SUBMITTED TO: SUBMITTED BY:

GUJARAT KOTHARY VAISHAL

UNIVERSITY NAVANI VICKY
DATE:
6TH MAY 2009 1
 CARBON CREDIT
 Carbon credits are an element used to aid in regulation of the
amount of gases that are being released into the air. This is
part of a larger international plan which has been created in
an effort to reduce global warming and its effects.

 The plan works by capping the amount of total emissions that

can be released by one company or business.

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 CARBON CREDIT
If there is a shortfall in the amount of gases that are used, there is
a monetary value assigned to this shortfall and it may be traded.
These credits are often traded between businesses.

However, they also are bought and sold in international markets

at whatever the determined market value for them is.

There are also times when these credits are used to

fund carbon reduction plans between trading
partners.

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 CARBON CREDIT
There are two types of market in carbon credit:

3. Compliance Market (Annexure I countries)

4. Voluntary Market (Non- Annexure countries)

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 KYOTO PROTOCOL
The Kyoto Protocol is a legally binding agreement that arose
out of the UNFCCC to tackle climate change through a
reduction of green house gas emissions.

Countries (those listed in Annex I) are legally bound to reduce

man-made green house gases emissions by approximately
5.2%

Individual countries have their own reduction targets outlined

in Annex B of the Kyoto Protocol

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 KYOTO PROTOCOL
It was adopted in Kyoto, Japan, on 11th December 1997

Objective:
“stabilisation of greenhouse gas concentrations in
the atmosphere at a level that would prevent air
pollution interference with the climate system”

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 INDIA AND KYOTO
PROTOCOL
India signed and ratified the Protocol in August, 2002.

Since India is exempted from the framework of the treaty, it is

expected to gain from the protocol in terms of transfer of
technology and related foreign investments

India maintains that the major responsibility of curbing emission

rests with the developed countries, which have accumulated
emissions over a long period of time.

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 KYOTO MECHANISM
Kyoto is a 'cap and trade' system that imposes national caps
on the emissions of Annex I countries. On average, this cap
requires countries to reduce their emissions 5.2% below their
1990 baseline over the 2008 to 2012 period.

The types of Kyoto mechanisms are:

4. Clean Development Mechanism
5. Emissions trading
6. Joint implementation (JI)

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 KYOTO MECHANISM
Both Annex I & non-Annex I Parties must co-operate in the
areas of:
Development, application & diffusion of climate friendly
technologies;
Research & systematic observation of the climate system;
Education, training, & public awareness of climate change; &
The improvement of methodologies & data for GHG inventories.

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 CDM MARKET
The CDM market is like any other commodity market.
Majority of the trading is done in the Primary market. The
secondary market is not as expanded as the primary mainly
because of the high volatility of the carbon prices.

The Buyers of CERs can be broadly classified into:

5. Compliance Buyers
6. Carbon Funds (e.g.: Carbon Fund of World Bank)
7. Traders

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 CLEAN DEVELOPMENT
MECHANISM
CDM is a mechanism whereby an Annex I party may purchase
emission reductions which arise from projects located in non-
Annex I countries. The carbon credits that are generated by a
CDM project are termed Certified Emission Reductions
(CERs), expressed in tonnes of CO2 equivalent

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 CDM PROCESS
IDENTIFICATION OF PROJECT AND SUBMISSION OF THE PDD AND HOST
DEVELOPMENT OF PROJECT CONCEPT COUNTRY APPROVAL VALIDATOR
NOTE

DEVELOPMENT OF PROJECT DESIGN MAKE PDD COMPLETELY AVAILABLE

DOCUMENT FOR 30 DAYS

VALIDATION OF PROJECT
HOST COUNTRY APPROVAL

SUBMISSION OF VALIDATION REPORT

VERIFICATION AND CERTIFICATION AND PDD

REGISTRATION WITH THE CDM

POSSIBLE REVIEW BY CDM EXECUTIVE
BOARD
PROJECT IMPLEMENTATION AND
ISSUANCE OF CERS TO PROJECT MONITORING
DEVELOPERS

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 CHALLANGES
Procedural delays in the CDM:
 2,022 out of 3,188 projects are at validation stage
 An average wait of 80 days to go from registration request to actual
registration
Complex rules and the capacity constraint:
 DOEs are unable to keep up with a large backlog of projects awaiting
registration
 It is difficult to recruit, train and retain qualified, technical staff to apply the
complex rules consistently
Impact of delays on carbon payments:
 Delays for any reason in a project’s schedule can jeopardize elements of its
financing package, and ultimately its construction and implementation

