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Background
In the recent time the world economies have grown at an incredible rate with spurt in
technological innovations. This growth has lead to rise in manufacturing especially in the BRIC
Countries. With the growing industrialization, there has been an increase in energy
consumption globally. This growth has lead to increase in green house gases including carbon
According to one study, 60-70% of Green House Gases emission is through fuel combustion in
industries like cement, steel, textiles and fertilizers. Science has correlated climate over the
ages with core samples from ice sheets and found that carbon dioxide levels fluctuate with
climatic events. Only recently has science been able to understand how this CO2 actually works
to trap the heat in the atmosphere and by calling it the greenhouse effect gives us the basic
These gases are released as by-products of certain industrial process, which adversely affect
These harmful gases have lead to various environmental imbalances. Melting glaciers, freak
storms and stranded polar bears which have been witnessed in recent times playing the
said world temperatures are likely to rise between 1.1 to 6.4 degrees Celsius by 2100,
triggering more frequent floods, droughts, melting of icecaps and threatening species
extinction.
• An estimated 30 per cent of the world’s total greenhouse emissions in 1997 came from
• Worldwide carbon dioxide emissions in 2005 are estimated to be slightly more than 24
billion tonnes. Every litre of gasoline or petrol used in motor vehicles produces 2.4
kilograms of carbon dioxide emissions. For diesel fuel, every liter produces 2.7
• The World Health Organization has estimated that climate change leads to more than
150,000 deaths every year and at least 5 million cases of illness. Global sea levels will
• Ten countries account for two-thirds of global forest area, according to the UN Food
• The Earth’s carbon absorbing capacity is finite and delectable and that growth of GHG
• The per capita GHG emission is strongly correlated with economic prosperity. Further,
alternative technology options, developing countries would not be able to pursue their
these issues.
Thus, fear of increased sea level and lower agricultural yield have made people around the
world to want to reduce consumption and lower their personal shares of global emissions. With
growing concerns among nations to curb pollution levels while maintaining the growth in their
economic activities, the emission trading (ET) industry has come to life. Thus, the conception
Concept
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate
atmosphere at a level that would prevent dangerous anthropogenic interference with the
climate system."
Purpose
The Kyoto Protocol is established to legally bind for the reduction of four greenhouse gases
(carbon dioxide, methane, nitrous oxide, sulphur hexafluoride), and two groups of gases
well as general commitments for all member countriesThe agreement aims to lower overall
emissions from a group of six greenhouse gases by 2008-12, calculated as an average over these
five years. Cuts in the three most important gases - carbon dioxide (CO2), methane (CH4), and
nitrous oxide (N20) - will be measured against a base year of 1990. Cuts in three long-lived
hexafluoride (SF6) - can be measured against either a 1990 or 1995 baseline." The target
agreed upon at the summit was an average reduction of 5.2% from 1990 levels by the year
2012.
National limitations range from 8% reductions for the European Union and some others to 7% for
the United States, 6% for Japan, and 0% for Russia. The treaty permitted GHG emission
Members
As of January 2009, 183 parties have approved the protocol, which was initially have been
adopted for use on 11 December 1997 in Kyoto, Japan and which entered into force on 16
February 2005.
Working
Kyoto initiated "flexible mechanisms" such as Emissions Trading, the Clean Development
Mechanism and Joint Implementation to allow Annex I economies to meet their greenhouse gas
(GHG) emission limitations through financial exchanges, projects that reduce emissions in non-
Annex I economies, from other Annex I countries, or from Annex I countries with excess
allowances.
• Under Joint Implementation (JI) a developed country with relatively high costs of
• Under the Clean Development Mechanism (CDM) a developed country can 'sponsor' a
greenhouse 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
• Under International Emissions Trading (IET) countries can trade in the international
carbon credit market to cover their shortfall in allowances. Countries with surplus
credits can sell them to countries with capped emission commitments under the Kyoto
Protocol.
