By Vipul Mundada & Charan Salian Roll No: 251 & 268

Rapid Industrial Growth

Increase Energy Consumption

Increase CO2 and other GHG emission

Global Warming due to increase concentration of GHG

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). 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.

 Key idea is to encourage companies to reduce the emission of carbon and Green House Gases (GHGs).

UNFCCC came out with concept of Certified Emission Reductions (CER) based on the Industry standards.
Companies emitting lesser carbons than industry standard gets Credits by way of CERs. Carbon credit is equivalent to one tone of carbon dioxide or its equivalent GHG. Carbon credits are Entitlement Certificates issued by the United Nations Framework Convention on Climate Change (UNFCCC).

The potential buyers of carbon credits shall be corporate in various Annexure I countries that need to meet the compliance prevailing in their countries as per the Kyoto Protocol.

 165 nations signed the 1992 United Nations Framework Convention on Climate Change (UNFCCC) at Rio de Janeiro. The Convention divides countries into two main groups - Annex I & Non-Annex I Countries. Annex I (developed countries) agreed to reduce their GHGs by 5.2 % below 1990 levels in 1st commitment period 2008 2012. Convention is based on three principles: Common but differentiated responsibility Precautionary approach Sustainable Economic Growth and Development The Kyoto protocol defined how to bring down the emissions in COP 3 in 1997.

 The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change. The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialized countries and the European community for reducing greenhouse gas (GHG) emissions. The major distinction between the Protocol and the Convention is that while the Convention encouraged industrialised countries to stabilize GHG emissions, the Protocol commits them to do so. The Protocol was initially adopted on 11 December 1997 in Kyoto, Japan, and entered into force on 16 February 2005. As of August 2011, 191 states have signed and ratified the protocol. The only remaining signatory not to have ratified the protocol is the United States. Other states yet to ratify Kyoto include Afghanistan, Andorra and South Sudan, after Somalia ratified the protocol on 26 July 2010.

Annex I countries: There are 41 Annex I countries and the European Union is also a member. These countries are classified as industrialized countries and countries in transition. Annex I countries which have ratified the Protocol have committed to reduce their emission levels of greenhouse gasses to targets that are mainly set below their 1990 levels. They may do this by allocating reduced annual allowances to the major operators within their borders.

These operators can only exceed their allocations if they buy emission allowances, or offset their excesses through a mechanism that is agreed by all the parties to UNFCCC.

Annex II countries: There are 23 Annex II countries and the European Union. Turkey was removed from the Annex II list in 2001 at its request to recognize its economy as a transition economy. These countries are classified as developed countries which pay for costs of developing countries. Annex II countries are a sub-group of the Annex I countries. They comprise of Organisation for Economic Co-operation and Development (OECD) members.

Non Annex I countries: Developing countries. Developing countries are not required to reduce emission levels unless developed countries supply enough funding and technology. Setting no immediate restrictions under UNFCCC serves three purposes It avoids restrictions on their development, because emissions are strongly linked to industrial capacity. They can sell emissions credits to nations whose operators have difficulty meeting their emissions targets.

They get money and technologies for low-carbon investments from Annex II countries.
Developing countries may volunteer to become Annex I countries when they are sufficiently developed.

 Emissions trading (ET) is a mechanism that enables countries with legally binding emission targets to buy and sell emissions allowances among themselves. Each country has a certain number of emission allowances (amount of carbon dioxide it can emit) in line with its Kyoto reduction targets .

The IET allows industrialized countries to trade their surplus credits on the international carbon credit market.
A global Carbon Market is estimated to be around $30 billion.

 The purpose of CDM is reduce to emissions and also contribute to sustainable development in developing countries. The CDM is administered by the CDM Executive Board (CDM Board) which reports and is accountable to the Conference of Parties (COP).

A Carbon emission reduction (CER) is given by the CDM Executive Board.

One CER is equivalent to one tone of carbon dioxide reduced.

 Under Joint Implementation (JI) a developed country with relatively high costs of domestic greenhouse reduction would set up a project in another developed country. Under the Clean Development Mechanism (CDM) a developed country can sponsor a green house gas reduction project in a developing country where the cost of greenhouse gas reduction project activities is usually much lower, but the atmospheric effect is globally equivalent. The developed country would be given credits for meeting its emission reduction targets, while the developing country would receive the capital investment and clean technology or beneficial change in land use.

Outcome of the work of the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol are:
To achieving the lowest levels would require Annex I Parties as a group to reduce emissions in a range of 25-40 per cent below 1990 levels by 2020 (close to the 51% reduction in a low-carbon society). Urges Annex I Parties to raise the level of ambition of the emission reductions to be achieved. In the second commitment period, the base year shall be 1990. The global warming potentials shall be those provided by the IPCC. Market Based Mechanisms to be reviewed under Post-2012 Regime.

Carbon trading in India

As of 1st Oct, 2010. 1,561 CDM projects are approved in India. As of 31st March 2011. 907 CDM projects at or after the validation stage. As of 31st March 2011. 630 CDM projects were registered at CDM executive board.

Basic Data on Registered CDM Projects as of 31 March 2011):

Avg. Annual Emission Total ERs by 2012 Amount of Issued Review N. of Projects Rejected Reductions (t-CO2) (t-CO2) CERs (t-CO2) Conducted 630 80,555 273,783,807 93,119,476 193 44

 Multi Commodity Exchange of India Ltd. ( MCX) entered into a strategic alliance with CCX in September 2005 to initiate carbon trading in India.
Offers Mini version of ECX CFI & CCFE SFI. The tie-up would provide immense scope and opportunity for domestic suppliers to realize better prices for their carbon credits. India being a major supplier of carbon credits, the tie-up between the two exchanges is expected to ensure better price discovery of carbon credits.

 India Non Annexure I country, has a large scope in emissions trading. India and china together contribute to $5 billion of the global carbon trade estimated at $30billion. It is one of the leading generators of CERs through CDM. Analysts forecast that its trading in carbon credits would touch US$ 100 billion by 2020. Currently, the total registered CDM projects are 630, almost 18.5% of the total CDM projects registered with the UNFCCC. The amount of issued CERs (t-CO2) are 13.0% of the total amount of issued CERs (tCO2) under CDM projects by UNFCCC. The total CDM projects approved by India are 1561, almost 46.0% of the total CDM projects registered with the UNFCCC.