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Project Report On
“STUDY OF CARBON CREDITS”
SUBMITTED BY
PANKAJ M BHUTRA
MMS FINANCE
BATCH: 2007-09
SUBM ITTED TO
PROF. P. L. ARYA
UNIVERSITY OF MUM BAI
N. L. DALMIA INSTITUTE OF MANAGEMENT STUDIES &
RESEARCH
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CERTIFICATE
This is to certify that Mr. PANKAJ M BHUTRA , student of N.L. Dalmia
Institute of Management Studies and Research, has successfully carried out
the project titled “ STUDY OF CARBON CREDITS” , under my supervision
and guidance as partial fulfilment of the requirements of MMS course,
Mumbai University Batch 2007-2009
Prof. P. L. Arya Prof. P.L. Arya
Project Guide Director
Date:
Place: MUMBAI
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ACKNOWLEDGEMENT
THE SUCCESS OF ANY PROJECT IS THE RESULT OF HARD WORK & ENDEAVOR OF
NOT ONE BUT MANY PEOPLE AND THIS PROJECT IS NO DIFFERENT.
I TAKE THIS AS A PROSPECT TO AVOW THAT IT WAS AN ACHIEVEMENT TO
HAVE SUCCEEDED IN MY FINAL PROJECT, WHICH WOULD NOT HAVE BEEN THE
POSSIBLE WITHOUT THE GUIDANCE OF PROF. P. L. ARYA (DIRECTOR – N. L.
DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH) MY PROJECT
GUIDE FOR HIS VALUABLE CONTRIBUTION TOWARDS THE PROJECT.
I ALSO EXPRESS MY APPRECIATION AND GRATITUDE TOWARDS ALL THE
FACULTY MEMBERS AT N.L. DALMIA INSTITUTE OF MANAGEMENT STUDIES
AND RESEARCH FOR MAKING THE M.M.S. DEGREE AND THIS PROJECT A
MEMORABLE LEARNING EXPERIENCE.
FINALLY I AM THANKFUL TO ALL MY FRIENDS, FACULTY MEMBERS AND STAFF
WHO HAVE GIVEN THEIR FULL SUPPORT IN COLLECTING THE REQUIRED
INFORMATION AND CONTINUOUS HELP DURING THE PREPARATION OF THE
PROJECT.
PANKAJ M BHUTRA MMS FINANCE
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CONTENT
1
TOPIC PAGE NO
Introduction 2
Evolution of Carbon Credit 5
Carbon Credit Trading Mechanism 10
Sectors to Benefit 16
Accounting of Carbon Credit 19
Carbon Financing 22
Current Global Trends 31
Carbon Credit and India 35
Conclusion 39
Bibliography 40
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INTRODUCTION
"M os t peop l e wou l d cons i de r t he f o l l owi ng pas t s oc i e t i e s t o have been
f amous v i c t i ms o f f u l l - f l edged co l l aps es r a t he r t han o f j u s t m i nor
dec l i nes : t he Anas az i and Cahod i a w i t h i n t he boundar i e s o f t he moder n
US, t he M aya c i t i e s i n Cen t r a l Amer i ca , M oche and T i wanaku s oc i e t i e s i n
Sou t h Amer i ca , M ycenean Gr eece and M i noan Cr e t e i n Eur ope , Gr ea t
Z i mbabwe i n Af r i ca , Angkor W at and t he Har appan I ndus Va l l ey c i t i e s i n
As i a , and Eas t e r I s l and i n t he Pac i f i c Ocean .
I t has l ong been s us pec t ed t ha t many o f t hos e mys t e r i ous abandonment s
wer e a t l eas t pa r t l y t r i gge r ed by eco l og i ca l p r ob l ems : peop l e i nadver t en t l y
des t r oy i ng t he env i r onmen t a l r e s our ces on wh i ch t he i r s oc i e t i e s depended .Th i s s us p i c i on o f un i n t ended eco l og i ca l s u i c i de - ecoc i de— has been
conf i r med by d i s cover i e s made i n r ecen t decades by a r chea l og i s t s ,
c l i ma t o l og i s t s , h i s t o r i ans , pa l eon t o l og i s t s and pa l yno l og i s t s ( po l l en
s c i en t i s t s ) .
The p r oces s t h r ough whi ch pas t s oc i e t i e s have under mi ned t hems e l ves by
damag i ng t he i r env i r onmen t s f a l l i n t o e i gh t ca t egor i e s , whos e r e l a t i ve
i mpor t ance d i f f e r s f r om, cas e t o cas e : de f o r es t a t i on and hab i t a t
des t r uc t i on , s o i l p r ob l ems ( e r os i on , s a l i n i s a t i on , and s o i l f e r t i l i t y l o s s es ) ,wa t e r managemen t p r ob l ems , ove r hun t i ng , ove r f i s h i ng , human
popu l a t i on g r owt h , and i nc r eas ed pe r cap i t a i mpac t o f peop l e . The r i s k o f
s uch co l l aps es t oday i s now a ma t t e r o f i nc r eas i ng conce r n . "
J a r ed D i amond ( 2006) .
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Gl oba l war mi ng i s t he new buzzwor d haun t i ng env i r onmen t a l i s t s a l l ove r
t he wor l d . Accor d i ng t o UNFCCC, s i nce t he 19 t h cen t u r y , t he ave r age
t emper a t u r e o f t he ea r t h has i nc r eas ed by 0 .6 ° C . The ave r age t emper a t u r e
i s be l i eved t o be r i s i ng and t o i nc r eas e by ano t he r 1 .4 t o 5 .8 ° C t i l l t he
yea r 2100 .
The p r i mar y r eas on f o r t h i s i nc r eas e i s r ap i d g r owt h o f i ndus t r i a l i za t i on ,
bu r n i ng o f g r ea t quan t i t i e s o f gas o l i ne , coa l and o i l , u r ban i za t i on and
cu t t i ng down o f f o r es t s and ce r t a i n me t hods o f f a r mi ng .
Thes e ac t i v i t i e s have l ead t o an i nc r eas e i n t he Gr eenhous e Gas es
( GHGs ) , e s pec i a l l y ca r bon d i ox i de , me t hane , and n i t r ous ox i de , e t c . Thes e
gas es a r e neces s a r y i n t he a t mos pher e t o abs o r b t he hea t o f t he s un ; and
wi t hou t t hem, t he ea r t h ' s a t mos pher e wou l d be un i nhab i t ab l e , co l d and
bar r en . However , an exces s o f t hes e gas es i n t he a t mos pher e l eads t o t hephenomenon ca l l ed g l oba l war mi ng whi ch l eads t o an a r t i f i c i a l and
unneces s a r y i nc r eas e i n t emper a t u r e wh i ch u l t i ma t e l y a l t e r s t he c l i ma t e
on t he p l ane t .