In real this means that Non-Annex I economies have no GHG emission restrictions, but have
financial incentives to develop GHG emission reduction projects to receive "carbon credits"
that can then be sold to Annex I buyers, encouraging sustainable development. In addition, the
flexible mechanisms allow Annex I nations with efficient, low GHG-emitting industries, and
high prevailing environmental standards to purchase carbon credits on the world market
instead of reducing greenhouse gas emissions domestically. Annex I entities typically will want
to acquire carbon credits as cheaply as possible, while Non-Annex I entities want to maximize
the value of carbon credits generated from their domestic Greenhouse Gas Projects.
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 vapour) have voluntarily decided that they will bring down the
Thus,Carbon credit can be defined as 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
2012. In 2008, these developed countries have decided on different norms to bring down the
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
They are key component of national and international attempts to mitigate the growth in
There are two distinct types of Carbon Credits: Carbon Offset Credits (COC's) and Carbon
Reduction Credits (CRC's). Carbon Offset Credits consist of clean forms of energy production,
Carbon Reduction Credits consists of the collection and storage of Carbon from atmosphere
through reforestation, forestation, ocean and soil collection and storage efforts. Both
approaches are recognized as effective ways to reduce the Global Carbon Emissions crises.
How It Works
• Emissions limits and trading rules vary country by country, so each emissions-trading
• For nations that have signed the Kyoto Protocol, which holds each country to its own
middlemen companies, called offset firms, estimate a company’s emissions and then act as
Unlike carbon trading, offsetting isn’t yet government regulated in most countries; it’s up to
Offsets are typically achieved through financial support of projects that reduce the emission of
greenhouse gases in the short- or long-term. The most common project type is renewable
energy, such as wind farms, biomass energy, or hydroelectric dams. Others include energy
destruction of landfill methane, and forestry projects. Some of the most popular carbon offset
projects from a corporate perspective are energy efficiency and wind turbine projects.
The Advantages
• Reducing emissions and lowering energy consumption is usually good for the core
business.
• Buying into the carbon market boom now suggests significant dividends later on.
Carbon credits are relatively cheap now, but their value will likely rise, giving
The Disadvantages
• As with any financial market, emissions traders are vulnerable to significant risk and
volatility.
• Carbon offset firms in the United States and abroad has 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.
Carbon credits create a market for reducing greenhouse emissions by giving a monetary value
to the cost of polluting the air. Emissions become an internal cost of doing business and are
visible on the balance sheet alongside raw materials and other liabilities or assets.
For example, consider a business that owns a factory putting out 90,000 tonnes of greenhouse
gas emissions in a year. Its government is an Annex I country that enacts a law to limit the
emissions that the business can produce. So the factory is given a quota of say 70,000 tonnes
per year. The factory either reduces its emissions to 80,000 tonnes or is required to purchase
carbon credits to offset the excess. After costing up alternatives the business may decide that
it is uneconomical or infeasible to invest in new machinery for that year. Instead it may choose
to buy carbon credits on the open market from organizations that have been approved as being
We should consider the impact of manufacturing alternative energy sources. For example, the
energy consumed and the Carbon emitted in the manufacture and transportation of a large
wind turbine would prohibit a credit being issued for a predetermined period of time.
• One seller might be a company that will offer to offset emissions through a project in
the developing world, such as recovering methane from a swine farm to feed a power
station that previously would use fossil fuel. So although the factory continues to emit
gases, it would pay another group to reduce the equivalent of 20,000 tonnes of carbon
• Another seller may have already invested in new low-emission machinery and have a
surplus of allowances as a result. The factory could make up for its emissions by buying
20,000 tonnes of allowances from them. The cost of the seller's new machinery would
be subsidized by the sale of allowances. Both the buyer and the seller would submit
accounts for their emissions to prove that their allowances were met correctly.
