CARBON TRADING -By Vivek Khemani
The adverse effects of development in the current forms are showing up starkly in global warming statistics. Deforestation, Industrialisation and Transportation are amongst the three highly impacting activities. They emit greenhouse gases (Carbon dioxide, Methane, Nitrous Oxide amongst othersi) beyond levels that create an imbalance in the Earths greenhouse blanket. Here are some statistics to consider:
Nations are coming together in the acceptance that concrete steps need to be taken to reduce current emission levels, and achieve a better balances state of the global environment.
Kyoto Protocol
The IPCC met in 1997 to consider the subject of climate change. This discussion formed the basis of now famously known Kyoto Protocol. The protocol agreed on the following:
The protocol was ratified by the required quorum, and is consequently effective since February 2005.
Carbon Trading
Definition
Carbon Trading is a market-oriented approach to stimulate reduction activity in emissions of green house gases. Carbon Trading involves a fair (price determined by the market) exchange of carbon credits. Each carbon credit is equivalent to an emission reduction of 1 metric tonne of carbon di-oxide.
How it works
At the heart of this trading mechanism are the following factors
An example of how Carbon Trading is stimulated is presented in the chart below:
A company that wants to earn tradable carbon credits has to pre-register the planned project with the prescribed authorities. The administrative process has appointed Designated Operational Entities (DOEs) in charge of verifying the emission reductions of a registered CDM project activity, and proposing the issue of credits accordingly.
The pricing of a carbon credit is subject to various factors. Some of them are:
In response to the international emissions trading system (ETS) that was put in place by the Kyoto Protocol, several regional emission trading systems have come into being, the leading one being the EU ETS. Currently, the price per carbon credit in the EU ETS is in the range of 20Eur/credit.
What should you do if you want to earn and sell carbon credits?
Several companies are actively taking up carbon emission reduction projects to earn credits and sell them in ETS markets. Companies like SRF (Rajasthan, India) or SKG Sangha (Karnataka, India) are such examplesi. SRF, is a refrigerant producer earned upwards of 50M$ via this route. SKG Sanga set up biogas plants for rural families and has earned credits. These credits will be sold to raise money for its NGO work.
Any company that uses energy in one form or the other can benefit from carbon trading. Achieving Energy efficiency through change of production processes or raw-materials, switching over to alternate fuels and cleaner technologies are some ways of gaining emission reductions and generating tradable credits.
The steps involved in an emission reduction project are as below:
The rules of the CDM process as regulated by the UN are currently cumbersome, and some companies have formed a direct trade relationship under a voluntary route.
Who can help?
The CDM process has spawned a fraternity of CDM consultants that can help companies with the above steps. ConnectM envisages building monitoring mechanism as prescribed and accepted by the UN.
Source:
Dare, Vol1, Issue 3, Dec 07, Cybermedia publication
The adverse effects of development in the current forms are showing up starkly in global warming statistics. Deforestation, Industrialisation and Transportation are amongst the three highly impacting activities. They emit greenhouse gases (Carbon dioxide, Methane, Nitrous Oxide amongst othersi) beyond levels that create an imbalance in the Earths greenhouse blanket. Here are some statistics to consider:
- During the past century, the atmospheric temperature has risen 1.1F degrees (or 0.6C degrees), and sea level has risen several inches
- The Intergovernmental Panel on Climate Change (IPCC), a relevant UN scientific advisory panel, predicted in 1995, that by 2100 the global temperature will rise between 2.5-10.4F degrees (or 1.5-5.8C degrees), depending on when we start to control emissions and how much we control them
- Some of the possible impact of global warming is melting of polar ice further rise in sea levels, coastal flooding, impact on supply of potable water, ecological disorder impacting existence of certain species, agricultural produce, and tropical diseases
Nations are coming together in the acceptance that concrete steps need to be taken to reduce current emission levels, and achieve a better balances state of the global environment.
