CARBON CREDIT

HOT BUSINESS OPPORTUNITY

IN GLOBAL WARMING

Presented by Chandan Gupta

B.Com Hons.
Roll No. 72
St. Xaviers College Kolkata
 INTRODUCTION
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.

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.
CARBON CREDITS
 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.

It was adopted in Kyoto, Japan, on 11th

December 1997.
 Objective Of The Kyoto Protocol:

“Stabilisation of greenhouse gas concentrations in the

atmosphere at a level that would prevent air pollution
interference with the climate system”
 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.
 CARBON
OFFSETS
Carbon Offset or a Carbon Offsets is a financial instrument
aimed to offsets carbon emissions through the purchasing of
carbon credit`s from a company or organization who invest in
projects that help to reduce or limit the amount of CO2
released into the atmosphere in the short and long term.
 CARBON
FOOTPRINT
The Carbon Footprint is a measurement of all
greenhouse gases we individually produce and has
units of tonnes of carbon-di-oxide equivalent. A
carbon footprint is made up of two parts, the primary
footprint and the secondary footprint.

 The primary footprint is a measure of our direct emissions

of CO2 from the burnings of fossils fuels including domestics
energy consumption and transportation (e.g. car and
plane).We have direct control of these.

The secondary footprint is a measure of the indirect CO2

emissions from the whole lifecycle of products we use – those
associated with their manufacture and eventual breakdown.
To put it very simply – the more we buy the more emissions
will be caused on our behalf
 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 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
 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 clean technology

in its production process.

 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.
 CARBON
TAX
A Carbon tax is a tax on the
carbon contents of fuels –
effectively a tax on the
carbon-di-oxide emissions
from burning fossils fuels.
Thus, carbon tax is shorthand
for carbon-di-oxide tax or
CO2 tax.
 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 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
 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

 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 that are generated by a
CDM project are termed Certified Emission Reductions (CERs),
expressed in tonnes of CO2 equivalent
 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 actually financial investors.
 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

 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
ecological visibility.
 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.
INDIAN COMPANIES: TAKING
ADVANTAGE
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
There is a great opportunity awaiting for India in carbon trading
which is estimated to go up to $100 billion by 2012.

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.

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