Sources o f Green Hous e Gas es :
• Bur n i ng o f f os s i l f ue l s and de f o r es t a t i on l ead i ng t o h i ghe r
ca r bon d i ox i de concen t r a t i ons .
• Li ves t ock en t e r i c f e r men t a t i on and manur e managemen t , paddyr i ce f a r mi ng , l and us e and we t l and changes , p i pe l i ne l o s s es ,and cover ed ven t ed l andf i l l emi s s i ons l ead i ng t o h i ghe rmet hane a t mos pher i c concen t r a t i ons .
• Us e o f ch l o r o f l uo r oca r bons ( CFCs ) i n r e f r i ge r a t i on s ys t ems ,and us e o f CFCs and ha l ons i n f i r e s uppr es s i on s ys t ems andmanuf ac t u r i ng p r oces s es .
• Agr i cu l t u r a l ac t i v i t i e s , i nc l ud i ng t he us e o f f e r t i l i ze r s t ha tl ead t o h i ghe r n i t r ous ox i de ( N 2 O) concen t r a t i ons .
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Compos i t i on o f Green Hous e Gas es :
The Dangers o f Gl oba l Warmi ng:
• Ex t i nc t i on o f many s pec i e s o f p l an t s and an i ma l s .
• F r equen t s t o r ms , d r ough t s and f l oods . Fo r i n s t ance Ra j as t han i sf ac i ng f l oods wh i l e eas t e r n I nd i a i s f ac i ng d r augh t s . Th i s t ype
of a d r as t i c c l i ma t i c change i s a t t r i bu t ed t o g l oba l war mi ng by
many env i r onmen t a l i s t s .
• G l oba l war mi ng caus es t he wa t e r s i n t he oceans t o expand
whi ch can caus e havoc and des t r uc t i on f o r l ow l y i ng and i s l and
coun t r i e s . R i s e i n t emper a t u r es can a l s o caus e g l ac i e r s t o me l t ,
wh i ch w i l l u l t i ma t e l y add mor e wa t e r t o t he oceans . The
aver age s ea l eve l has been i nc r eas i ng eve r y cen t u r y . I t has
been p r ed i c t ed t ha t an i nc r eas e o f 9 - 88 cm may t ake p l ace i n
t he 21 s t cen t u r y .
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• Agr i cu l t u r a l p r oduce i s l i ke l y t o dec r eas e i n t r op i ca l , s ub -
t r op i ca l and t emper a t e r eg i ons becaus e o f t he i nc r eas e i n
t emper a t u r e becaus e o f s o i l e r os i on and de f o r es t a t i on .
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EVOLUTION OF CARBON CREDIT
UNFCCC
Some na t i ons have made vo l un t a r y e f f o r t s t owar ds con t r o l l i ng t hes eGHGs , bu t t hey a r e no t enough and no t p r opor t i ona t e t o t he i nc r eas e i n
GHGs i n t he a t mos pher e . Hence , t he Un i t ed Na t i ons F r amewor k
Conven t i on on C l i ma t e Change ( UNFCCC) came i n t o e f f ec t . Under t he
aeg i s o f t he UNFCCC, 189 coun t r i e s a r ound t he wor l d have j o i ned an
i n t e r na t i ona l t r ea t y t ha t s e t s gene r a l goa l s and r u l e s f o r conf r on t i ng
c l i ma t e change .
The Conven t i on has s e t an u l t i ma t e ob j ec t i ve o f s t ab i l i z i ng GHG
emi s s i ons "a t a l eve l t ha t wou l d p r even t danger ous an t h r opogen i c ( human
i nduced) i n t e r f e r ence w i t h t he c l i ma t e s ys t em." I t s t a t e s t ha t " s uch a l eve l
s hou l d be ach i eved w i t h i n a t i me- f r ame s u f f i c i en t t o a l l ow ecos ys t ems t o
adap t na t u r a l l y t o c l i ma t e change , t o ens u r e t ha t f ood p r oduc t i on i s no t
t h r ea t ened , and t o enab l e economi c deve l opmen t t o p r oceed i n a
s us t a i nab l e manner . "
The "bas e yea r " f o r t abu l a t i ng GHG emi s s i ons has been s e t a s 1990 .
Hence a l l t he member coun t r i e s have t o wor k t owar ds b r i ng i ng t he
po l l u t i on l eve l s be l ow t he l eve l s wh i ch ex i s t ed i n 1990 .
Thos e coun t r i e s wh i ch have a l r eady r a t i f i ed t he t r ea t y a r e ca l l ed "Pa r t i e s
t o t he Conven t i on" . Thes e coun t r i e s w i l l s t r i ve t owar ds r educ i ng GHGs
f r om t he i r a t mos pher e by g i v i ng i mpe t us t o t echno l ogy f o r e f f i c i en t
ene r gy u t i l i za t i on and power p r oduc t i on , ag r i cu l t u r e p r ac t i ces wh i ch
pr even t s o i l e r os i on , cons e r va t i on and op t i ma l us e o f na t u r a l r e s our ces ,
e t c . Thes e coun t r i e s have s t a r t ed deve l op i ng p r ogr ams f o r s l owdown o f
env i r onmen t a l change .
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Thos e na t i ons wh i ch a r e h i gh l y i ndus t r i a l i zed canno t o f cour s e be
expec t ed t o cu t down t he i r i ndus t r i a l ac t i v i t y d r as t i ca l l y . Hence t hey have
agr eed t o s uppor t t he deve l op i ng and under deve l oped coun t r i e s i n t he
r educ t i on o f c l i ma t e change . They ex t end t he i r s uppor t f i nanc i a l l y ,
t h r ough a s ys t em o f l oans and g r an t s s e t up by UNFCCC. Thes e coun t r i e s
a l s o s ha r e t echno l ogy wi t h t he l e s s deve l oped coun t r i e s .
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Kyot o Prot oco l
Owi ng t o t he i nc r eas ed awar enes s abou t t he need o f po l l u t i on con t r o l , an
i n t e r na t i ona l ag r eemen t t ook p l ace among s eve r a l na t i ons o f t he wor l d .
Th i s ag r eemen t i s known as t he Kyo t o P r o t oco l . Repr es en t a t i ves o f
d i f f e r en t coun t r i e s came t oge t he r i n Kyo t o , J apan , t o b r i ng a s o l u t i on t o
t he r i s i ng po l l u t i on p r ob l em. The Kyo t o P r o t oco l was i mpl emen t ed i n
1997 , wher eby emi s s i on t a r ge t s wer e de t e r mi ned f o r coun t r i e s , and key
e l emen t s a s t o t he ach i evemen t o f s uch t a r ge t s wer e i den t i f i ed . I t i s
bas i ca l l y t he ag r eemen t i n wh i ch t he member a s we l l a s non- member
coun t r i e s have dec i ded t o r educe t he emi s s i on o f s i x GHGs t o a ce r t a i n
l eve l and dec i ded t o p r ov i de c r ed i t f o r r educ t i on i n emi s s i on .