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 EMISSION TRADING
Emissions trading (ET) is a mechanism that enables countries
with legally binding emissions targets to buy and sell
emissions allowances among themselves

Under an emissions trading system, the quantity of emissions

is fixed (often called a "cap") and the right to emit becomes a
tradable commodity. The cap (say 10,000 tonnes of carbon) is
divided into transferable units (10,000 permits of 1 tonne of
carbon each)

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 EMISSION TRADING V/S CARBON
TAXES:
THE POLITICS-WHO LIKES WHICH
POLICY & WHY?
United States is the strongest proponent of emissions trading as
US is energy inefficient and has high per capita carbon dioxide
emissions levels.
The European Union has been in favor of carbon taxes as the EU
is already relatively energy efficient
The Russian Federation & the Ukraine are major supporters of
emissions trading
Developing countries are extremely cautious of emissions
trading, & view it primarily as a "loophole" that the US & Japan
can use to avoid their domestic responsibility

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 JOINT
IMPLEMENTATION (JI)
Joint implementation is a project-based mechanism by which
one Annex I Party can invest in a project that reduces
emissions or enhances sequestration in another Annex I Party,
and receive credit for the emission reductions or removals
achieved through that project. The unit associated with JI is
called an emission reduction unit (ERU)

In simple terms Joint Implementation means transfer of

emissions reduction at the project level.

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 JOINT
IMPLEMENTATION (JI)
There are two approaches for verification of emission
reductions:

 Under JI Track 1, a host Party that meets all of the eligibility

requirements may verify its own JI projects and issue ERUs for
the resulting emission reductions or removals.

 Under JI Track 2, each JI project is subject to verification

procedures established under the supervision of the Joint
Implementation Supervisory Committee.

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 CARBON TRADING
A carbon trading system allows the development of a market
through which carbon dioxide or carbon equivalents can be
traded between participants, whether countries or companies.
Each carbon credit is equal to 100 metric tons of carbon
dioxide, which can be traded or exchanged in market.

There are two kinds of carbon trading – Emission trading and

trading in Project-based Credits. The two categories are put
together as Hybrid trading System

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 TYPES OF CARBON
TRADING
1. EMISSION TRADING:
A company can reduce its emission by half the cost of allowance
bought from other company
On the other hand, a company with higher expenditure for
reduction of its emissions buys the required allowance from other
company to save its emission cost
2. PROJECT-BASED TRADING:
Government & World Bank subsidized credit for project-based
trading to the companies calculating how much carbon dioxide
equivalent they save/reduces
Project-based Credit trading includes ‘baseline-and-credit’ trading
and ‘offset’ trading
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 TYPES OF CARBON
TRADING
3. HYBRID TRADING SYSTEM:

In Hybrid trading system, both emission trading and offset

trading are used and try to make allowance exchangeable for
project-based credits.

Hybrid trading system is enormously complex as it is not only

difficult to try to create credible ‘credit’ and make them
equivalent to ‘allowance’

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 CARBON NETWORK
Seller
Buyers
Exchang
e
Annex 1
Banks
country
Trading
Individua Banks
exchange
ls
Banks
NGO & Individual
Govt. s
Consulta Brokers & Consultan
nts Traders ts
Intermedi
Annex 2 Others
ary
&3
service
countries
Others providers
Consultan NGO &
ts Governm
ent 21
 PARTIES INVOLVED IN CARBON
TRADING
PROJECT ENTITY:
Joint venture company or a limited partnership that are set up
specifically to undertake the project
SPONSOR:
Individuals, companies or other entities that support a project
who have a direct or indirect interest in the project.
LENDER:
If the project is financed through debt, one or more banks may
be involved in providing this.

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 PARTIES INVOLVED IN CARBON
TRADING
EQUITY PROVIDER:
Equity may be provided by project sponsors or third party
investors who ensure that the project produces a ROI as set out in
the business plan or prospectus.
CONSTRUCTOR:
Who have responsibility for the completion of the works, & often
have to assume liability for finishing construction on time and to
budget.
OPERATOR:
Person responsible for the operation and maintenance of the
project facilities once completed
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 PARTIES INVOLVED IN CARBON
TRADING
SUPPLIER
BUYER
INSURER:
If a risk is to be mitigated by purchasing insurance, the lender
will need to be satisfied as to the track record and credit-
worthiness of the insurer.
RATING AGENCIES:
The rating agencies may be involved if the financing of the
project involves the issue of securities

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 PARTIES INVOLVED IN CARBON
TRADING
EXPERTS:
Experts are individuals who give advise on key technical,
engineering, environmental and risk aspects of a project.
Experts need to be able to demonstrate a track record of
expertise in the relevant area
HOST GOVERNMENT:
The objectives and role of the host government will vary but
may involve economic, social and environmental guidelines
and issuance of relevant consents, permits and licenses

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 ADVANTAGES OF CARBON
TRADING
New cash source to companies who are able to maintain their
emission levels well within the permissible limits.

