Professional Documents
Culture Documents
UNIVERSITY OF MUMBAI
PROJECT ON
BACHELOR OF COMMERCE
(BANKING AND INSURANCE)
SEMESTER V
(2010-2010)
SUBMITED BY
Miss. Pooja. R. Yadav
PROJECT GUIDE
Prof. Shanthilakshmi
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CARBON CREDIT
BACHELOR OF COMMERCE
BANKING INSURANCE
SEMESTER V
(2010-2011)
SUBMITTED
By
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CERTIFICATE
External Examiner
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DECLARATION
Signature of Student
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ACKNOWLEDGEMENT
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INDEX
PAGE
SR.NO. TOPICS
NO.
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CHAPTER 1
1.1 Introduction:-
This devil, however, is now turning into a product that helps people,
countries, consultants, traders, corporations and even farmers earn billions
of rupees. This was an unimaginable trading opportunity not more than a
decade ago.
Carbon credits are a part of international emission trading norms. The total
annual emissions are capped and the market allocates a monetary value to
any shortfall through trading. Businesses can exchange, buy or sell carbon
credits in international markets at the prevailing market price.
India and China are likely to emerge as the biggest sellers and Europe is
going to be the biggest buyers of carbon credits.
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Last year global carbon credit trading was estimated at $5 billion, with
India's contribution at around $1 billion. India is one of the countries that
have 'credits' for emitting less carbon. India and China have surplus credit to
offer to countries that have a deficit.
India has generated some 30 million carbon credits and has roughly another
140 million to push into the world market. Waste disposal units, plantation
companies, chemical plants and municipal corporations can sell the carbon
credits and make money.
Carbon, like any other commodity, has begun to be traded on India's Multi
Commodity Exchange since last the fortnight the MCX has become first
exchange in Asia to trade carbon credits.
In step with the dramatic rise in C02 emissions and other pollutants in recent
years, a variety of new financial markets have emerged, offering businesses
key incentives — aside from taxes and other punitive measures — to slow
down overall emissions growth and, ideally, global warming itself.
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amount from 2006. Size of global carbon credit market: Approximately $60
billon
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
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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 (UNFCCC) 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) I get credited in a developing
country. This is called carbon credit.
This devil, however, is now turning into a product that helps people,
countries, consultants, traders, corporations and even farmers earn billions
of rupees. This was an unimaginable trading opportunity not more than a
decade ago.
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THE ADVANTAGES
Then there’s the long-term investment angle: Buying into the carbon market
boom now suggests significant dividends later on. Carbon credits are
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relatively cheap now, but their value will likely rise, giving companies
another reason to participate.
The Disadvantages
Carbon offsets have their own drawbacks, which reflect a fast-growing and
unregulated market. Some offset firms in the United States and abroad have
been caught selling offsets for normal operations that do not actually take
any additional C02 out of the atmosphere, such as pumping C02 into oil wells
to force out the remaining crude. In 2008 the Climate Group, the
International Emissions Trading Association, and the World Economic
Forum will work to develop a Voluntary Carbon Standard to verify that
offsetting projects are beyond business-as-usual and have lasting
environmental value.
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But until the Federal Trade Commission determines the guidelines for such
terms, it’s unclear which companies actually merit the distinction. Already
Vail Resorts, the organizers of the Academy Awards, and other
organizations have taken heat for touting their investments in carbon offset
projects that were not entirely environmentally sound.
Seawaters could rise almost a meter in this century, and will continue to
move up. Some coastal regions already see seasonal flooding, and the
situation is expected to worsen as water levels rise. Coral reefs are under
pressure from changes in water level and temperature. As most carbon goes
into sea, plankton could suffer, and that would affect species higher up the
food chain.
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The sun heats up the earth by sending solar rays towards us. Some of these
rays don’t get through our atmosphere. Those that do, warm up the earth.
When the earth warms up it radiates its own rays of heat – infrared rays.
Greenhouse gases absorb those, which don’t escape past the atmosphere.
These greenhouse gases warm the earth so it is at the temperature we
experience now. Without this process the earth would be some 30o C cooler
and life on our planet would be very different. However, we are producing
too many greenhouse gases, which mean they are absorbing more heat and
warming the earth too much – this is called global warming. One of the
main greenhouse gases is carbon dioxide, which can be created from
chopping down and burning of trees. The fuel used in cars and machinery
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CHAPTER 2
KYOTO PROTOCOL
2.1 MEANING
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CER Trading
2.4
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The industries, which can qualify for the CDM projects, are as follows:
Renewable energy
Wind power
Solar energy
Biomass power
Hydel power
Geothermal
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Tydel Power
2. Fuel switching from fossil fuel to green fuel like biomass, rice
husk, etc.