The Kyo t o P r o t oco l i s an i n t e r na t i ona l t r ea t y t o r educe GHGs emi s s i ons
b l amed f o r g l oba l war mi ng . The p r o t oco l came i n t o f o r ce on Febr ua r y 16 ,2005 . The t r ea t y was conc l uded i n Kyo t o , hence t he name . The ma i n a i m
of t he ag r eemen t i s t o r educe g l oba l war mi ng . As men t i oned ea r l i e r ,
g l oba l war mi ng caus es unwan t ed and ha r mf u l c l i ma t e changes . Reduc t i on
i n g l oba l war mi ng can de l ay t h i s c l i ma t e change . G l oba l war mi ng can be
con t r o l l ed by r educ i ng t he emi s s i on o f GHGs . Hence , an under s t and i ng
was r eached under t he pu r v i ew o f t he t r ea t y , wher e i n deve l oped and
t r ans i t i on economi es a r e s uppos ed t o r educe t o t a l GHG emi s s i ons t o 5%
be l ow t he l eve l t hey wer e i n 1990s . Th i s has t o be ach i eved be t ween 2008
and 2012 ( t he f i r s t commi t men t pe r i od ) . The p r o t oco l i s l ead by t heUni t ed Na t i ons and d i f f e r en t coun t r i e s have d i f f e r en t t a r ge t s wh i ch t hey
have t o ach i eve . On l y coun t r i e s t ha t r a t i f y t he p r o t oco l a r e bound by i t .
The Kyo t o P r o t oco l a l ong w i t h a hos t o f o t he r o r gan i za t i ons s uch a s t he
Uni t ed Na t i ons , EBRD ( Eur opean Bank f o r Recons t r uc t i on and
Deve l opmen t ) , e t c . have he l ped c r ea t e a mar ke t f o r Car bon Cr ed i t s . The
whol e mechan i s m can be s i mpl y under s t ood l i ke t h i s : Thos e bus i nes s es o r
coun t r i e s wh i ch caus e l e s s po l l u t i on a r e g i ven bene f i t o f Car bon c r ed i t s .
Thes e ca r bon c r ed i t s can be s o l d t o t hos e bus i nes s es o r coun t r i e s wh i ch
have h i gh po l l u t i on l eve l s . Coun t r i e s i n Rus s i a , Eas t e r n Eur ope and
Cen t r a l As i a a r e h i gh l y ene r gy- e f f i c i en t and hence t hey can bene f i t f r om
t he p r o t oco l by r educ i ng ene r gy cos t s and emi s s i ons .
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The Kyot o Mechani s ms
1 . I nt ernat i ona l Emi s s i ons Tradi ng:
• Emi s s i ons t r ad i ng ( ET) i s a mechan i s m t ha t enab l es coun t r i e s w i t h
l ega l l y b i nd i ng emi s s i on t a r ge t s t o buy and s e l l emi s s i ons
a l l owances among t hems e l ves .
• Each coun t r y has a ce r t a i n number o f emi s s i on a l l owances ( amoun t
o f ca r bon d i ox i de i t can emi t ) i n l i ne w i t h i t s Kyo t o r educ t i on
t a r ge t s .
• The I ET a l l ows i ndus t r i a l i zed coun t r i e s t o t r ade t he i r s u r p l us c r ed i t s
on t he i n t e r na t i ona l ca r bon c r ed i t mar ke t .
• Emi s s i ons t r ad i ng t r ans f e r s " as s i gned amoun t un i t s " o r AAU
• The buyer w i l l t hen us e t he c r ed i t s t o mee t t he i r emi s s i ons targets
2 . Jo i nt I mpl ement at i on ( JI ) :
• Pr o j ec t s be t ween i ndus t r i a l i zed na t i ons t o e a r n emi s s i on o f f s e t s
• A deve l oped coun t r y o r a bus i nes s hous e i n a dev e l oped coun t r y can
s e t up a p r o j ec t t ha t r educes emi s s i ons i n ano t he r i ndus t r i a l i zed
coun t r y f o r wh i ch i t w i l l ga i n c r ed i t s .
• I t i s done becaus e o f geogr aph i ca l o r cos t i mp l i ca t i ons
• Emi s s i on r educ t i on un i t s ( ERUs ) c r ea t ed t h r ough j o i n t
i mpl emen t a t i on i s t r ea t ed i n t he s ame way as t hos e f r om emi s s i ons
t r ad i ng
• The gover nmen t o f t he i nves t i ng company ge t s bene f i t ed by s a l e o f
t hes e c r ed i t s and t he r ec i p i en t coun t r y ge t s t he bene f i t o f f o r e i gn
i nves t men t .
3 . Cl ean Deve l opment Mechani s m ( CDM) :
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• The pur pos e o f CDM i s r educe t o emi s s i ons and a l s o con t r i bu t e t o
s us t a i nab l e deve l opmen t i n deve l op i ng coun t r i e s .
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The CDM i s admi n i s t e r ed by t he CDM Execu t i ve Boar d ( CDM
Boar d ) wh i ch r epor t s and i s accoun t ab l e t o t he Conf e r ence o f
Pa r t i e s ( COP) .
A Car bon emi s s i on r educ t i on ( CER) i s g i ven by t he CDM Execu t i ve
Boar d .
One CER i s equ i va l en t t o one t onne o f ca r bon d i ox i de r educed .
St eps i nvo l ved f o r i s s uance o f CER:
The f i r s t s t age i s a t t he domes t i c l eve l , wher e t he p r o j ec t ge t s
appr oved by Na t i ona l CDM Aut hor i t y ( NCM ) .
Af t e r NCM ' s appr ova l , t he p r o j ec t i s s en t t o t he Un i t ed
Nat i ons F r amewor k Conven t i on on C l i ma t e Changes .
Af t e r t h i s , t he p r o j ec t i s r ev i ewed by t he execu t i ve boa r d o f
UNFCCC. The p r o j ec t ge t s eva l ua t ed on eve r y f r on t and i s
t hen r eg i s t e r ed under UNFCCC on l y i f i t mee t s a l l t he no r ms .
Ther ea f t e r , ce r t i f i ca t i on i s done f o r t he r educ t i on i n emi s s i on
and c r ed i t s a r e i s s ued .
Obj ect i ves o f Kyot o Prot oco l :
• Enhancemen t o f ene r gy e f f i c i ency .
• P r o t ec t i on and enhancemen t o f s i nks and r e s e r vo i r s o f GHGs .
• P r omot i on o f s us t a i nab l e f o r ms o f ag r i cu l t u r e i n l i gh t o f c l i ma t e change
cons i de r a t i ons .
• Res ea r ch on , and p r omot i on , deve l opmen t and i nc r eas ed us e o f , new and
r enewab l e f o r ms o f ene r gy , o f ca r bon d i ox i de s eques t r a t i on t echno l og i es .
