Carbon Credits

Group Members
Kunal Joshi-24 Ashwini Mahale-33 Trupti Malgaonkar-35 Bhagyashree Patil-45 Kalpita Pitale-46 Bhagyashree Rode-49

KYOTO PROTOCOL

United Nations Framework Convention on Climate Change (UNFCCC).

Birth of UNFCCC
In 1992, Rio Brazil

Objective Green House Gases should be stabilized within a time frame.

The KYOTO PROTOCOL

An agreement signed in December 1997 in Kyoto, Japan

What is Kyoto Protocol ?

Countries that ratify this protocol commit to reduce:
a) their emissions of carbon dioxide and b) five other greenhouse gases, or c) engage in emissions trading if they maintain or increase emissions of these gases.

Three categories
Annex I : Leading industrialized countries (41 nations) Annex II : Wealthy countries in Annex I (24 nations) Non-Annex I : Developing countries (145 nations)

Annex I 41 Countries

Annex II 24 Countries

Non-Annex I 145 Countries

Commitment
Annex I: Cut GHG emissions by 5.2% below 1990 level (during 2008- 2012) Help non-Annex I countries to tackle climate change. Annex II: Additional financial & tech. supports to Non-Annex I countries Non-Annex I: No commitment

Objectives
"stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.

Status of Agreement

Details
According to a press release from the United Nations Environment Programme: The goal is to lower overall emissions of six greenhouse gases carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, HFCs, and PFCs

Calculated as an average over the five-year period of 2008-12.

8% reductions for the European Union 7% for the US 6% for Japan 8% for Australia 10% for Iceland.

India and Kyoto Protocol

India signed and ratified the Protocol in August, 2002. India is a Non Annex I country. 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

INDIAN SCENARIO

INDIAN SCENARIO

Conditions In India
No fixed norms of emission reduction by government. Potential Participants
Registry

Indias Potential
India Non Annex 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. One of the leading generators of CERs through CDM.

Introduction To Carbon Trading

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 carbondioxide, 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.

TYPES OF CARBON TRADING

EMISSION TRADING:

PROJECT-BASED TRADING:

HYBRID TRADING SYSTEM:

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 projectbased 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.

3 HYBRID TRADING SYSTEM:

In Hybrid trading system, both emission trading and offset trading are used and try to make allowance exchangeable for projectbased 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

CARBON NETWORK

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.

 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. SUPPLIER BUYER

 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.

Benefits of Carbon Trading

Reduction in green house gas emission Stringency in the cap or the upper threshold limit is contributing to lower emission over the years Source of revenue for developing nations Developing nations can earn revenue by selling carbon credits to countries with more fossil fuel demand.

Supports a free market system

The carbon trade market is without any economic intervention and regulation by government except to regulate against force or fraud

Impetus for Alternative sources of energy or green technology

Threshold limits encourages industries to harness alternative sources of energy and invest in green technology globally or in indigenous research.

Disadvantages Of Carbon Trading

Right to pollute Industries in the ratified nations are purchasing legal rights to pollute the atmosphere Slow process Industries are opting the easy way purchase more allowances than implementing greener technologies Lack of centralized system or global framework Absence of a centralized and accepted global standards/act are missing No effective carbon reduction in the atmosphere Leads to carbon reduction in one place and results in carbon emission in some other place

EXAMPLE:
If a cement manufacturer reduces its CO2 emissions by one ton by adapting some changes into its process or by any other means; say just by planting some trees around its plant, it is awarded one carbon credit. This carbon credit can be sold to any industry, allowing it to emit one extra ton of CO2 than its allowable limit.

Carbon Trading In India

Multi Commodity Exchange (MCX) has launched futures trading in carbon credits in India with the help of Chicago Climate Exchange in 2005.

Asias first commodity exchange trading in carbon.

India has already generated over 72 million units of carbon credits and is expected to touch 246 million units by 2012

Who are the shoppers?

Compliance shopper, i.e. (big) carbon emitters from Europe. Pre- compliance shoppers, i.e. (big) carbon emitters from the US. Voluntary shoppers, e.g. corporations (CSR), individuals, NGOs.

Who are the sellers?

Developing countries, i.e. Lower emission countries or with large tracks of forests China, India, Indonesia, Brazil Developed countries, i.e. countries trading off their surplus in carbon credits A country like Sweden has reduced its emissions far below its 5.2% obligation

Trading of CERS in India

Two Commodity exchanges trading in Carbon Credits

Multi Commodity Exchange (MCX), & National Commodity and Derivatives Exchange (NCDEX)

Carbon Credit Traders In India

Andhyodaya Green Energy Grasim Industries Ltd. Indo Gulf Fertilizers Indus Technical & Financial Consultants Ltd Madhya Pradesh Rural Livelihoods Project Rajasthan Renewable Energy Corporation Reliance Energy Ltd. Tata Motors Limited Tata Steel Limited Bajaj Finserv Limited Dhariwal Industries Ltd Tata Power Company Limited BlueStar Energy Services Inc. Valera Global Inc.

Hedging The Price Risk An Example

Suppose ABC Co. wants to buy carbon credits at the end of year 2008. The current price is Rs.1300 per ton and it expects the prices to up Rs.1400 per ton . To save itself from such Rs.1500 ton increase in price, the company decides to hedge on exchange platform.

Indias Stance on Carbon Credits

Role of India
India is expected to rake in $100 million annually by trading in carbon credits and Indian companies are expected to corner at least 10 per cent of the global market in the initial years.

India is the worlds sixth largest emitter of carbon dioxide with its present share in global emissions estimated at 6 per cent According to industry estimates, Indian companies are expected to generate at least $8.5 billion at the going rate of $10 per tonne of CER.

Some of the Leading companies of India using & selling Carbon Credits

GUJARAT FLOUROCARBONS L

Adani Groups to earn Rs 600 crore in carbon credits

Adani Power managed to reduce GHG emissions by 1.8 million CERS in the Mundra Project in Gujarat.
So it sold the excess carbon credits, getting about 600 crores from the transaction. This achievement makes the Mundra plant the worlds first coal fired power project to receive carbon credits.

Thank you