Boiler
Pumps
Turbines
requirement
In waste management
Utilization of waste and waste water emissions for generation of energy for
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4 In transport
2.6
KEY PLAYERS
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The European Union Emission Trading Scheme (EU ETS) is the mandatory
cap-and-trade program for the EU.
CHAPTER 3
How It Works :-
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Industry watchers say carbon markets will continue to grow at a fast clip —
especially in the United States, where Fortune 500 powerhouses such as
DuPont, Ford, and IBM are voluntarily capping and trading their emissions.
Even though a national cap on carbon emissions doesn’t yet exist in the
United States, most consider it inevitable, and legislators are already
pushing the issue in Congress.
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MACs (Marginal Abatement Costs) refer to the cost of cutting C02 emission,
which varies from country to country and industry to industry.
Trade in carbon credits has the potential to make forestry more profitable,
and enhance the environment at the same time. It has therefore attracted
considerable attention of the likely buyers of credits, producers (ie forest
growers), and others. However, it is difficult to stay fully informed about
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credit) must come from ‘Kyoto forests’, which are new forests: planted on
land, which historically has not been covered by forest (i.e. afforestation);
• Planted on land which historically has contained forest but which has been
used for another purpose since last being covered by forests (ie
reforestation); and
• Additional to those that would otherwise have been planted. The Kyoto
forests must arise from a change in landuse, and planted not before 1990.
Growers must have evidence to prove their forests meet these qualifications.
Note also that carbon sequestered by the forests during 2008–2012 alone is
tradable. Decision is pending about the period after 2012. Decision is also
pending on the definition of the term ‘forest’. The ambiguity on the meaning
of ‘forest’ had led to the suggestion that certain forest types (e.g.
windbreaks) may not qualify as Kyoto forests. It shows that many of the
issues central to carbon credit markets and trade are yet to be clarified. The
costs a first step in selling the sequestered carbon is to measure its quantity
in trees. A range of simple to complex techniques is available for the
purpose. In general, the techniques are more reliable for plantations of
species such as radiate pine and certain eucalypts, but less so for plantations
of other species or of mixed ages and mixed species. Other things remaining
the same, measurements of carbon with a higher statistical accuracy will
result in a higher cost for the grower. The next series of steps in selling the
carbon involve: aggregation of individual growers’ carbon in to a sizeable
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Summing up
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relatively high total cost per unit of carbon credit, and the enormous
technical, financial and institutional risks and uncertainties. To capture the
potential benefits of carbon credit trade, growers should monitor the forward
trade prices of carbon credits; seek more information; stay informed on the
changes in the Kyoto rules and the government policy; keep records of their
own forestry operations; and take other actions to reduce the costs, risks and
uncertainties. Future issues of this market report will also try to inform
growers on the latest developments on carbon credit trade.
Stumpage prices
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CHAPTER 4
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4.2
c) Indian companies can make profits by selling the CERs to the developed
countries to meet their emission targets.
4.3
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TRADING OF CERS
• 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
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and Indian companies. Every year, in the month of December, the contract
expires and at that time people who have bought or sold carbon will have to
give or take delivery. They can fulfill the deal prior to December too, but
most people will wait until December because that is the time to meet the
norms in Europe. If the Indian buyer thinks that the current price is low for
him he will wait before selling his credits. 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 from Indians who are
actually financial investors. They are thinking that if the Europeans are
unable to meet their target of reducing the emission levels by 2009, 2010 or
2012, then the demand for the carbon will increase and then they may make
more money. So investors are willing to buy now to sell later. There is a
huge requirement of carbon credits in Europe before 2012. Only those
Indian companies that meet the UNFCCC norms and take up new
technologies will be entitled to sell carbon credits. There are parameters set
and detailed audit is done before you get the entitlement to sell the credit.
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CHAPTER 5
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• IDBI has set up a dedicated Carbon Credit desk, which provides all the
services in the area of Clean Development Mechanism/Carbon Credit
(CDM).
• 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
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CHAPTER 6.
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up with any other company like Indian Oil , or anybody else, in the open
market.
In December 2008, an audit will be done of their efforts to reduce gases and
their actual level of emission. China and India are ensuring that new
technologies for energy savings are adopted so that they become entitled for
more carbon credits. They are selling their credits to their counterparts in
Europe. This is how a market for carbon credit is created.
Under the CDM you can cut the deal for carbon credit. Under the UNFCCC,
charter any company from the developed world can tie up with a company
in the developing country that is a signatory to the Kyoto Protocol. These
companies in developing countries must adopt newer technologies, emitting
lesser gases, and save energy.
