This innovative approach to evaluating its environmental impacts has encouraged PUMA to improve its energy use and innovate to develop more sustainable products. The group is also engaging in carbon neutral supply chain and helping its suppliers become carbon neutral. PUMA are eager to continue to grow toward (their) mission to be the most desirable and sustainable sport- lifestyle company in the world, () and to further (their) commitment to collaborate with (their) partners to find solutions to offset (their) carbon footprint.