• P r ogr es s i ve r educ t i on o r phas i ng ou t o f mar ke t i mper f ec t i ons , f i s ca l
i ncen t i ves , t ax and du t y exempt i ons and s ubs i d i e s i n a l l GHG emi t t i ng
s ec t o r s .
• Reduc t i on o f me t hane emi s s i ons t h r ough r ecover y and us e i n was t e
managemen t , a s we l l a s i n t he p r oduc t i on , t r ans por t and d i s t r i bu t i on o f
ene r gy .
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Carbon Cred i t
Car bon c r ed i t i s t he evo l v i ng concep t de r i ved by pub l i c and p r i va t e
en t i t i e s . M ahd i A l - Ka i s i , p r o f es s o r o f B i os ys t ems i n h i s a r t i c l e de f i nes
t he concep t o f ca r bon c r ed i t s a s t ha t "W hi ch i nvo l ves buy i ng ca r bon un i t s
whi ch a r e emi t t ed , ma i n l y i n t ons , t h r ough a mi dd l e en t i t y ca r bon
s eques t r a t i on t h r ough adop t i on o f a r ange o f cons e r va t i on p r ac t i ces . The
ca r bon un i t s a r e t hen s o l d t o a buyer t ha t i s t he i ndus t r i a l s ec t o r need i ng
t o o f f s e t t he CO 2 gener a t ed t o t he a t mos pher e t h r ough t he i r manuf ac t u r i ng
ac t i v i t i e s . "
Car bon c r ed i t s encour ages t hos e coun t r i e s by r ewar d i ng t he i r e f f o r t s i n
r educ i ng GHG emi s s i on . Tha t i s , i f a coun t r y ea r ns one c r ed i t i t means i t
has r educed one t onne o f CO 2 emi s s i on i n t o t he a t mos pher e . Thes e c r ed i t s
p r ov i de f i nanc i a l i ncen t i ves t o t hos e compan i es wh i ch s ys t emat i ca l l ydeve l op r enewab l e ene r gy p r o j ec t s .
The s u r vey on t he ca r bon emi s s i on w i t h due r e f e r ence t o t he expend i t u r e
i ncur r ed by d i f f e r en t coun t r i e s o f t he wor l d r evea l s t ha t deve l oped
coun t r i e s a r e s pend i ng nea r l y $300 t o 500 and t he deve l op i ng coun t r i e s
a r e s pend i ng $10 t o 25 eve r y yea r . I n coun t r i e s s uch a s I nd i a , GHG
emi s s i on i s ve r y l ow t o t he t a r ge t f i xed by Kyo t o P r o t oco l and s o , t hey
a r e exc l uded f r om r educ t i on o f GHG emi s s i on . However , t he t r ad i ng t akes
p l ace i n s e l l i ng s u r p l us c r ed i t s t o t he deve l oped coun t r i e s . Thus , I nd i ac l a i ms 31% of t he wor l d ca r bon t r ade t h r ough C l ean Deve l opmen t
M echan i s m ( CDM ) .
Car bon c r ed i t s a r e a l s o ca l l ed a s "cap & t r ade r eg i mes " . The compan i es
emi t a s e t amoun t o f CO 2 i n t he g i ven t i me pe r i od and endeavor i n
emi t t i ng l e s s t han t ha t f i xed by Kyo t o p r o t oco l . Though t h i s t hey can s e l l
t he i r c r ed i t s f o r money t o t hos e compan i es wh i ch a r e unab l e t o con t r o l
emi s s i on w i t h i n t he capped l eve l .
Today ' s wor l d i s a t r ade r ' s pa r ad i s e , wher e i n eve r y t h i ng— t ang i b l e andi n t ang i b l e— i s t r adab l e , and i n abs o l u t e t e r ms , t he l a t e s t o f f e r i ng i s
po l l u t i on .
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CARBON CREDIT TRADING MECHANISM
Types o f Trans act i ons Carbon t rans act i ons can be grouped i n t o t wo
mai n ca t egor i es :
• A l l owance- bas ed Trans act i ons : Her e , t he buyer pu r chas es emi s s i ons
a l l owances c r ea t ed and a l l oca t ed ( o r auc t i oned) by r egu l a t o r s under cap -
and- t r ade r eg i mes , s uch a s As s i gned Amount Un i t s ( AAUs ) under t he
Kyo t o P r o t oco l , o r EUAs under t he Eur opean Uni on Emi s s i on Tr ad i ng
Scheme .
• Proj ec t - bas ed Trans act i ons : I n t hes e t r ans ac t i ons , t he ca r bon c r ed i t s
t ha t a r e bough t , a r e gene r a t ed f r om p r o j ec t s t ha t he l p i n r educ i ng GHG
emi s s i ons , f o r e . g . , t he p r o j ec t s wh i ch come under t he pu r v i ew o f CDM
and J I f r amewor k .
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The t r ad i ng t akes p l ace on t wo s t ock exchanges , t he Ch i cago C l i ma t e
Exchange and t he Eur opean C l i ma t e Exchange . W es t e r n Eur opean
coun t r i e s and J apan a r e t he ma j o r buyer s o f ca r bon c r ed i t s . The
haza r dous nes s o f each GHG can be compar ed us i ng t he G l oba l W ar mi ng
Po t en t i a l ( an i ndex under t he Kyo t o P r o t oco l ) .
Buyers
Fi gur e 2 s hows t he buyer s o f ca r bon c r ed i t s f r om J anuar y 2005 t o M ar ch
2006 .
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Fr om F i gur e 2 i t i s c l ea r t ha t buyer s f r om Eur ope and J apan l a r ge l y
domi na t ed t he mar ke t s cene . S i gn i f i can t pu r chas es wer e a l s o s een f r om
Scand i nav i an coun t r i e s .
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Se l l ers
Fi gur e 3 s hows s e l l e r s o f ca r bon c r ed i t s . As i a f o r ms 73% of t he t o t a l
t r ans ac t i ons , however , t he s ha r e o f I nd i a i s obs e r ved t o have dec r eas ed
s i gn i f i can t l y f r om t ha t i n 2004 . Th i s can be a t t r i bu t ed t o t he f ac t t ha t
mos t compan i es dec i ded aga i ns t s e l l i ng o f Car bon Cr ed i t s t h i s yea r , i n
o r de r t o accumul a t e t hem and ge t a be t t e r p r i ce f o r a chunk l a t e r on . Some
compan i es dec i ded aga i ns t s e l l i ng CCs i n t he an t i c i pa t i on o f ge t t i ng
be t t e r p r i ces i n f u t u r e when t he demand i s mor e .
