CARBON CREDITS

Group Members :
Anchal Bhaglal

Vineet Sansare

Shashikant Bomma

Sajid Gadne

Imran Khan

Jofy Baby

Sonia Sharma

Gurpreet Singh

Nilay Panchal

the concept,
development, Indian
scenario and the future
expectations.

Agenda
2

1.
2.
3.
4.
5.
6.
7.
8.
9.

Few Facts
Introduction to Carbon Credits
Introduction to Kyoto Protocol
Kyoto Protocol Mechanism
CDM
Challenges
Position of INDIA
Carbon Trading
Conclusion

Did You Know?

3

Each of these activities add 1 Kg CO2 to your

carbon footprint.

Travelling by public transportation a distance

10 to 12 Km ( 6.5 to 7 miles).

Operating your computer for 32 hours (60 watt

consumption assumed)

Production of 5 plastic bags.

Flying with a plane a distance of 2.2 Km or

1.375 miles.

Production of 1/3 of an American cheeseburger.

What are CARBON CREDITS?

CREDITS

The Collins English Dictionary defines a carbon credit

as :
A certificate showing that a government or company
has paid to have a certain amount of carbon dioxide
removed from the environment".

The plan works by capping the amount of total

emissions that can be released by a company or
business.

What are CARBON CREDITS?

CREDITS

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

fund carbon reduction plans between trading partners.

CARBON CREDIT MARKETS

1.
2.

There are two types of markets in carbon credit:

Compliance Market (Annexure I countries)
Voluntary Market (Non- Annexure countries)

The KYOTO PROTOCOL

What is 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.
system.
8

What is 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

INDIA & KYOTO PROTOCOL

10

Indiasigned 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.

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 :

Clean Development Mechanism
Emissions trading
Joint implementation (JI)

1.
2.
3.
11

KYOTO MECHANISM

12

Both Annex I & non-Annex I Parties must cooperate 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.

13

CLEAN DEVELOPMENT
MECHANISM

CLEAN DEVELOPMENT
MECHANISM
CDM is a mechanism whereby an Annex I
party may purchase emission reductions
which arise from projects located in nonAnnex I countries. The carbon credits that are
generated by a CDM project are termed
Certified
Emission
Reductions
(CERs),
expressed in tonnes of CO2 equivalent

14

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

15

CDM PROCESS
IDENTIFICATION OF PROJECT AND
DEVELOPMENT OF PROJECT CONCEPT
NOTE

SUBMISSION OF THE PDD AND HOST

COUNTRY APPROVAL VALIDATOR

DEVELOPMENT OF PROJECT DESIGN

DOCUMENT

MAKE PDD COMPLETELY AVAILABLE

FOR 30 DAYS

HOST COUNTRY APPROVAL

VERIFICATION AND CERTIFICATION

VALIDATION OF PROJECT

SUBMISSION OF VALIDATION REPORT

AND PDD
REGISTRATION WITH THE CDM

POSSIBLE REVIEW BY CDM EXECUTIVE

BOARD

16

ISSUANCE OF CERS TO PROJECT

DEVELOPERS

PROJECT IMPLEMENTATION AND

MONITORING

CHALLENGES

17

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 construction and implementation

18

EMISSION TRADING

EMISSION TRADING

19

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 10,000 tonnes of carbon) is divided into
transferable units (10,000 permits of 1 tonne of
carbon each)

EMISSION TRADING V/S CARBON TAXES:

THE POLITICS-WHO LIKES WHICH POLICY &
WHY?

20

United States is the strongest proponent of emissions trading as

US is energy inefficient and has high per capita carbon dioxide
emissions 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

21

JOINT IMPLEMENTATION (JI)

JOINT IMPLEMENTATION (JI)

22

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 receive credit 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.

JOINT IMPLEMENTATION (JI)

23

There are two approaches for verification of

emission reductions:
Under JI Track 1, a host Party that meets all of
the eligibility 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 to
verification procedures established under the
supervision of the Joint Implementation
Supervisory Committee.

24

CARBON TRADING

CARBON TRADING

25

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 to 100 metric tons of carbon dioxide,
which can be traded or exchanged in market.

There are two kinds of carbon trading Emission

trading and trading in Project-based Credits. The
two categories are put together as Hybrid trading
System

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
from other company to save its emission cost

2. PROJECT-BASED TRADING:

26

Government & World Bank subsidized credit for projectbased trading to the companies calculating how much
carbon dioxide equivalent they save/reduces
Project-based Credit trading includes baseline-and-credit
trading and offset trading

TYPES OF CARBON TRADING

3. HYBRID TRADING SYSTEM:

27

In Hybrid trading system, both emission trading

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

Hybrid trading system is enormously complex as

it is not only difficult to try to create credible
credit and make them equivalent to allowance

28

CARBON NETWORK

CARBON NETWORK
Seller
Exchang
e
Banks
Individua
ls
NGO &
Govt.
Consulta
nts
Annex 2
&3
countries
Others
29

Trading
exchange
Banks

Brokers &
Traders
Intermedi
ary
service
providers
Consultan
ts

Buyers
Annex 1
country

Banks
Individual
s
Consultan
ts
Others
NGO &
Governm
ent

PARTIES INVOLVED IN CARBON

TRADING
PROJECT 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.

30

PARTIES INVOLVED IN CARBON

TRADING
EQUITY 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
31

PARTIES INVOLVED IN CARBON

TRADING
SUPPLIER
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 creditworthiness of the insurer.
RATING AGENCIES:
The rating agencies may be involved if the financing of the
project involves the issue of securities

32

PARTIES INVOLVED IN CARBON

TRADING
EXPERTS:
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 of
expertise in the relevant area
HOST GOVERNMENT:
The objectives and role of the host government will vary but
may involve economic, social and environmental guidelines
and issuance of relevant consents, permits and licenses

33

34

ADVANTAGES OF CARBON
TRADING

ADVANTAGES OF CARBON
TRADING

35

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 clean

technology in its production process.

ADVANTAGES OF CARBON
TRADING

36

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

KEY RISKS AND

UNCERTAINTIES

37

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

38

POSITION OF INDIA

POSITION OF INDIA

39

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

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 growth rate of above 40%
Various processes/technologies available to reduce the amount
of Municipal Solid Waste are as follows:

40

Physical (a. Pelletisation)

Biochemical (a. Aerobic Composting b. Anaerobic Digestion)

Thermal (a. Incineration b. Gasification)

CARBON TRADING AT MCX

41

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 actually financial
investors

CARBON TRADING AT MCX

42

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

OUTLOOK FOR INDIA

43

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 ecological visibility

INDIAN COMPANIES: TAKING

ADVANTAGE

44

Gujarat Fluoro Chemicals is amongst first companies worldwide to get

its carbon emission reduction project certified. It is set to reap rewards
from the sale of CER credits from this year itself

Tata Steel is believed to have signed a MoU with the Japanese

government agency NEDO for sale of credits accruing to it from
carbon reduction following the implementation of an over Rs 250 crore
modernization and upgradation project

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

INDIAN COMPANIES: TAKING

ADVANTAGE

45

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, the environment
ministry, the World Bank and the International Emissions
Trading Association

CONCLUSIONS

46

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.

CONCLUSIONS

47

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 by the executive board of the UNFCCC

THANK YOU

48