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Only a portion of the total earnings of carbon credits of the company can be
transferred to the company of the developed countries under CDM. There is
a fixed quota on buying of credit by companies in Europe
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.
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MCX is the futures exchange. People here are getting price signals for the
carbon for the delivery in next five years. Our exchange is only for Indians
and Indian companies. Every year, in the month of December, the contract
expires and at that time people who have bought or sold carbon will have to
give or take delivery. They can fulfill the deal prior to December too, but
most people will wait until December because that is the time to meet the
norms in Europe.
Say, if the Indian buyer thinks that the current price is low for him he will
wait before selling his credits. 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 from Indians are actually financial
investors. They are thinking that if the Europeans are unable to meet their
target of reducing the emission levels by 2009 or 2010 or 2012, then the
demand for the carbon will increase and then they may make more money.
So investors are willing to buy now to sell later. There is a huge requirement
of carbon credits in Europe before 2012. Only those Indian companies that
meet the UNFCCC norms and take up new technologies will be entitled to
sell carbon credits.
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There are parameters set and detailed audit is done before you get the
entitlement to sell the credit. In India, already 300 to 400 companies have
carbon credits after meeting UNFCCC norms. Till MCX came along, these
companies were not getting best-suited price. Some were getting Euro 15
and some were getting Euro 18 through bilateral agreements. When the
contract expires in December, it is expected that prices will be firm up then.
On MCX we already have power, energy and metal companies who are
trading. These companies are high-energy consuming companies. They need
better technology to emit less carbon.
These carbon credits are with the large manufacturing companies who are
adopting UNFCCC norms. Retail investors can come in the market and buy
the contract if they think the market of carbon is going to firm up. Like any
other asset they can buy these too. It is kept in the form of an electronic
certificate.
We are keeping the registry and the ownership will travel from the original
owner to the next buyer. In the short-term, large investors are likely to come
and later we expect banks to get into the market too. This business is a
function of money, and someone will have to hold on to these big
transactions to sell at the appropriate time.
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Isn't it bit dubious to allow polluters in Europe to buy carbon credit and get
away with it?
It is incorrect to say that because under UNFCCC the polluters cannot buy
100 per cent of the carbon credits they are required to reduce. Say, out of
100 per cent they have to induce 75 per cent locally by various means in
their own country. They can buy only 25 per cent of carbon credits from
developing countries
Like in the case of any other asset, its price is determined by a function of
demand and supply. Now, norms are known and on that basis European
companies will meet the target between December 2008 and 2012. People
are wondering how much credit will be available in market at that time. To
what extent would norms be met by European companies. . .
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Governments have become signatories to the Kyoto Protocol and they have
set the norms to reduce the level of carbon emission. Already companies are
on way to meeting their target.
Other than this, it's a question of having correct information. How much will
be the demand for carbon credit some years from now? How much will the
supply be? It is a safe market because it is a matter of having more
information on the extent of demand and supply of carbon credit market.
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CHAPTER 7
CASE STUDY
7 .1
IDBI :-
IDBI is one of the premier banks engaged in funding medium and large-
scale projects, for more than 40 years, in infrastructure and non-
infrastructure sector in India for promoting fast track industrial
development. IDBI has assisted many companies in India and have strong
relationships with the companies in Textiles, Sugar, Power/Energy,
Chemicals, Fertilizers, Pharmaceuticals, Steel, Paper, Cement and other
sectors. Besides offering various banking services, IDBI has also 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 Germany and Our primary
objective is to protect long-term interests of our clients and suggest various
risk mitigation measures. By combining the experience and expertise of
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CONCLUSION:-
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Criticisms
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Others relate to the effort and time taken to get a project approved.
Questions may also be raised about the validation of the effectiveness of
some projects; it appears that many projects do not achieve the expected
benefit after they have been audited, and the CDM board can only approve a
lower amount of CER credits. For example, it may take longer to roll out a
project than originally planned, or an afforestation project may be reduced
by disease or fire. For these reasons some countries place additional
restrictions on their local implementations and will not allow credits for
some types of forestry or land use projects.
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BIBLIOGRAPHY
WEBSITE:-
www.cseindia.org
www.carboncredit.org
www.google.co.in
www.scribd.com
www.carbontrading.com
www.creditmart.com
www.cdmmarket.org
www.kyotoprotocol.int
www.wikipedia.org
www.ieta.org
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http://www.cdmwatch.org
10. http://www.indiainfoline.com
JOURNALS
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