At present, emissions cap & trade is the principal international policy framework providing
incentives to mitigate the impact of global warming. Emissions cap & trade refers to the global
system of national caps on greenhouse-gas emissions and tradable permits (e.g. Carbon
credits), based on the emissions targets and timetables created by the Kyoto Protocol (1997).
Today, one of the hottest and most contested debates is the validity of emissions cap & trade
versus the validity of emission tax. It is argued that emission taxes have an important
advantage over cap-and-trade systems in that they result in a stable price for emissions (cap-
and-trade policies seek to stabilize the quantity of emissions, but allow prices to fluctuate).
Stable prices for emissions are critical for firms making long-term decisions about investment
and innovation in low-emission technologies. However, given the practical impediments to the
internationalization of emissions or carbon taxes, a more likely scenario seems to be one where
national level initiatives on carbon taxes could supplement the international cap and trade
system.
all of the taxation raised by a government may be applied inefficiently or not used to benefit
the environment.
By treating emissions as a market commodity it becomes easier for business to understand and
manage their activities, while economists and traders can attempt to predict future pricing
using well understood market theories. Thus the main advantages of a tradable carbon credit
• the price is more likely to be perceived as fair by those paying it. Investors in credits
• the flexible mechanisms of the Kyoto Protocol ensure that all investment goes into
validation process.
certainty, while under a tax the actual emissions would vary over time.
especially great when applied to markets like gasoline or home heating oil.
• Perhaps some reduced risk of certain types of cheating, though under both credits and
• When credits are grandfathered, this puts new or growing companies at a disadvantage
Theory of Supplementarity
The principle of Supplementarity within the Kyoto Protocol means that internal reduction of
which capped entities could develop real, measurable, permanent emissions reductions
Many criticisms of carbon credits stem from the fact that establishing that an emission of CO2-
equivalent greenhouse gas has truly been reduced involves a complex process. This process has
evolved as the concept of a carbon project has been refined over the past 10 years.
The first step in determining whether or not a carbon project has legitimately led to the
process.
Theory of Additionality
The concept of additionality studies whether the project would is feasible even in the absence
of revenue from carbon credits. Only carbon credits from projects that are "additional to" the
Carbon projects that yield strong financial returns even in the absence of revenue from carbon
credits; or that are compelled by regulations; or that represent common practice in an industry
are usually not considered additional, although a full determination of additionality requires
specialist review.
It is generally agreed that voluntary carbon offset projects must also prove additionality in
order to ensure the legitimacy of the environmental stewardship claims resulting from the
retirement of the carbon credit (offset). According the World Resources Institute/World
Business Council for Sustainable Development (WRI/WBCSD) : "GHG emission trading programs
operate by capping the emissions of a fixed number of individual facilities or sources. Under
these programs, tradable 'offset credits' are issued for project-based GHG reductions that occur
Each offset credit allows facilities whose emissions are capped to emit more, in direct
proportion to the GHG reductions represented by the credit. The idea is to achieve a zero net
increase in GHG emissions, because each tonne of increased emissions is 'offset' by project-
The difficulty is that many projects that reduce GHG emissions (relative to historical levels)
would happen regardless of the existence of a GHG program and without any concern for
climate change mitigation. If a project 'would have happened anyway,' then issuing offset
credits for its GHG reductions will actually allow a positive net increase in GHG emissions,
undermining the emissions target of the GHG program. Additionality is thus critical to the
success and integrity of GHG programs that recognize project-based GHG reductions."
Carbon market is not new to world, there are being several activities prevailing since
approx. 25 years but the most efficient mile stone in carbon market was achieved in 2005 when
EUETS & Kyoto came into existence. Although carbon trading is the only sector which is growing
at robust speed (having potential 60 to 70 billion USD annually) and covering whole world as
united for its growth for mitigating climate change, there are lots of issues existing which are
left unexplored or if explored than not much attention is being given, here I will be highlighting
some issues known to me which need immediate consideration for proper action.