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Nowadays , s eve r a l compan i es a r e l ook i ng a t emi s s i on t r ad i ng a s a key
par t o f t he i r env i r onmen t s t r a t eg i es . An emi s s i on t r ade t yp i ca l l y occur s
when a company whi ch wan t s t o r educe i t s emi s s i ons , pu r chas es emi s s i on
c r ed i t s f r om ano t he r company t ha t has a l r eady r educed i t s emi s s i ons
beyond i t s s pec i f i ed r equ i r emen t . Th i s t r ans ac t i on can bene f i t bo t h
pa r t i c i pan t s . Pu r chas e r s a r e ab l e t o r each goa l s t ha t r equ i r e emi s s i on
r educ t i ons cos t - e f f ec t i ve l y w i t hou t under go i ng mas s i ve ove r hau l o f p l an t ,
mach i ne r y and p r oces s es and s pend i ng mor e on ope r a t i ona l changes .
Se l l e r s a r e r ewar ded f i nanc i a l l y f o r t he i r i nves t men t s i n emi s s i on
r educ t i ons . A coun t r y ( o r a g r oup o f coun t r i e s ) caps i t s ca r bon emi s s i ons
a t a ce r t a i n l eve l ( t h i s i s known as cap and t r ade ) and t hen i s s ues pe r mi t s
t o f i r ms and i ndus t r i e s t ha t g r an t t he f i r m t he r i gh t t o emi t a s t a t ed
amoun t o f ca r bon d i ox i de ove r a t i me pe r i od . F i r ms a r e t hen f r ee t o t r ade
t hes e c r ed i t s i n a f r ee mar ke t . F i r ms whos e emi s s i ons exceed t he amoun t
o f c r ed i t s t hey pos s es s w i l l be heav i l y pena l i zed .
Thes e pe r mi t s can a l s o be t r aded on va r i ous ca r bon t r ad i ng excha nges l i ke
Chi cago C l i ma t e Exchange ( CCX) . The CCX was t he f i r s t ca r bon
exchange when i t opened i n 2003 . Today , i t i s t he on l y exchange o f i t s
k i nd i n Nor t h Amer i ca . I n Eur ope , b i g p r oduce r s o f g r eenhous e gas es a r e
r equ i r ed t o t ake pa r t i n emi s s i on t r ad i ng . The CCX owns t he Eur opean
Cl i ma t e Exchange ( ECX) , i n t he Ne t he r l ands . A ca r bon exchange i s l i ke a
s t ock exchange f o r po l l u t i on . The ca r bon exchange p r ov i des a mar ke t f o r
bus i nes s es t o t r ade on t he r e l eas e and cap t u r e o f ca r bon d i ox i de and o t he rg r eenhous e gas es . T r ad i ng t akes p l ace when member s r e l eas e l e s s t han
t he i r l i m i t . The i dea o f t r ad i ng i n g r eenhous e gas es has i t s r oo t s i n t he
Kyo t o P r o t oco l .
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M ar ke t f o r ces d r i ve t he p r i ce o f t he c r ed i t s . The c r ed i t s a r e ca l l ed ca r bon
f i nanc i a l i n s t r umen t s ( CFI s ) . Each c r ed i t i s equa l t o 100 me t r i c t ons o f
ca r bon d i ox i de , t he mos t common g r ee nhous e gas . I n t h i s way , t he des i r ed
ca r bon r educ t i ons a r e me t a t t he l owes t cos t pos s i b l e t o s oc i e t y . I n
add i t i on , a f ew l a r ge compan i es have deve l oped i n t e r na l t r ad i ng
mechan i s ms i n o r de r t o r each companywi de goa l s cos t - e f f ec t i ve l y . Fo r
exampl e , t he ene r gy ma j o r s , B r i t i s h Pe t r o l eum ( BP) s t a r t ed an i n t e r na l
emi s s i on t r ad i ng s ys t em and s ough t t h i r d - pa r t y ve r i f i ca t i on o f GHG
i nven t o r y way back i n 2000 . S i mi l a r l y , She l l t oo s t a r t ed i t s i n t e r na l
t r ad i ng emi s s i on s cheme , t he She l l T r adab l e Emi s s i on Pe r mi t Sys t em
( STEPS) , a l s o i n 2000 .
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She l l wan t ed t o us e t he s cheme as an a i d i n r each i ng t he company ' s
emi s s i on r educ t i on t a r ge t s , a l l owi ng pe r mi t s wor t h 100 t ons o f ca r bon
d i ox i de ( o r i t s me t hane equ i va l en t ) t o be t r aded v i a an i n t e r na l webs i t e .
The t r ad i ng t akes p l ace on t wo s t ock exchanges , t he CCX and t he ECX.
J apan and W es t e r n Eur opean coun t r i e s a r e t he ma j o r buyer s o f ca r bon
cr ed i t s . The Scand i nav i an coun t r i e s a l s o p l ay a ma j o r r o l e . One
s i gn i f i can t f ac t t o be no t ed he r e i s t he g r owt h o f p r i va t e p l aye r s . The
s ha r e o f p r i va t e p l aye r s i nc r eas ed f r om 80% t o 90% a t t he beg i nn i ng o f
2006 . As f a r a s s a l e o f ca r bon c r ed i t s i s conce r ned , As i a accoun t s f o r 73%
of t he t o t a l t r ans ac t i ons . However , acco r d i ng t o t he W or l d Bank Repor t ,
S t a t e and Tr ends o f t he Car bon Cr ed i t s , 2006 , t he t r ans ac t i ons by I nd i a
dec r eas ed s i gn i f i can t l y f r om t ha t i n 2004 . Th i s can be a t t r i bu t ed t o t he
f ac t t ha t mos t o f t he compan i es dec i ded aga i ns t s e l l i ng ca r bon c r ed i t s , i n
an t i c i pa t i on o f a f u t u r e appr ec i a t i on o f p r i ces . The G l oba l W ar mi ng
Po t en t i a l , an i ndex under t he Kyo t o P r o t oco l , i s u s ed t o compar e t he
haza r dous nes s o f each GHG.
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Drawbacks
• A CER con t r ac t ( a s oppos ed t o an i s s ued , de l i ve r ed CER) has ce r t a i n
r i s ks i nhe r en t w i t h i t :
- A CER does no t l ega l l y ex i s t un t i l i t i s i s s ued ; i t s vo l ume depends on
pr o j ec t pe r f o r mance ( and ve r i f i ca t i on ) , ac t ua l i s s uance , and i t s de l i ve r y
i n t o t he compl i ance buyer ' s r eg i s t r y r equ i r e s t ha t t he I n t e r na t i ona l
Tr ans ac t i on Log i s ope r a t i ona l ;
- Once i t i s de l i ve r ed i n t o a buyer ' s accoun t i n t he CDM r eg i s t r y , i t l o s es
i t s ab i l i t y t o be t r ans f e r r ed ac r os s bo r de r s p r i o r t o 2008 .
- Ano t he r d r awback i n p r o j ec t - bas ed t r ans ac t i ons i s t ha t i t i nvo l ves h i ghe r
cos t s and t i me as i mpl emen t a t i on o f a p l anned p r o j ec t i n no t a s s i mpl e a si t appea r s on pape r . De l ays i n i mpl emen t a t i on can l ead t o a d i s a r r ay o f
t he cos t bene f i t p l ann i ng .