Kyoto Protocol
The IPCC met in 1997 to consider the subject of climate change. This discussion formed the basis of now famously known Kyoto Protocol. The protocol agreed on the following:
- Reduction of emissions globally is a joint but differentiated responsibility of all countries
- The developed nations have to bear a larger cost of reducing current levels of emissions. By 2008-12, these have to reduce their emissions by a collective average of 5% below their 1990 emission levels
- The emission targets can be achieved by any of the following mechanisms
- Trading of emission rights between two developed nations (Emissions Trading)
- Working jointly with other developed nations (Joint Initiatives, or JI)
- Fund clean technologies for developing nations, and restrict their emission levels upfront (Clean Development Mechanism, or CDM)
The protocol was ratified by the required quorum, and is consequently effective since February 2005.
Carbon Trading
Definition
Carbon Trading is a market-oriented approach to stimulate reduction activity in emissions of green house gases. Carbon Trading involves a fair (price determined by the market) exchange of carbon credits. Each carbon credit is equivalent to an emission reduction of 1 metric tonne of carbon di-oxide.
How it works
At the heart of this trading mechanism are the following factors
- The CDM that envisages that the developed countries will find it easier and cheaper to prevent emissions in developing nations rather than cure their own emissions.
- A clear process for identifying, measuring and approving tradable carbon credits (as governed by the Kyoto Protocol).
- A market for trading of carbon credits.
An example of how Carbon Trading is stimulated is presented in the chart below:
A company that wants to earn tradable carbon credits has to pre-register the planned project with the prescribed authorities. The administrative process has appointed Designated Operational Entities (DOEs) in charge of verifying the emission reductions of a registered CDM project activity, and proposing the issue of credits accordingly.
The pricing of a carbon credit is subject to various factors. Some of them are:
- Risk associated with the CDM project in actually implementing the planned emissions
- Contractual issues and the pricing mechanisms built-in in the contracts
- The fundamentals of overall demand and supply globally of tradable carbon credits (Canada, New Zealand and the EU bloc are expected to generate demand of 3 to 4.5 billion credits. The total potential supply of credits is put at 7 billion, mostly from Russia, Ukraine and eastern Europe).
In response to the international emissions trading system (ETS) that was put in place by the Kyoto Protocol, several regional emission trading systems have come into being, the leading one being the EU ETS. Currently, the price per carbon credit in the EU ETS is in the range of 20Eur/credit.
What should you do if you want to earn and sell carbon credits?
Several companies are actively taking up carbon emission reduction projects to earn credits and sell them in ETS markets. Companies like SRF (Rajasthan, India) or SKG Sangha (Karnataka, India) are such examplesi. SRF, is a refrigerant producer earned upwards of 50M$ via this route. SKG Sanga set up biogas plants for rural families and has earned credits. These credits will be sold to raise money for its NGO work.
Any company that uses energy in one form or the other can benefit from carbon trading. Achieving Energy efficiency through change of production processes or raw-materials, switching over to alternate fuels and cleaner technologies are some ways of gaining emission reductions and generating tradable credits.
The steps involved in an emission reduction project are as below:
- Preparation of a project report to establish the following:
- baseline emissions
- the proposed emission reductions
- the proposed mechanism to monitor the emission reductions
- Pre-registration with the regulatory authority (a UN body) and approval by a DOE
- Project implementation, monitoring and reporting
- Verification of emission reductions by the DOE
- Acceptance of reductions by the regulatory body and issuance of credits
- Trade of carbon credits
The rules of the CDM process as regulated by the UN are currently cumbersome, and some companies have formed a direct trade relationship under a voluntary route.
Who can help?
The CDM process has spawned a fraternity of CDM consultants that can help companies with the above steps. ConnectM envisages building monitoring mechanism as prescribed and accepted by the UN.
Source:
Dare, Vol1, Issue 3, Dec 07, Cybermedia publication
Knowledge Centre