Carbon Trading

CARBON TRADING

Agenda Introduction Global warming Kyoto protocol Global trading system Indian scenario Benefits and disadvantage of carbon trading

Industrialization Power and wealth of the country strongly depends on industrialization. Every country tries to become industrialized.

Problem starts here

Carbon (109 metric tons)

8 7 6 5

Total Liquid fuel Solid fuel Gas fuel

4 3 2 1 0 1750

1800

1850 1900 Year

1950

2000

The atmosphere now holds 30% more carbon than a century ago.

Future Carbon Dioxide Levels Increasing CO2 emissions, especially in China and developing countries Likely to double within 150 years: Increased coal usage Increased natural gas usage Decreased petroleum usage (increased cost and decreasing supply)

Explanation of the causes of global warming

Green house gases (GHG) carbon dioxide (CO2) methane (CH4) nitrous oxide (N2O) hydrofluoro-carbons (HFCs) perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). Greenhouse gas emissions are calculated in CO2equivalent metric tons (CO2e)

Why should we be concerned about Global Warming?

Ice Sheets Melting!! GRACE (gravity measured by satellite) found melting of Antarctica equivalent to sea level rise of 0.4 mm/year (2 in/century) Zwally, 2005 (satellite radar altimetry) - confirmed Antarctica melting & Greenland ice melting on exterior, accumulating inland (higher precipitation)

Summer Arctic Sea Ice

1979

2000 NASA Goddard Space Flight Center

Two studies showed the total number of hurricanes has not changed However, the intensity of hurricanes has increased (more category 4 and 5 hurricanes and cyclones) Probably due to higher sea surface temperatures (more energy) Difficult to know if this trend will continue

We are here

Polar Bears Require pack ice to live Might eventually go extinct in the wild

Sea turtles Breed on the same islands as their birth Could go extinct on some islands as beaches are flooded

Other species may go extinct as rainfall patterns change throughout the world

Fewer deaths from cold, more from heat Decreased thermohaline circulation Cooler temperatures in North Atlantic

CO2 fertilization effect Precipitation changes Droughts and famine (some areas) Expanded arable land in Canada, Soviet Union

The Kyoto Protocol is an amendment to the United Nations Framework Convention on Climate Change Signed on December 11, 1997 Location Kyoto, Japan Parties 181 countries and the European Union (as of May 2008)

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

IET- international emission trading CDM- clean development mechanism JI- joint implementation AAU- assigned amount units CER- carbon reduction units ERU- emission reduction units

1. International Emission Trading (IET) enables countries with legally binding emission targets to buy and sell emissions allowances among themselves Each country has a certain number of emission allowances (amount of carbon dioxide it can emit) in line with its Kyoto reduction targets The IET allows industrialized countries to trade their surplus credits on the international carbon credit market

Example Allowance to US and india is 100 credits. But US emits 150 credits of carbon And india emits 50 credits of carbon India can sell the excess credits to US.

2. Clean development Mechanism (CDM)

Factors affecting CER Nature of project (renewable, energy efficiency , others) • Maturity of the credits Stage of the project International availability and demand of credits

An example • Carbon trading - Norwegian firm Vs brazil Norwegian firm produce methane (which double effect of CO2 on climate change). • Brazil plant trap methane and burn it. Norway would get the credit equivalent to 670,000 tons of CO2 and Brazil the cash, currently $10.98 per ton.

Advantages of emission Trading • Emitters are given flexibility and control Rewards innovation and investment in new technology • Common price signal ensures that reductions take place where they are least costly achieves environmental goals at least cost

The overall cap on emissions ensures environmental objective is achieved

Disadvantages of Emission Trading • Still requires monitoring, reporting, verification and compliance infrastructure - like traditional regulation • May result in increased local concentrations of emissions Price is uncertain – determined by market Relies on a price signal – some markets may be less efficient • Allocation of target/allowances is highly contentious

3. Joint Implementation • Projects between industrialized nations to earn emission offsets • Emission reduction units (ERUs) created through joint implementation is treated in the same way as those from emissions trading

Creating carbon credits

India’s CDM projects which passed validation stage

India’s potential • • India – Non Annexure 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 • It is one of the leading generators of CERs through CDM

• • Analysts forecast that its trading in carbon credits would touch US$ 100 billion by 2010 • • Currently, the total registered CDM projects are more than 300, almost 1/3rd of the total CDM projects registered. • The total issued CERs with India as a host country till now stand at around 34 million, again around 1/3rd of the total CERs.

CER – Source of Generation • Industries like Agriculture Energy (renewable & non-renewable sources) Manufacturing Metal production Mining and mineral production

Chemicals Afforestation & reforestation

References Butt, T. A., and McCarl, B. A. “ On-Farm Carbon Sequestration: Can Farmers Employ it to Make Some Money?” Available online at: http://agecon2.tamu.edu/people/faculty/mccarl-bruce/ecomitigate.html Fisher, C., S. Kerr and M. Toman. “Using Emissions Trading to Regulate U.S. Greenhouse Gas Emissions: An Overview of Policy Design and Implementation Issues.” Discussion Paper 98-40, July 1998. Available online at: http://www.rff.org/Documents/RFF-DP-98-40.pdf Gangadharan L. "Transactions Costs in Pollution Markets: An Empirical Study." Land Economics 76(2000): 601-614. Gunasekera, D., and A.Cornwell. “ Economic Issues in Emission Trading.” Paper to Kyoto the Impact on Australia Conference, Melbourne, 12-13 Feb. 1998. Available online at: http://www.apec.org.au/docs/Gunasek.pdf McCarl, B. A.., and U. A. Schneider. “Curbing Greenhouse Gases: Agriculture’s Role.” Available online at: http://agecon2.tamu.edu/people/faculty/mccarl-bruce/ecomitigate.html McCarl B. A. and U. A. Schneider. “U.S. Agriculture’s Role in a Greenhouse Gas Emission Mitigation World: An Economic Perspective.” Review of Agr. Econ. 22(2000):134-159. McCarl, B. A.., and U. A. Schneider. “ The Cost of Greenhouse Gas Mitigation in U.S. Agriculture and Forestry.” Science, 294 (December, 2001): 2481-82.

World at night

Thank you

More Important Data

• The Kyoto Protocol will result in only modest emission reductions – The US has not yet ratified this treaty

• We already have technologies that can help us on the way – Efficiency – Renewable Energy – Coal-gasification with carbon sequestration

• The behavioral challenges are much more daunting than the technological ones.

• Climate change isn’t likely to affect our generation. • We need to make changes for subsequent generations.

Mitigation of Global Warming • Conservation

– Reduce energy needs Recycling

Alternate energy sources Nuclear Wind – Geothermal Hydroelectric Solar – Fusion