• M ar ke t s c r ea t ed by b i nd i ng cons t r a i n t s :
- The r eas on t he ca r bon mar ke t s g r ew i n 2005 was due t o t he b i nd i ng
cons t r a i n t s o f Kyo t o P r o t oco l , EU ETS, e t c . , and t he l ega l l y b i nd i ng
vo l un t a r y commi t men t s under t he Ch i cago C l i ma t e Exchange .
- The mar ke t demand i s de t e r mi ned by t he a s s i gned emi s s i on un i t s o f eachcoun t r y . Thes e caps have t o be s e t r ea l i s t i ca l l y , o r t he who l e mar ke t may
have t oo f ace a demand pu l l i n f l a t i on i n cos t o f ca r bon c r ed i t .
- I t i s i mpor t an t t ha t t he ma i n ob j ec t i ve o f UNFCCC and t he Kyo t o
Pr o t oco l i s ( r educ t i on o f GHG emi s s i ons and g l oba l war mi ng) kep t i n
mi nd by t he buyer s and s e l l e r s . I f t he who l e t r ade becomes t oo p r o f i t -
o r i en t ed , t hen i t w i l l l o s e i t s cen t r a l f ocu s .
• Emer gence o f mar ke t i n s t i t u t i ons
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- The emer gence o f v i ab l e mar ke t i n s t i t u t i ons i s u s ua l l y a s i gn o f a
mar ke t ' s ma t u r i t y . I n t h i s r ega r d , t he ca r bon mar ke t i s cons i de r ed t o be
s t i l l i n i t s i n f ancy . Thus , ca r bon mar ke t s need t o become i ns t i t u t i ona l l y
and geogr aph i ca l l y s t r onger wh i ch w i l l r e s u l t i n f a i r e r p r i c i ng o f ca r bon
cr ed i t s and gene r a t e a t r ans pa r ency i n t he s ys t em.
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SECTORS TO BENEFIT
1 . Agr i cu l t ura l Sec t or
W i t h i n t he ag r i cu l t u r a l s ec t o r , c r ed i t s may be gene r a t ed i n t wo ways :
• Reduc t i on o f GHGs : Reduc t i on o f GHG emi s s i ons f r om f os s i l f ue l s ,
f e r t i l i ze r s and l i ves t ock on f a r ms .
• Remova l o f GHGs : For mi ng b i o l og i ca l s i nks ; and t h r ough t hem,
abs o r b i ng t he CO 2 i n t o t e r r e s t r i a l p r oces s es .
However r educ t i on and r emova l o f GHGs s hou l d be i n compl i ance w i t h
t he Kyo t o P r o t oco l :
• Cr ed i t s s hou l d be g i ven bas ed on ne t a t mos pher i c r educ t i ons , wh i ch
means t ha t , t he r e s hou l d be a ne t r educ t i on o f GHG emi s s i ons . Reduc t i on
or r emova l i n one GHG s hou l d no t l ead t o an i nc r eas e i n ano t he r GHG.
• The r educ t i on needs t o be i n add i t i on t o wha t wou l d have occur r ed i n a
bus i nes s a s us ua l s i t ua t i on .
• E f f o r t s t o r emove o r r educe GHG emi s s i ons canno t r e s u l t i n i nc r eas ed
emi s s i ons e l s ewher e— ei t he r i n s pace o r t i me .
2 . Fores t ry
• Af f o r es t a t i on : e s t ab l i s h i ng t r ees on p r ev i ous l y u n f o r es t ed l and .
• Ref o r es t a t i on : t he p r oces s o f r ep l an t i ng f o r es t s wher e t hey once ex i s t ed
bu t wer e des t r oyed i n t he pas t
Fores t s t hat Qual i f y f or Carbon Cred i t
The Kyo t o P r o t oco l r ecogn i zes f o r es t s a s ca r bon s i nks and p r ov i des f o r
ca r bon t r ad i ng a s a means o f o f f s e t t i ng emi s s i ons o f GHGs and mee t i ng
t he Kyo t o t a r ge t s .
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Under t he p r o t oco l , ca r bon s eques t e r ed i n t r ees ( i . e . ca r bon c r ed i t ) mus t
come f r om ' Kyo t o For es t s ' , wh i ch a r e new f o r es t s , t ha t a r e :
• P l an t ed on l and , wh i ch h i s t o r i ca l l y has no t been cover ed by f o r es t
( a f f o r es t a t i on ) .
• P l an t ed on l and whi ch h i s t o r i ca l l y had con t a i ned f o r es t s t ha t had been
des t r oyed i n t he pas t and t he l and had been us ed f o r o t he r pu r pos es .
E l i g i b l e f o r s e t s s hou l d be ones wh i ch wer e no t p l an t ed be f o r e 1990 , i . e . ,
t hey have t o be new f o r es t s ; and s econd l y , mus t a r i s e f r om a change i n t he
us e o f l and . Ano t he r cond i t i on i s t ha t ca r bon s eques t e r ed by f o r es t s
dur i ng 2008- 2012 a l one i s t r adab l e .
3 . Renewabl e Energy
The r enewab l e s our ces o f ene r gy i nc l ude :
• W i nd power ,
• So l a r ene r gy ,
• B i omas s power ,
• Hyde l power ,
• Geo t he r mal , and
• Tyde l Power .
Energy Suppl y
• Renewab l e ene r gy ( eg . , w i ndmi l l s , b i ogas , s o l a r ene r gy gene r a t i on ) .
• B i omas s ( hea t and / o r power ) and cogener a t i on .
• I mpr ov i ng ene r gy e f f i c i ency by r ep l ac i ng ex i s t i ng equ i pmen t ( i n s t a l l i ng
new e f f i c i en t mach i ne r y ) .
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• Fue l s w i t ch : Fue l s w i t ch i ng f r om f os s i l f ue l t o g r een f ue l l i ke b i omas s ,
r i ce hus k , e t c .
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• Ener gy e f f i c i ency meas ur es r e l a t ed t o bo i l e r , pumps , t u r b i nes ,
i n s t a l l a t i on o f va r i ous s peed d r i ves , e f f i c i en t coo l i ng s ys t ems , back
p r es s u r e t u r b i nes , e t c .
• Cogener a t i on i n i ndus t r i e s hav i ng bo t h s t eam and power r equ i r emen t s .
4 . Trans port
• Fue l s w i t ch f r om gas o l i ne and d i e s e l t o na t u r a l gas .
• M oda l s h i f t f r om a i r t o t r a i n , r oad t o t r a i n a t macr o l eve l .
• Rep l acemen t o f s h i pmen t o f ce r t a i n r aw mat e r i a l s t h r ough r oad t o
p i pe l i nes .
5 . Was t e Management
• Cap t u r e o f l andf i l l me t hane emi s s i ons t o gene r a t e power .