as a result sea level is increasing due to melting of glaciers, depletion of ozone layer
but know the most alarming situation has come according to NASA team on climate
change, the life on earth will finishes up by 2015 because now the blue ice have also
started melting which was as it is from last 10000 years having a terrible increase in
sea level and disturbing the ratio of land and water on earth and by 2015 water will
2. Continuity of Kyoto after 1st compliance period that is in Second Compliance Period is
not being confirmed in Bali action Plan & if it came into existence than what about
transfer of credit among them is not cleared which has created lots of question mark
3. Non Availability of linkage between CITL & ITL (Community transaction log &
international transaction log). Hence no linkage between several schemes and also non
4. There is lot of Procedure delay in registering Project as CDM projects- It can take
between one and two years for a project to go from validation to registration and
technical delays. This does not even include the six months or so that it is taking to
book the services of a DOE. Project delays cost project developers valuable financial
resources, cost buyers valuable emission reductions and can delay desired
5. Standard methodology for Jatropha CDM project is not available, hence project
developer wanting to develop CDM project by using Jatropha as a fuel has to create a
new methodology and get it approved by Executive board which is very time
consuming.
6. International events e.g., 2005 Gleneagles G8 Summit, 2006 World Cup, football,
Olympic emits carbon like on an average 5500 tons of CO2 is emitted by Olympic Torch
7. Soon India’s ICWA will be launching separate accounting standard for Revenue from
Carbon trading as up till now it is recorded under other income. Therefore people are
opposing that their income from carbon trading will no more tax free.
8. New South Wales green house gas abetment scheme does not except credits from
other markets.
9. Sellers are unable to sell there CERs in adverse market condition as buyer terminate
the contract and all the losses have to be faced by CER project developers.
10. SF6 have highest warming potential which is being leaked from power grids & line
The Kyoto mechanism is the only internationally-agreed mechanism for regulating carbon credit
activities, and, crucially, includes checks for additionality and overall effectiveness. Its
supporting organisation, the UNFCCC, is the only organisation with a global mandate on the
national co-operation. The Kyoto trading period only applies for five years between 2008 and
2012.
Several countries responsible for a large proportion of global emissions (notably USA, Australia,
and China) have avoided mandatory caps, which means that businesses in capped countries
uncapped countries as they are now paying for their carbon costs directly.
Establishing a meaningful offset project is complex: voluntary offsetting activities outside the
CDM mechanism are effectively unregulated and there have been criticisms of offsetting in
Emissions in Environment from the oil and gas industry include substances that contribute to
global impacts on the climate and others that have local effects, such as acidification of lakes
and forests. The impacts of these emissions also take some time to become apparent, which
can make it difficult to identify them and link them directly to oil and gas activities.
Estimating and reporting greenhouse gas (GHG) emissions is extremely complex for a highly
integrated industry such as the oil and natural gas industry with its wide diversity of business
structures under a corporate umbrella. The oil and gas industry is the world’s second-biggest
air emission producer. Each year it emits over 150 billion cubic meters of environmentally-
damaging air emissions through venting, flaring or fugitive leaks and is responsible for 300
Now faced with the realities of consequential environmental damage, stricter governmental
emission legislations and reduction incentives, oil and gas companies are looking for proven
strategic and technical solutions that will minimize environmental damage and maximize
production and profit. There some major issues on which oil and gas industries must take
action.
Fire flaring in oil and gas industries have very adverse affect on environment they have very
high potential in polluting the environment so gas or fire flaring should be prevent by managing
proper supply of gas in line, preventing break down in system and utilizing waste heat also this
will prevent flaring. The practice of gas flaring adds about 350 million tonnes of CO2e annually
to global GHG emissions. The potential for local economic development and for emission
reduction is significant, if only there were a way to create viable local markets for the gas,
such as for power generation or Liquefied Petroleum Gas (LPG) for domestic cooking use.
However, many barriers exist as the example below demonstrates, and carbon finance has the
Refinery emits huge GHG gases so they must prevent it to fullest extent, avoid leakage from
pipeline prevent heat wastage apply Euro 3 & 4 and get it audited for environment safety.
