19844771 a study on carbon credit ppt

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SUBMITTED TO:

GUJARAT

UNIVERSITY

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SUBMITTED BY:

KOTHARY VAISHAL

NAVANI VICKY

DATE:

6TH MAY 2009


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CARBON CREDIT Carbon credits are an element used to aid in regulation

of the amount of gases that are being released into the

air. This is part of a larger international plan which has

been created in an effort to reduce global warming and

its effects.

The plan works by capping the amount of total

emissions that can be released by one company or

business.

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CARBON CREDIT If there is a shortfall in the amount of gases that are used,

there is a monetary value assigned to this shortfall and it

may be traded. These credits are often traded between

businesses.

However, they also are bought and sold in international

markets at whatever the determined market value for them

is.

There are also times when these credits are used to fundcarbon reduction plans between trading partners.

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CARBON CREDIT There are two types of market in carbon credit:

1. Compliance Market (Annexure I countries)2. Voluntary Market (Non- Annexure countries)

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KYOTO PROTOCOL The Kyoto Protocol is a legally binding agreement that

arose out of the UNFCCC to tackle climate change

through a reduction of green house gas emissions.

Countries (those listed in Annex I) are legally bound to

reduce man-made green house gases emissions by

approximately 5.2%

Individual countries have their own reduction targets

outlined in Annex B of the Kyoto Protocol

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KYOTO PROTOCOL It was adopted in Kyoto, Japan, on 11th December 1997

Objective: stabilisation of greenhouse gas concentrations

in the atmosphere at a level that would prevent

air pollution interference with the climate

system

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INDIA AND KYOTO PROTOCOL India signed and ratified the Protocol in August, 2002.

Since India is exempted from the framework of the treaty,it is expected to gain from the protocol in terms of transfer

of technology and related foreign investments

India maintains that the major responsibility of curbing

emission rests with the developed countries, which have

accumulated emissions over a long period of time.

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KYOTO MECHANISM Kyoto is a 'cap and trade' system that imposes national

caps on the emissions of Annex I countries. On average,

this cap requires countries to reduce their emissions 5.2%

below their 1990 baseline over the 2008 to 2012 period.

The types of Kyoto mechanisms are:

1. Clean Development Mechanism

2. Emissions trading

3. Joint implementation (JI)

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KYOTO MECHANISM Both Annex I & non-Annex I Parties must co-operate

in the areas of:

Development, application & diffusion of climate friendly

technologies;

Research & systematic observation of the climate system;

Education, training, & public awareness of climate change;

&

The improvement of methodologies & data for GHG

inventories.

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CDM MARKET The CDM market is like any other commodity market.

Majority of the trading is done in the Primary market.

The secondary market is not as expanded as the primary

mainly because of the high volatility of the carbon prices.

The Buyers of CERs can be broadly classified into:

1. Compliance Buyers

2. Carbon Funds (e.g.: Carbon Fund of World Bank)

3. Traders

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CLEAN DEVELOPMENT MECHANISM

CDM is a mechanism whereby an Annex I party may

purchase emission reductions which arise from projects

located in non-Annex I countries. The carbon credits thatare generated by a CDM project are termed Certified

Emission Reductions (CERs), expressed in tonnes of

CO2 equivalent

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IDENTIFICATION OF PROJECT AND DEVELOPMENT

OF PROJECT CONCEPT NOTE

DEVELOPMENT OF PROJECT DESIGN DOCUMENT

HOST COUNTRY APPROVAL

SUBMISSION OF THE PDD AND HOST COUNTRY

APPROVAL VALIDATOR

MAKE PDD COMPLETELY AVAILABLE FOR 30 DAYS

VALIDATION OF PROJECT

SUBMISSION OF VALIDATION REPORT AND PDD

REGISTRATION WITH THE CDM

PROJECT IMPLEMENTATION AND MONITORING

VERIFICATION AND CERTIFICATION

POSSIBLE REVIEW BY CDM EXECUTIVE BOARD

ISSUANCE OF CERS TO PROJECT DEVELOPERS

CDM PROCESS

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CHALLANGES Procedural delays in the CDM:

2,022 out of 3,188 projects are at validation stage

An average wait of 80 days to go from registration request to actual

registration Complex rules and the capacity constraint: DOEs are unable to keep up with a large backlog of projects

awaiting registration

It is difficult to recruit, train and retain qualified, technical staff to

apply the complex rules consistently Impact of delays on carbon payments: Delays for any reason in a projects schedule can jeopardize

elements of its financing package, and ultimately its constructionand implementation

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EMISSION TRADING Emissions trading (ET) is a mechanism that enables

countries with legally binding emissions targets to buy

and sell emissions allowances among themselves

Under an emissions trading system, the quantity of

emissions is fixed (often called a "cap") and the right to

emit becomes a tradable commodity. The cap (say 10,000tonnes of carbon) is divided into transferable units

(10,000 permits of 1 tonne of carbon each)

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EMISSION TRADING V/S CARBON TAXES:

THE POLITICS-WHO LIKES WHICH POLICY & WHY?