The overall ecological balance is preserved

The company or country gets rewarded for applying clean

technology in its production process.

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 ADVANTAGES OF CARBON
TRADING
A much better corporate and social image which wins public
approval

Encourages activities like tree plantings which would help

reduce soil salinity, improve water quality and enhance
biodiversity

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KEY RISKS AND UNCERTAINTIES
The extent to which the Kyoto Protocol guidelines are
implemented & followed

The attitude of US which is the biggest polluter and had

refused to sign the treaty

The final rules and decisions relating to an emissions trading

market

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 POSITION OF INDIA
India is considered as the largest beneficiary, claiming about
31 % of the total world carbon trade through CDM

It is expected to rake in at least Rs 22,500 crore to Rs 45,000

crore over a period of time and Indian companies are expected
to corner at least 10 per cent of the global market in the initial
year

If India can capture a 10% share of the global CDM market,
annual CER revenues to the country could range from US$ 10
million to 300 million
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 PRESENT STATUS OF DUMPING
GROUNDS IN INDIA
In India, due to increased population & commercial
development, cities are facing problems of Municipal Solid
Waste disposal. The urban population in larger towns & cities
in India is increasing at a decadal growth rate of above 40%
Various processes/technologies available to reduce the amount
of Municipal Solid Waste are as follows:

 Physical (a. Pelletisation)

 Biochemical (a. Aerobic Composting b. Anaerobic Digestion)
 Thermal (a. Incineration b. Gasification)

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 CARBON TRADING AT MCX
The Multi Commodity Exchange of India Ltd entered into an
alliance with the Chicago Climate Exchange in 2005 to
introduce carbon credit trading in India
MCX is the futures exchange. People here are getting price
signals for the carbon for the delivery in next five years. The
exchange is only for Indians and Indian companies
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

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 CARBON TRADING AT MCX
TRADING BENEFITS:
 Sellers and intermediaries can hedge against price risk
 Advance selling could help project to generate liquidity and
thereby reducing its cost of implementation
 There is no counter party risk as exchange guarantee the trade
 The price discovery on the exchange platform ensure the fair
price for both the sellers and buyers
 Bring players to a single platform

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 OUTLOOK FOR INDIA
India is one of the exempted from this protocol as they are
stated as developing countries, but overseas 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

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 INDIAN COMPANIES: TAKING
ADVANTAGE
Gujarat Fluoro Chemicals is amongst first companies worldwide
to get its carbon emission reduction project certified. It is set to
reap rewards from the sale of CER credits from this year itself
Tata Steel is believed to have signed a MoU with the Japanese
government agency “NEDO” for sale of credits accruing to it from
carbon reduction following the implementation of an over Rs 250
crore modernization and upgradation project
NTPC and several state electricity boards have also applied for
carbon credit benefits. Most of them are replacing coal-based
technologies with more environment-friendly processes

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 INDIAN COMPANIES: TAKING
ADVANTAGE
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
The country accounted for 283 CDM projects out of the 819
registered by the CDM Executive Board, the environment
ministry, the World Bank and the International Emissions
Trading Association

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 CONCLUSIONS
There is a great opportunity awaiting for India in carbon
trading which is estimated to go up to $100 billion by 2010.

In the new regime, the country could emerge as one of the
largest beneficiaries accounting for 25 % of the total world
carbon trade, says a recent World Bank report

Analysts claim if more companies absorb clean technologies,

total CERs with India could touch 500 million.

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 CONCLUSIONS
Of the 391 projects sanctioned, the UNFCCC has registered
114 from India, the highest for any country.

There are projects range from cement, steel, biomass power,

bio-gases co-generation and municipal solid waste to energy,
municipal water pumping and natural gas power. The ministry
has given the host-country clearance, the CDM projects will
have to be approved by the executive board of the UNFCCC

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THANK YOU

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