Oil recovery: Carbon dioxide is used in enhanced oil recovery where it is injected into or
adjacent to producing oil wells, usually under supercritical conditions. It acts as both a
pressurizing agent and, when dissolved into the underground crude oil, significantly reduces its
viscosity, enabling the oil to flow more rapidly through the earth to the removal well. In
mature oil fields, extensive pipe networks are used to carry the carbon dioxide to the injection
points. Hence they must plant trees to remove there CO2 excretion in environment.
Reducing Air Emissions in Oil & Gas is the region’s leading industry-focused environmental
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• Successfully incorporate technology that will reduce emission levels and deliver instant
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The sudden boom in the carbon market has greatly helped Indian industries to cash in on the
carbon trading business. India certainly being the preferred location for carbon credit buyers or
India is considered as the largest beneficiary, claiming about 31 per cent of the total world
carbon trade through the Clean Development Mechanism (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. Carbon Trading
emissions of greenhouse gases to an average of 5.2 per cent below the 1990 level. 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
Developed countries have to spend nearly $300 to $500 for every tonne reduction in CO2,
against $10 to $25 to be spent by developing countries. In developing countries like India, the
emission levels are much below the target fixed by the Kyoto Protocol. So, they are excluded
from reduction of GHG emission. On the contrary, they are entitled to sell surplus credits to
developed countries. The European countries and Japan are the major buyers of carbon
credits.
The UNFCCC divides countries into two main groups: A total of 41 industrialized countries are
currently listed in the Convention‟s Annex-I, including the relatively wealthy industrialized
India comes under the third category of signatories to UNFCCC. India signed and ratified the
Protocol in August, 2002 and has emerged as a world leader in reduction of greenhouse gases
According to Report on National Action Plan for operationalizing Clean Development Mechanism
(CDM) by Planning Commission, Govt. of India, the total CO2-equivalent emissions in 1990 were
10,01,352 Gg (Giga grams), which was approximately 3% of global emissions. If India can
capture a 10% share of the global CDM market, annual CER revenues to the country could range
from US$ 10 million to 300 million (assuming that CDM is used to meet 10-50% of the global
demand for GHG emission reduction of roughly 1 billion tonnes CO2, and prices range from US$
3.5-5.5 per tonne of CO2). As the deadline for meeting the Kyoto Protocol targets draws
nearer, prices can be expected to rise, as countries/companies save carbon credits to meet
strict targets in the future. India is well ahead in establishing a full-fledged system in
operationalising CDM, through the Designated National Authority (DNA). Other than Industries
and transportation, the major sources of GHG‟s emission in India are as follows:
• Paddy fields
Of the above three sources the emissions from the paddy fields can be reduced through special
irrigation strategy and appropriate choice of cultivars; whereas enteric fermentation emission
can also be reduced through proper feed management. In recent days the third source of
emission i.e. Municipal Solid Waste Dumping Grounds are emerging as a potential CDM activity
The total traded volume in global carbon markets in 2008 was 2.7 Gt, valued at just over €40
bn. We expect this to grow to 4.2 billion tonnes CO2e in 2009, up 56 percent from 2008. The
EU ETS maintains its position as the largest market. Traded volume in the EU ETS is expected to
The expected increasing traded volumes will continue as the global market becomes more
mature and sophisticated. An increase in contract types, more players and markets and greater
competition between market players (such as exchanges and brokers) will together generate
momentum for higher volumes. As a consequence, liquidity providers will be attracted to this
market. On the other hand, turbulence in global financial markets may contribute to less
The expected 2009 carbon market will differ from 2008 in several ways.
• The EU ETS Phase 2 is considerably tighter than Phase 1. Moreover, the start of short-
term prompt trading for Phase 2, where only forward trading was seen previously, is
• New policies in key countries such as the US and Australia imply that we will see
trading in new markets. This will be accelerated by the ongoing negotiations under the