Carbon Credits 2

Carbon Credits

Environment Crisis • The Intergovernmental Panel on Climate Change (IPCC), a relevant UN scientific advisory panel, predicted in 1995, that by 2010 the global temperature will rise between 2.5-10.4F degrees (or 1.5-5.8C degrees), • Some of the possible impact of this are global warming which 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

Environment - Solution • Controlling emissions of six greenhouse gases - carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, HFCs(Hydrofluro Carbon), and PFCs. Of this the most critical green house gas which needs to be controlled is Carbon Dioxide (CO2)

Kyoto Protocol - 1997 • The IPCC met in 1997 to consider the subject of climate change. This was known as Kyoto Protocol. • Kyoto Protocol is an agreement made under the United Nations Framework Convention on Climate Change (UNFCCC). It agreed on the following: • Reduction of emissions globally is a joint but differentiated responsibility of all countries • The Kyoto Protocol calls for 38 industrialized countries to reduce their greenhouse gas emissions between the years 2008 to 2012 to levels that are 5.2% lower than those of 1990.

Kyoto Protocol - 1997 • Developed countries such as United States of America, United Kingdom, Japan, New Zealand, Canada, Australia, Austria, Spain, France, Germany etc. • Developing countries such as India, Sri Lanka, Afghanistan, China, Brazil, Iran, Kenya, Kuwait, Malaysia, Pakistan, Philippines, Saudi Arabia, Singapore, South Africa, UAE etc. These countries have no immediate restrictions under the UNFCCC.

Kyoto Protocol - 1997 • 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) – Fund clean technologies for developing nations, and restrict their emission levels upfront (Clean Development Mechanism/CDM) – The protocol is effective since February 2005.

Carbon Credit • The Kyoto Protocol gave birth to a new currency called Carbon Credit. • It is a permit that allows the holder to emit one ton of carbon dioxide • For example, if an environmentalist group plants enough trees to reduce emissions by one ton, the group will be awarded a credit. If a steel producer has an emissions quota of 10 tons, but is expecting to produce 11 tons, it could purchase this carbon credit from the environmental group. The carbon credit system looks to reduce emissions by having countries honor their emission quotas and offer incentives for being below them.

CARBON OFFSETS • Another fast-growing voluntary model is carbon offsets. In this global market, a set of middlemen companies, called offset firms, estimate a company’s emissions and then act as brokers by offering opportunities to invest in carbon-reducing projects around the world. Unlike carbon trading, offsetting isn’t yet government regulated in most countries; it’s up to buyers to verify a project’s environmental worth. In theory, for every ton of C02 emitted, a company can buy certificates attesting that the same amount of greenhouse gas was removed from the atmosphere through renewable energy projects such as tree planting.

Carbon Credit – Key Stats • Size of global carbon credit market in 2007: Approximately $60 billion • Amount of C02 the United States traded in 2007: Nearly 23 million metric tons • Amount of C02 the EU traded in 2007: More than 1.6 billion metric tons

Carbon Trading • Emissions limits and trading rules vary country by country, so each emissions trading market operates differently.

British Petroleum CO2 strategy • In 1997 British energy company BP committed to bring its emissions down to 10 percent below 1990 levels. After taking simple steps like tightening valves, changing light bulbs, and improving operations efficiency, BP implemented an internal cap-and-trade scheme and met its emissions goal by the end of 2001 — nine years ahead of schedule. Using the combined C02 reduction strategy, BP reported saving about $650 million.

Example of Carbon Offsets / Trading

How to get Carbon Credits • 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. 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.

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

How may credits can any country buy? • Out of 100 per cent countries have to induce 75 per cent locally by various means in their own country. They can buy only 25 per cent of carbon credits from developing countries.

Company’s trading in carbon credits in India • MCX

Current scenario in India • India signed and ratified the protocol in August 2002 and has emerged as a world leader in reduction of greenhouse gases by adopting CDM in the past few years. • 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.

Current scenario in India • India Inc pocketed Rs. 1,500 crores in the year 2005 just by selling carbon credits to developed country clients. • Various projects would create up to 306 million tradable CERs. Analysts claim if more companies absorb clean technologies, total CERs with India could touch 500 million. • India’s average annual CERs stand at 12.6% or 11.5 million. • Of the 391 projects sanctioned, the UNFCCC has registered 114 from India, the highest for any country.

Current scenario in India • There is a great opportunity awaiting India in carbon trading which is estimated to go up to $100billion by 2010. • In the new regime, the country could emerge as one of the largest beneficiaries accounting for 25 % of the world carbon trade, says a recent World Bank report. • Countries like US, Germany, Japan and China are likely to be the biggest buyers of carbon credits which are beneficial for India to a great extent.

GHG emission in India • Other than industries and transportation, the major sources of GHG’s emission in India are;Paddy fields, Enteric fermentation from cattle and buffaloes, Municipal Solid waste. • Paddy fields can be reduces through special irrigation strategy and appropriate choice of cultivars • Enteric fermentation emission can also be reduced through proper feed management. • Municipal Solid waste the third source of emission is emerging as a potential CDM activity despite being provided least attention till date.

Indian Companies CO2 Strategy • 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.

Next Step • Need further research to Look out for business opportunities which deal with emission e.g. – Wind Projects – Bio Gas Projects – Technological companies working to reduce emission like thermal oxidation for refrigeration etc.

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