CARBON TRADING: Where Greed is Green INTRODUCTION The concept of carbon credits came into existence because of the

green house gases emissions. There is a necessity to create awareness among the people about the air pollution and its effects. Some of the gases are Carbon dioxide(CO2), Methane(CH4), Nitrous oxide(N2O), Hydrofluoro carbons(HFC), perfluorocarbons(PFC), Sulphur hexafluoride(SF6) . The IPCC(Intergovernmental Panel on Climate Change) has observed that if there is a policy that provide a real price of carbon could create incentives for producers and consumers to significantly invest in low GHG products, technologies, and processes. Such policies are economic instruments , government funding and regulations etc. A new protocol is introduced for the control of emissions called Kyoto Protocol. Kyoto Protocol adapted on December 11th 1997 and made effective from 18 Feb 1995 in Kyoto, Japan and it is signed by 184 countries. This protocol is aimed at reducing green house gas emissions and global warming. Under this treaty industrialized companies agreed to reduce their emissions to 5% 0f the 1995 levels. WHAT IS CARBON CREDIT? A permit that allows the holder to emit one ton of carbon dioxide. Credits are awarded to countries or groups that have reduced their green house gases below their emission quota. Carbon credits can be traded in the international market at their current market price. Certified emission reductions popularly called as carbon credits. CERs are certificates like stocks which are readily available and tradable in the international markets. 1 Carbon Credit = 1 tonne emission of CO2 and its equivalents. These credits are given monetary value set by the regulatory body and can be bought and sold between two groups on states, national and international markets. The owner who owns the carbon credit has the right to emit 1 ton of CO2 and its equivalents. Credits may also be retired, meaning taken off the market. They can be donated to nonprofit groups and are tax deductible in countries where trading is taking place. Large amounts of

credits can be bought and retired, which results in the increase in price of the CERs and so it makes the companies to reduce their carbon emissions which is good for the environment. As an individual or a business, you can buy carbon credits to offset your emissions as a voluntary or mandatory scheme. THE PROCESS TO ATTAIN CARBON CREDITS In developing countries like India, a manufacturing firm wants to attain carbon credits they have to approach CDM or UNFCCC for the approval of the procedure to reduce the emissions. They come to know their level of emission or offset for a particular activity. They will be credited points based upon their reduction levels by implementing newer and greener technologies. A company in a developed country can reduce their emissions by adopting new technologies or upgrading the existing technologies to reduce the emissions. It can tie up with a company in a developing nation and help them in implementing the newer technologies and reduce their carbon emissions and they can increase their carbon credits. Later the credits can be sold off. Otherwise, a company from developed nation which exceeding its GHG emissions allowance can buy carbon credits from a company in a developing nation. Carbon offset: One carbon offset is equals to one metric ton emission of CO2 or its equivalent in other greenhouse gases. CARBON DEVELOPMENT MECHANISM Under the CDM or UNFCCC, any company from the developed nation can tie up with a developing nations company that is a signatory to the Kyoto protocol. The industrialized nations and its companies can implement new eco friendly technologies in the developing nations and help them in reduce their emissions and earn carbon credits. Carbon offset is a financial instrument aimed at reduction of the greenhouse gas emissions. Offsets are typically achieved through financial support of projects that reduce the emissions of green house gases in the short or long term. The most common project type is renewable energy such as wind farms, biomass or hydroelectric power. Other projects include energy efficiency projects, the destruction of pollutants and forestry projects. There are two types of markets for carbon offsets: a. In the larger market companies, governments, or other entities buy carbon offsets in order to comply with quotas on the total amount of CO2 they are allowed to emit.

b. In the much smaller market individuals, companies or governments purchase carbon offsets to mitigate their own greenhouse gas emissions from transportation, electricity use, and other sources. CARBON TRADING (cap and trade) Emission trading is an administrative approach used to control pollution by providing economic incentives for the reductions in the emissions of the pollutants. This is also called cap and trade. A institute or central organization is there to set the limit or cap on the amount of a pollutant that can be emitted. Companies or other institutions are issued emission permits and are required to hold number of credits which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap which is limiting the total emissions to a certain level. Companies that need to emit more should buy the credits from a company which emits less. The transfer of allowances is called as trade. The buyer pays a charge for polluting and the seller gets rewarded for having reduced emissions by more than was needed. Thus, those who can reduce their emissions in a effective ways by implementing greener technologies will get rewarded in the form of carbon credits. This makes the companies to go for ecofriendly technologies which leads to the overall reduction in the pollution. There are active trading programs in several countries for carbon emissions, the largest is the European Union Emission Trading Scheme. In the US there is a market to reduce acid rain and several regional markets in nitrogen oxide. MARKETS FOR CARBON TRADING The price of the credits will depend upon the demand and supply.The emission levels of companies growing up leads to the requirements of the carbon credits and some companies reducing their emission levels to earn carbon credits. For example, European nations announced that they cannot reduce their emission upto 2012, which makes them to buy the carbon credits leads to the increase in the prices. The carbon markets are Multi Commodity Exchange European Climate exchange Chicago Climate Exchange California Climate Action Registry.

Multi Commodity Exchange I. II. III. IV. MCX is established in 2003 and it is located in Mumbai. MCX introduced trading of carbon credits in India. This exchange is only for Indians and Indian companies and it is a futures market. Only the Indian companies that meet UNFCCC norms and take up new technologies will be eligible to sell carbon credits. V. MCX has power, metal and energy sector companies who are involved in carbon trading. These companies are high energy consuming companies in need for better technology to emit less GHG. EUROPEAN CLIMATE EXCHANGE. I. ECX is the leading market place for trading carbon dioxide emissions in Europe and internationally. II. ECX currently trades in two types of carbon credits: EU allowances (EUA) and Certified Emission Reductions(CER). III. IV. CERS are the carbon credits issued by the Clean Development Mechanism. ECX is a member of the Climate Exchange Plc group of companies.

BENEFITS OF CARBON CREDITS Making a contribution to sustainable development through support for action to mitigate and to adapt to climate change at the global, regional and national level. Providing and disseminating high-quality, understandable and reliable information and data on climate change and on efforts to address it. Promoting and enhancing the active engagement of NGO's, business and industry, the scientific community and other relevant stakeholders in UNFCCC work and processes. Employment generation by using clean mechanism. The emission levels predicted to keep rising over time due to unchecked use of energy bringing more number of companies needing to buy credits. The rules of supply and

demand will push up the market price, encouraging more groups to undertake environmentally friendly activities that create carbon credits to sell. OPPURTUNITIES FOR INDIAN COMPANIES India has dominated in carbon trading market under the clean development mechanism (CDM) of the UN Convention on Climate Change (UNFCCC) Almost all industrialised countries are huge buyers of carbon credit and all developing countries like India are suppliers of carbon credit. Japan is the largest buyer of carbon credit while India, China and Brazil are amongst the largest suppliers of carbon credit. Companies like ONGC, Hindustan Petroleum, TATA Steel, Chennai Petroleum, Jaypee Associates and Gujarat Fluro Chemicals are going to make huge profits through carbon trading. TATA Iron and Steel Company is banking on carbon trading to generate funds for its various modernization and expansion projects at its steel works in Jamshedpur, over the next few years. Tata Steel has already received a commitment for Rs 125 crore from New Energy and Industrial Technology Development Organization (NEDO) of Japan. NEDO will provide technology and machinery worth Rs 125 crore for these projects. As part of the carbon trading agreement, Tata Steel will reduce carbon dioxide emission to the extent of 1,70,000 tonne while the credit for this reduction will go to Japanese companies.