United States is the strongest proponent of emissions trading as

US is energy inefficient and has high per capita carbon dioxideemissions levels.

The European Union has been in favor of carbon taxes as the EU

is already relatively energy efficient

The Russian Federation & the Ukraine are major supporters of

emissions trading Developing countries are extremely cautious of emissions trading,

& view it primarily as a "loophole" that the US & Japan can use to

avoid their domestic responsibility

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JOINT IMPLEMENTATION (JI) Joint implementation is a project-based mechanism by which

one Annex I Party can invest in a project that reduces emissions

or enhances sequestration in another Annex I Party, and receivecredit for the emission reductions or removals achieved

through that project. The unit associated with JI is called an

emission reduction unit (ERU)

In simple terms Joint Implementation means transfer of

emissions reduction at the project level.

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JOINT IMPLEMENTATION (JI) There are two approaches for verification of emission

reductions:

Under JI Track 1, a host Party that meets all of theeligibility requirements may verify its own JI projects

and issue ERUs for the resulting emission reductions or

removals.

Under JI Track 2, each JI project is subject toverification procedures established under the supervision

of the Joint Implementation Supervisory Committee.

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CARBON TRADING A carbon trading system allows the development of a

market through which carbon dioxide or carbon

equivalents can be traded between participants, whether

countries or companies. Each carbon credit is equal to100 metric tons of carbon dioxide, which can be traded or

exchanged in market.

There are two kinds of carbon trading Emission tradingand trading in Project-based Credits. The two categories

are put together as Hybrid trading System

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TYPES OF CARBON TRADING

1. EMISSION TRADING:

A company can reduce its emission by half the cost of

allowance bought from other company

On the other hand, a company with higher expenditure for

reduction of its emissions buys the required allowance fromother company to save its emission cost

2. PROJECT-BASED TRADING:

Government & World Bank subsidized credit for project-

based trading to the companies calculating how much carbondioxide equivalent they save/reduces

Project-based Credit trading includes baseline-and-credit

trading and offset trading

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TYPES OF CARBON TRADING3. HYBRID TRADING SYSTEM:

In Hybrid trading system, both emission trading and

offset trading are used and try to make allowanceexchangeable for project-based credits.

Hybrid trading system is enormously complex as it is not

only difficult to try to create credible credit and makethem equivalent to allowance

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CARBON NETWORK

Seller

BanksIndividuals

Consultants

Annex 2 & 3

countriesOthers

Buyers

Annex 1

countryBanks

Individuals

Consultants

OthersNGO &

Government

Exchange

Tradingexchange

Banks

Brokers &

TradersIntermediary

service

providersConsultants

NGO &

Govt.

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PARTIES INVOLVED IN CARBON TRADINGPROJECT ENTITY:

Joint venture company or a limited partnership that are

set up specifically to undertake the project

SPONSOR:

Individuals, companies or other entities that support a

project who have a direct or indirect interest in the

project.

LENDER:

If the project is financed through debt, one or more banks

may be involved in providing this.

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PARTIES INVOLVED IN CARBON TRADINGEQUITY PROVIDER:

Equity may be provided by project sponsors or third party

investors who ensure that the project produces a ROI as set

out in the business plan or prospectus.

CONSTRUCTOR:

Who have responsibility for the completion of the works, &

often have to assume liability for finishing construction on

time and to budget.

OPERATOR:

Person responsible for the operation and maintenance of the

project facilities once completed

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PARTIES INVOLVED IN CARBON TRADINGSUPPLIER

BUYER

INSURER:

If a risk is to be mitigated by purchasing insurance, the

lender will need to be satisfied as to the track record and

credit-worthiness of the insurer.

RATING AGENCIES:

The rating agencies may be involved if the financing of

the project involves the issue of securities

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PARTIES INVOLVED IN CARBON TRADINGEXPERTS:

Experts are individuals who give advise on key technical,

engineering, environmental and risk aspects of a project.