• U t i l i za t i on o f was t e and was t ewa t e r emi s s i ons f o r gene r a t i on o f ene r gy
f o r cap t i ve us e o f power gene r a t i on .
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ACCOUNTI NG OF CARBON CREDI T
Account i ng I s s ues
The mechan i s m o f ca r bon t r ad i ng i s s i mi l a r t o t he US Ac i d Ra i n P r ogr am
whi ch r educed s ome i ndus t r i a l po l l u t an t s bu t had t he f o l l owi ng
mul t i f a r i ous accoun t i ng d i mens i ons .
• W ha t a r e t he cos t s and r evenues i nvo l ved i n i t and how t hey a r e t o be
i den t i f i ed , meas u r ed and r epor t ed f o r be t t e r dec i s i on - mak i ng?
• W ha t i s t he f i nanc i a l and ope r a t i ona l e f f ec t o f ca r bon c r ed i t and i t s
t r ad i ng on t he cap i t a l expend i t u r e and ea r n i ng o f t he i n s t i t u t i on i n t he
cur r en t yea r and on f u t u r e pe r i ods ?
• How t o amor t i ze t he cap i t a l expend i t u r es ?
• How t o t r ea t add i t i ona l expend i t u r e i ncu r r ed on r equ i r ed t r a i n i ng ,
r e s ea r ch and deve l opmen t ?
• How t o i den t i f y , meas u r e and d i s c l os e t he p r oces s , p r oduc t , f i s ca l
bene f i t s o f ea r n i ng ca r bon c r ed i t on env i r onmen t s ?
• W ha t s hou l d be t he aud i t ab l e s ys t em, i . e . , aud i t ab l e documen t s ,
compos i t i on o f aud i t t eam and r epor t i ng by aud i t o r s a s a pa r t o f s t a t u t o r yr epor t o r o t he r wi s e r epor t i ng s epa r a t e l y?
• How t o r ecogn i ze t he e f f ec t o f ca r bon c r ed i t and i t s t r ad i ng on
conven t i ona l accoun t i ng p r ac t i ce and f r ami ng accoun t i ng po l i c i e s
accor d i ng l y?
• W ha t s hou l d be t he code o f good co r por a t e gover nance i n ca r bon
t r ad i ng?
Account i ng and Report i ng
Accoun t i ng r e f e r s t o t he meas ur emen t o f economi c even t s and
s ummar i z i ng and r epor t i ng t hem i n t he f o r m o f f i nanc i a l s t a t emen t s .
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I nc r eas ed GHG emi s s i on has b r ough t w i t h i t many cha l l enges and
oppor t un i t i e s and a l s o pu t g r ea t e r f ocus on t he r o l e o f accoun t i ng
pr o f es s i on f o r accoun t i ng and r epor t i ng o f ca r bon c r ed i t s and t he i r
t r ad i ng . The p r o f es s i on , t oday , i s f ac i ng an i mpor t an t cha l l enge o f
i mp l emen t a t i on o f an appr opr i a t e mode l o f r egu l a t i on and t he ach i evemen t
o f i n t e r na t i ona l conver gence i n accoun t i ng , r epor t i ng and aud i t i ng o f
ca r bon c r ed i t and i t s t r ad i ng s o t ha t r e l evan t and r e l i ab l e f i nanc i a l
i n f o r ma t i on a r e ava i l ab l e f o r u s e by va r i ous s t akeho l de r s , banker s ,
deb t o r s , c r ed i t o r s , e t c . I n t h i s con t ex t , t he r equ i r emen t i s t o i den t i f y t he
r o l e o f accoun t i ng i n meas ur i ng economi ca l l y t he ca r bon c r ed i t s and
pr epa r i ng f i nanc i a l s t a t emen t s i n compl i ance w i t h GAAP. I t s hou l d us e
met hodo l ogy t ha t i s we l l - de f i ned , cons t an t l y app l i ed and aud i t ab l e . The
i ns t i t u t i ons a r e r equ i r ed t o ma i n t a i n wr i t t en documen t s f o r a l l t he
t r ans ac t i ons and f i nanc i a l s t a t emen t . Th i s me t hodo l ogy s hou l d be
r ev i ewed and upgr aded f r om t i me t o t i me bas ed on t he new f i nd i ngs .
M aj o r pe r ce i ved t h r us t po i n t f o r accoun t i ng , aud i t i ng and r epor t i ng o f
ca r bon t r ad i ng and i t s t r ad i ng have a l r eady been l i s t ed above .
• The f o l l owi ng me t hodo l ogy has t o be f o l l owed f o r ca r bon c r ed i t t r ade
accoun t i ng . The s epa r a t e me t hodo l ogy o f accoun t i ng i s t o be adop t ed f o r
s e l f - gene r a t ed CERs and pur chas ed CERs .
• The CERs ( s e l f - gene r a t ed ) s hou l d be i n i t i a l l y r ecogn i zed a t f a i r va l ue
t h r ough p r o f i t o r l o s s accoun t s .
• The acqu i r ed / pur chas ed CERs f o r ava i l i ng ca r bon c r ed i t s hou l d be
i n i t i a l l y r ecogn i zed a t f a i r va l ue p l us t r ans ac t i on cos t s t ha t a r e d i r ec t l y
a t t r i bu t ab l e t o i t .
• CERs i f acqu i r ed ou t o f gover nmen t g r an t a r e i n i t i a l l y r eco r ded a t f a i r
va l ue p l us t r ans ac t i on cos t s t ha t a r e d i r ec t l y a t t r i bu t ab l e t o i t m i nus
gover nmen t g r an t s .
• I t i s d i f f e r ence o f i n i t i a l r ecogn i t i on and r ecogn i t i on on ba l ance s hee tda t e and a r e cha r ged t o p r o f i t and l os s accoun t . I n t h i s , AS28 i s
au t omat i ca l l y compl i ed .
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• On ba l ance s hee t da t e , CERs i n i t i a l l y r eco r ded a t f a i r va l ue p l us
t r ans ac t i on cos t s t ha t a r e d i r ec t l y a t t r i bu t ab l e t o i t , a r e t o be aga i n
meas ur ed a t f a i r va l ue w i t hou t any deduc t i on f o r t r ans ac t i on cos t i t may
i ncur on d i s pos a l and any ga i n o r l o s s a r i s i ng ou t o f i n i t i a l and
s ubs equen t meas u r emen t s hou l d be cha r ged t o r eva l ua t i on r e s e r ve
accoun t . However , when t he r e i s ob j ec t i ve ev i dence t hos e CERs a r e
i mpa i r ed , t he cumul a t i ve l o s s t ha t has been r ecogn i zed i n r eva l ua t i on
r es e r ve accoun t s hou l d be r emoved and r ecogn i zed i n p r o f i t and l os s
accoun t .
• On d i s pos a l , ga i n o r l o s s o f CERs i n i t i a l l y r ecogn i zed a t f a i r va l ue
t h r ough p r o f i t o r l o s s accoun t s s hou l d be cha r ged t o p r o f i t and l os s
accoun t o f t ha t pe r i od .
