Carbon Market

Climate Change & carbon marketIssues & Recomaditions

Overview Carbon Trading, the trading of GHG emissions - is a crucial process in the world effort to struggle unwanted climate change. Several governments, organizations and individuals are making efforts to reduce their greenhouse gases emissions either voluntarily or increasingly, because of present or probable regulatory constraints. Since GHGs mix homogeneously in the atmosphere, it is equivalent from an ecological perspective to reduce emissions anywhere in the world apart from political jurisdiction. Most of the regulatory system limiting GHG emissions takes advantage of this assets of “substitutability” and permit for the procurement of emission credits from both within and outside of the regulated system, thereby laying the ground for a worldwide “carbon market”. Among the markets for ecological service currently under operation, the carbon market is the only most vigorous one, with worldwide reach. Since carbon reduction costs are thought to be lower in transition market & in developing countries. The

carbon market is a possibility not only to produce comprehensive efficiency expansion, but also to add to sustainable development through bringing new public & private asset in cleaner technologies to market in transition and to developing countries. In actuality global warming is not just having environmental manipulation but also having grave economic implications to society. The sector that would instantly get affected would be agricultural sector, due to its defenselessness to weather & rainfall. For example, worldwide wheat prices were on rise because of unfavorable weather conditions which is prevailing in several parts of the globe. A shortage of rainfall in Australia previous year had reduced the country’s production of wheat by almost 50%. Irregular rainfall & towering temperatures have also affected wheat production in various countries. As India is an agricultural base country so it may have to suffer if emissions will not be controlled. And to encourage whole economy of the world there is a need of existence of Carbon trading which brings both profit seekers & carbon neutrality motivated individuals, companies & regulated forced structure at one to make world emission neutral. There are in fact several carbon markets, which involve different underlying assets, contractual structures, and governing regulations. These markets are linked, but not fully interconnected as there is limit cap over the transfer of credits between different regulated markets for e.g. EUETS & CDM.

Issues in Carbon mitigation: 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.

1. Due to excessive non-sustainable consumption of resources and belching of pollutants in

environment, the temperature of world is increasing gradually from several decades, 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 cover the left 30% land portion by it. 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 on CDM and affecting its prices. 3. Non Availability of linkage between CITL & ITL

(Community

transaction

log

&

international

transaction log). Hence no linkage between several schemes and also non availability of spot transfer of Carbon credits among some major schemes. 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 environmental outcomes. Clearing bottlenecks and accelerating the application of necessary procedures has become a priority challenge 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 Rally, hence contributing to global warming considerably. 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

hence must be protected

Mitigating Efforts for Issues: If the proper remedial action is taken separately or jointly for these issues than carbon market will be the one who can never be pushed back by any other market and will grow at more rapid rate. So some of the mitigating effort can be as follows 1. Both the US & Europe should allow linkage directive between their registries through connecting their logs i.e. CITL & ITL so as to increase climate mitigation effort and carbon trading as well as more transparent price determining 2. Some more DOE’s must be opened so as to crush bottle neck in pipeline for registration, proper investigation should be made for each project, Consultant who have developed the PDD must be asked to give presentation on project while explaining project so as to help the DOE to check more projects with better understandings. It is time that every stage of the CDM approval process takes on professional service standards. 3. Standard methodology for Jatropha CDM project must be launched by Executive

board as a approved methodology because there is large scope in Jatropha pre availability of methodology must increase number of project in it along with prevention from loss in time.

4. Commodities or goods consumed by upper class like CAR, Geysers, A.C, etc should be taxed heavily so as to limit the per capita emission by upper class as by limiting emission CFC gas. 5. Land Usage & deforestation: Land use changes, e.g., clearing land for logging,

ranching, and agriculture, leads to carbon dioxide emissions. It is estimated that from 800 million to 2.4 billion tonnes of carbon are released globally every year from change land usage. So CDM project must also give extensive emphasize on these projects 6.

India if launching the accounting norms for CDM revenue than it must be for record only not for applying taxes because this will ultimately discourage CDM project developers instead of encouraging as already they are bearing high transaction cost.

7. There should not be any restriction in NSWGGAS regarding import of CER OR EUA as this will lead grater market linkage and growth. 8. Adaptation of Super critical boilers, high tension line, modern grids & maintenance of

these tools so as to prevent SF6 linkage which have worming potential of 23600 tons of CO2.

