1carbon Trading

CARBON CREDIT GREEN BUCKS FROM GREEN EARTH

Green House Gases •

Global Warming increased, awareness of the need for pollution control internationally – entering into international agreement – Kyoto Protocol – Birth to the concept of Carbon Credit

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Green House Gases (GHG) – emission is through fuel combustion in industries –affect the ozone layer, leading to global warming. • GHG – 1. Carbon dioxide –(C02) 2. Nitrous Oxide – (N2O) 3. Perfluorocarbons –(PFCs) 4. Methane Oxide – ( CH4) 5. Hydro fluorocarbons –(HFCs) 6. Sulphur hexafluoride-(SF6)

KYOTO PROTOCOL 1997 -Treaty was negotiated in Kyoto, Japan – 1998- Opened for signature -1998 1999 –Close and 2005 - Agreement came into force – 169 Countries Kyoto Protocol is an agreement under which industrialised countries will reduce their collective emissions on GHG by 5.2% compared to the year 1990 – calculated as an avg. over the five-year period of 2008 – 2012. Reduction target expire in 2013.

KYOTO PROTOCOL KYOTO MECHANISM • Developed Countries – (Annex 1) Countries who have accepted GHG emission reduction obligations • Developing Countries –(Non-Annex 1) Countries who haves no GHG emission reduction obligations but may participate in the Clean Development Mechanism (CDM) Annex 1 countries that fails to meet its Kyoto target will be penalised by having to submit 1.3 emission allowance in a second commitment period for every ton of GHG they have exceed their cap in the first commitment period (2008-2012) THREE MECHANISM 1. Clean Development Mechanism (CDM):A developed country ( Annex 1 ) would take up GHG reduction project activities in a developing countries ( Non Annex 1 ) where the costs of GHG reduction project activities are much lower. The credit in CDM is termed as Certified Emission Reduction (CERs). This can be used first commitment period. (2000-2007). .

KYOTO PROTOCOL 2. Joint Implementation (JI ): Annex 1 to Annex 1 – Relative low cost. The credit generated out of JI is called as Emission Reduction Units (ERU). ERU will only be issued after 2008. 3.International Emission Trading (IET): Countries can trade in the international carbon credit market. Countries with surplus credits can sell the same to countries with quantified emission limitation and reduction commitments under the Kyoto Protocol. .

Carbon Credit •

Carbon Credit:-Carbon credits in lay man's language are credits that have to be purchased by the companies that emit green houses gases in the atmosphere which cause the ozone layer to deplete causing global warming. • How does this work ? Companies that release GHG in the atmosphere would have to buy these Carbon Credit from Companies who have surplus. Companies who use latest technology or upgrade their technology by which they reduce the emission in to the atmosphere would get the credit. Non Annex 1 countries are benefited as new plants can be set up which is technologically advanced but Annex 1 –Countries find difficult as huge plants are already set up and it would be costly affairs to shift technologies.

Carbon Credit Trading •

Carbon Credit Trading :-According to the Kyoto Protocol all countries are require to reduce their emissions by 5% from 1990 level to by 2012 otherwise they have to pay the price to those who do it. The idea here was to make certain developed Countries pay for their ways of emissions and rewarding countries that maintain a discipline in this regard.

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Carbon Trading takes place with the Certified Emission Reductions (CERs) points. Trading takes place in the open market and it can be traded as securities. Chicago Climate Exchange (CCX), Asian Carbon Exchange and Europe Carbon Exchange are such exchanges in which GHG emission and reduction system take place. However, since September 2006, MultiCommodity Exchange of India (MCX) has also authorised to trade in Carbon Credit.

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Unit:- 1 Ton of CO2 emission = 1 Carbon Credit Rate:- Euro 6 – 8 per unit

Carbon Credit - India •

Carbon Credit :- The Kyoto Protocol gives 35 developed countries (Annex 1 ) to buy carbon credit from developing countries ( Non-Annex 1 ) like India.

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Present rate of Carbon is at Euro 6-8 on the Trading Exchange in Europe and soon might move on to Euro 10-12 and may be even Euro 15,as Annex 1 countries are not able to control the pollution levels and they may buy it from India, China and Brazil to meet their deadlines. Companies in India are investing in Windmills, Bio-diesel, co-generation and bio-mass facilities to sell credits to developed nations, the gestation period for these companies may be high but companies that are supply equipments to

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India: Riding the Carbon wave  200 Indian entities have applied for registering their Clean Development Mechanism (CDM) Project under Kyoto Protocol  Market share of 32.86% in CDM Projects  Volume of CERs issued till April’07 - 18 million; leader in this category  Revenues earned till April, 2007 amounting to $ 234 Million second only to China.

Carbon Credit - India • Nine projects worldwide have received the approval of UNFCCC – United Nations Framework Convention on Climate Change for trading in Carbon Credit and of those two are Indian – Gujarat Flourochemicals Limited JSW Limited and Grasim Industries Limited. • 90 Projects in India already got the host country approval and are waiting for the UNFCCC approval.

Recent projects for Indian companies •

JSW steel was awarded 5.4 Million CERs for two projects. It was Single Largest Issuance.

The CDM project by JSW Steel consisted of setting up a 100 MW power plant for generation of electricity by combustion of waste gases from their Blast Furnace and Corex units in their plant in Tranquillo, Karnataka. It earned revenues of Rs.112 Crores. The CDM project by JSW Energy involves putting in place systems and infrastructure for the generation of power using Corex gas and other waste gases that were otherwise being flared off in JSW Steel Limited (JSW)1 . The input fuel to the JSW Energy power plant is sourced from JSW, which is generating waste gas from its process and sourcing imported coal. It earned revenues of Rs.330 Crores. •

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Grasim Industries was first Cement Company to get issue Carbon Credit. Company replaced fossil fuels like coal, which emits carbon dioxide when burnt, with alternative fuels in its kilns to produce to cement. It earned revenues of Rs. 55 Crores. Gujarat Fluorochemicals (GFL) makes HFC-22, a gas used in refrigeration units. HFC-23, a by-product and a greenhouse gas, is considered even more harmful than carbon dioxide. GFCL burns HFC-23 before it leaks into the atmosphere. This has earned it 6.5 million CERs

Carbon Credit / Trading • Process of Approving the CDM Projects : – International Level • After Home Country Approval, project referred to Executive Board of UNFCCC • Validation : Independent evaluation of the project by UNFCCC • Registration : Is given if it is suitable for emission reduction • Verification : Periodic independent review to check the reduction of emission • Certification : is doe for the reduction in the emission and then only Credits are issue.

Carbon Credit / Trading • Conclusion The demand for carbon credits is here to stay at least for the next eight years, and by that time it may happen that exemptions on the developing countries may be lifted and even they would be asked to comply with emission norms that might be even more stringent which might create a perpetual market for carbon trading and the same would be traded as we trade stocks and commodities in daily life.