Experts need to be able to demonstrate a track record ofexpertise in the relevant area

HOST GOVERNMENT:

The objectives and role of the host government will vary

but may involve economic, social and environmentalguidelines and issuance of relevant consents, permits and

licenses

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ADVANTAGES OF CARBON TRADING

New cash source to companies who are able to maintain

their emission levels well within the permissible limits.

The overall ecological balance is preserved

The company or country gets rewarded for applying cleantechnology in its production process.

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ADVANTAGES OF CARBON TRADING

A much better corporate and social image which wins

public approval

Encourages activities like tree plantings which would

help reduce soil salinity, improve water quality and

enhance biodiversity

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KEY RISKS AND UNCERTAINTIES The extent to which the Kyoto Protocol guidelines are

implemented & followed

The attitude of US which is the biggest polluter and had

refused to sign the treaty

The final rules and decisions relating to an emissions

trading market

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POSITION OF INDIA

India is considered as the largest beneficiary, claiming

about 31 % of the total world carbon trade through CDM

It is expected to rake in at least Rs 22,500 crore to Rs

45,000 crore over a period of time and Indian companies

are expected to corner at least 10 per cent of the global

market in the initial year

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

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PRESENT STATUS OF DUMPING GROUNDS

IN INDIA In India, due to increased population & commercial

development, cities are facing problems of Municipal

Solid Waste disposal. The urban population in larger

towns & cities in India is increasing at a decadal growthrate of above 40%

Various processes/technologies available to reduce the

amount of Municipal Solid Waste are as follows:

Physical (a. Pelletisation)

Biochemical (a. Aerobic Composting b. Anaerobic Digestion)

Thermal (a. Incineration b. Gasification)

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CARBON TRADING AT MCX The Multi Commodity Exchange of India Ltd entered into

an alliance with the Chicago Climate Exchange in 2005

to introduce carbon credit trading in India

MCX is the futures exchange. People here are getting

price signals for the carbon for the delivery in next five

years. The exchange is only for Indians and Indian

companies

The Indian government has not fixed any norms nor has

it made it compulsory to reduce carbon emissions to a

certain level. So, people who are coming to buy are

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CARBON TRADING AT MCX TRADING BENEFITS:

Sellers and intermediaries can hedge against price risk

Advance selling could help project to generate liquidity

and thereby reducing its cost of implementation

There is no counter party risk as exchange guarantee the

trade

The price discovery on the exchange platform ensure the

fair price for both the sellers and buyers

Bring players to a single platform

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OUTLOOK FOR INDIA India is one of the exempted from this protocol as they

are stated as developing countries, but overseas

companies can buy carbon credits from these countries.

Now companies in India can use Carbon credits to get

liberal loans, incentives by multinationals in their

countries and benefits like better social and ecologicalvisibility

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INDIAN COMPANIES: TAKING ADVANTAGE

Gujarat Fluoro Chemicals is amongst first companiesworldwide to get its carbon emission reduction projectcertified. It is set to reap rewards from the sale of CERcredits from this year itself

Tata Steel is believed to have signed a MoU with theJapanese government agency NEDO for sale of creditsaccruing to it from carbon reduction following theimplementation of an over Rs 250 crore modernization andupgradation project

NTPC and several state electricity boards have also appliedfor carbon credit benefits. Most of them are replacing coal-based technologies with more environment-friendlyprocesses

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Of the 15 projects approved by the UNFCCC so far, four

are Indian. These four are:

Gujarat Flurochemicals,

Kalpataru Power Transmission Ltd, The Clarion power project in Rajasthan and

The Dehar power project in Himachal Pradesh

The country accounted for 283 CDM projects out of the

819 registered by the CDM Executive Board, theenvironment ministry, the World Bank and the

International Emissions Trading Association

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INDIAN COMPANIES: TAKING ADVANTAGE


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CONCLUSIONS There is a great opportunity awaiting for India in carbon

trading which is estimated to go up to $100 billion by

2010.

In the new regime, the country could emerge as one of

the largest beneficiaries accounting for 25 % of the total

world carbon trade, says a recent World Bank report

Analysts claim if more companies absorb clean

technologies, total CERs with India could touch 500

million.

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CONCLUSIONS Of the 391 projects sanctioned, the UNFCCC has

registered 114 from India, the highest for any country.

There are projects range from cement, steel, biomass

power, bio-gases co-generation and municipal solid waste

to energy, municipal water pumping and natural gas

power. The ministry has given the host-country

clearance, the CDM projects will have to be approved bythe executive board of the UNFCCC

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19844771 a study on carbon credit ppt

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