OIL & GAS Industries 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 secondbiggest 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 millions tones of C02 emissions being released into the atmosphere. 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. 1. 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 potential to help mitigate some of these risks. 2. 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. 3. 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. Some Measures to Prevent emission by Oil & Gas industries Reducing Air Emissions in Oil & Gas is the region’s leading industry-focused environmental event that features exclusive expert presentations and case studies that reveal successful stories, procedures, solutions, technologies and strategies that have not only effectively reduced emissions but have benefited production and increased profits. 1. Create a long-term emission-reducing framework for future legislative standards 2. Successfully incorporate technology that will reduce emission levels and deliver instant ROI 3. Achieve zero routine, flaring and increased cost savings 4. Safely capture and store CO2 for the long-term 5. See increased production and profit through CO2 injection strategies 6. Create an effective business case for technological investment 7. Minimize the risk of fugitive leaks

CARBON TAXATION There is consensus among scientists and most public officials around the world that emissions of greenhouse gases (GHG) from burning fossil fuels contribute significantly to climate changes, which if not addressed, could have adverse effects for the entire mankind. Emission tax system is an important demand side policy intervention for reducing greenhouse gases (CO2, Methane, Nitrous Oxide, Hydro Flouro Carbons, Per Flouro Carbon and Sulphur Hexaflouride). What is a carbon tax? A carbon tax is a tax on the use of fossil fuels that emit CO2 into the atmosphere. It is based on the carbon content of fossil fuels. A carbon tax, by raising the price of fossil fuels, can induce a move away from their use and hence reduce CO2 emissions. It is generally used as a substitute for tax on CO2 emissions from fossil fuels. A ‘CO2 tax’ requires every source that uses fossil fuels to monitor their emissions and to pay the corresponding tax and hence is quite difficult to administer. Whereas a carbon tax serves the same end and is simpler to administer.

Carbon Tax vs. Energy Taxes Another tax instrument to control emissions is energy tax that is levied on energy content of fuels or the value of energy products (ad valorem energy tax). A carbon tax is a more efficient instrument for reducing energy-related CO2 emissions than these. Intergovernmental Panel on Climate Change (IPCC) Model simulations for the United States indicate that for an equivalent reduction in emissions, an energy tax would cost 20 - 40% more than a carbon tax, and an ad valorem tax would be 2 to 3 times more costly. This is because an energy tax raises the price of all forms of energy, whether or not they contribute to CO2 emissions, whereas a carbon tax increases the price of carbon-intensive fuels only and therefore, encourages switching over to low carbon fuels. In the recent G8 Summit also, emphasis has been laid on encouraging use of non-carbon emitting energy sources, amongst other measures.

Experience so far At present, there is no international agreement on carbon taxation. Scandinavian nations such as Norway, Sweden, Finland and Denmark have put national carbon taxes in place in the 1990s. In Norway, carbon tax reduced carbon emissions by about 2% in the 1990s. Significantly, Norway’s Gross Domestic Product grew by more than 20% in the same period, demonstrating that emissions growth can be decoupled from economic growth. At the same time, Norway’s carbon tax helped provide incentives for technological innovation. For example, high emissions from a state-owned North Sea natural gas provider impelled investment in a commercial carbon capture system that has made an important contribution to the understanding of carbon sequestration (Controlled disposal or storage of carbon compounds to prevent their release into the environment. On the downside, the Scandinavian countries have been unable to agree to common carbon tax regimes, showing the tough challenges of international agreement on carbon taxation.

Prospects of International Agreement on Carbon Taxes Conceptually, at an international level, a carbon/GHG emissions tax could be implemented in one of the following two ways.  Countries could agree to create an international agency that would impose a carbon tax on participating countries. The agreement to create an international GHG emissions tax agency would need to specify both the tax rate(s) and a formula for distributing the revenues from the tax.  Countries could agree that each would levy comparable GHG emissions taxes domestically. However, both the systems are difficult to implement. A GHG emissions tax imposed by an international agency would impinge on national sovereignty and would, therefore, be difficult to

negotiate. While given the different existing energy tax regimes in participating countries, bringing a consensus on uniform/comparable emission taxes could be very complex.

Carbon Tax as a supplement to Emissions Cap & Trade 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-andtrade 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.