• On d i s pos a l , cumul a t i ve ga i n o r l o s s o f CERs i n i t i a l l y r eco r ded a t f a i rva l ue p l us t r ans ac t i on cos t s t ha t a r e d i r ec t l y a t t r i bu t ab l e t o i t a r e cha r ged
t o p r o f i t and l os s accoun t a f t e r r ou t i ng i t t h r ough r eva l ua t i on r e s e r ve
accoun t .
• The s a l e p r oceed o f CERs s hou l d no t be c l ubbed wi t h t u r nover and have
t o be s hown s epa r a t e l y i n p r o f i t and l os s accoun t .
Di s c l os ures
• D i s c l os u r e i s r equ i r ed i n no t es on accoun t s t ha t p r ocedur e adop t ed f o r
meas ur emen t and r ecogn i t i on o f p r o f i t o r l o s s e i t he r t h r ough P&L accoun t
o r t h r ough r eva l ua t i on r e s e r ve accoun t
• D i s c l os u r e i s s i mi l a r l y r equ i r ed f o r meas u r emen t and p r o f i t o r l o s s
r ecogn i t i on o f acqu i r ed / pur chas ed CERs .
• D i s c l os u r e i s r equ i r ed i n no t es on accoun t s f o r r e s t r i c t i on i f any
i mpos ed on t r ad i ng o f CERs by s ome au t hor i t y .
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CARBON FI NANCI NG
The g r owi ng s ens e o f u r gency among coun t r i e s wor l dwi de t o comba t t he
i mpend i ng ca t a s t r oph i c e f f ec t s o f g l oba l war mi ng has paved t he way f o r
t he b i r t h and g r owt h o f a mul t i mi l l i on do l l a r i n t e r na t i ona l mar ke t f o r
ca r bon emi s s i on t r ad i ng o f buy i ng and s e l l i ng Gr eenhous e Gas es ( GHGs ) .
As a non- Annex I coun t r y w i t h appr ox i ma t e l y 12% mar ke t s ha r e i n t he
t o t a l number o f con t r ac t s s i gned s o f a r i n t he wor l d mar ke t , I nd i a has
b r i gh t s cope a s i t s ca r bon mar ke t i s l a r ge l y d r i ven by C l ea r Deve l opmen t
M echan i s m ( CDM ) oppor t un i t y . The Feder a t i on o f I nd i an Chamber s o f
Commer ce and I ndus t r y ( F I CCI ) expec t s I nd i an compan i es t o ea r n $4 bn
t h r ough ca r bon c r ed i t s a l e s i n t he nea r f u t u r e . The cons u l t i ng f i r m Er ns t
& Young has r epor t ed t ha t s i nce i t s t akeof f nea r l y t wo yea r s ago i n I nd i a ,
domes t i c compan i es have ea r ned c l os e t o $500 mn f r om ca r bon c r ed i t
s a l e s . Accor d i ng t o t he W or l d Bank I nd i a News l e t t e r ( J anuar y 2008) ,
ca r bon mar ke t i s t he f a s t e s t g r owi ng mar ke t i n t he wor l d . The vo l ume o f
ca r bon c r ed i t s t r aded by deve l op i ng na t i ons doub l ed be t ween 2003 and
2004 and t r i p l ed be t ween 2004 and 2005 . I n 2006 a l one , g l oba l ca r bon
t r ans ac t i ons wor t h $30 bn wer e conduc t ed .
What i s carbon f i nanc i ng?
Car bon f i nanc i ng i s t he t e r m us ed f o r ca r bon c r ed i t s t o he l p f i nance GHG
r educ t i on p r o j ec t s wher e i ndus t r i a l i zed coun t r i e s can make up f o r t he i rca r bon r educ i ng ob l i ga t i ons under Kyo t o ( i ndus t r i a l i zed coun t r i e s
co l l ec t i ve l y ag r eed t o r educe GHG emi s s i ons by 5% by 2012 compar ed
wi t h 1990 l eve l s ) t h r ough pur chas e o f emi s s i on r educ t i on c r ed i t s f r om
pr o j ec t s i n deve l op i ng coun t r i e s . Car bon t r ade o f f e r s doub l e bene f i t s :
f i r s t , encour ag i ng compan i es t o cu t and r educe t he i r GHG emi s s i ons by
pena l i z i ng t hos e who do no t adhe r e t o Kyo t o no r ms and r ewar d i ng t hos e
who conf o r m; and , s econd , mak i ng ava i l ab l e t he i nves t men t and exper t i s e
o f l ow- ca r bon t echno l og i es t o poor coun t r i e s , t hough many o f t he poor es t
coun t r i e s a r e ye t t o r eap t he bene f i t s .
22
Under Kyo t o P r o t oco l , gove r nmen t s a r e s epa r a t ed i n t o t wo gene r a l
ca t egor i e s : deve l oped coun t r i e s , r e f e r r ed t o a s Annex I coun t r i e s wh i ch
have GHG emi s s i on r educ t i on ob l i ga t i ons and deve l op i ng coun t r i e s ,
r e f e r r ed t o a s non- Annex I coun t r i e s wh i ch have no GHG emi s s i on
r educ t i on ob l i ga t i ons bu t may pa r t i c i pa t e i n t he CDM .
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Fa i l u r e on t he pa r t o f any Annex I coun t r y t o mee t i t s Kyo t o ob l i ga t i on
wi l l i ncu r pena l i za t i on r e s u l t i ng i n s ubmi s s i on o f 1 .3 emi s s i on a l l owances
i n a s econd commi t men t pe r i od f o r eve r y t on o f GHG emi s s i ons i n exces s
o f cap i n t he f i r s t commi t men t pe r i od ( 2008- 2012) . Annex I coun t r i e s can
pur chas e GHG emi s s i on r educ t i ons f r om f i nanc i a l exchanges , f r om CDM
pr o j ec t s o f non- Annex I economi es , f r om o t he r Annex I coun t r i e s under
t he J o i n t I mpl emen t a t i on ( J I ) o r f r om Annex I coun t r i e s w i t h exces s
a l l owances . W hen non- Annex I coun t r i e s w i t h no GHG emi s s i on
r es t r i c t i ons under t ake GHG emi s s i on r educ t i on p r o j ec t s under CDM t hey
r ece i ve ca r bon c r ed i t s wh i ch can t hen be t r aded / exchanged wi t h Annex I
coun t r i e s i n t he wor l d mar ke t . Bo t h t he Annex I and non- Annex I
economi es have e s t ab l i s hed des i gna t ed Na t i ona l Au t hor i t i e s t o manage
t he i r GHG por t f o l i o s under Kyo t o , ac t i ve l y p r omot i ng gover nmen t ca r bon
f unds and wor k i ng c l os e l y w i t h t he i r ma j o r u t i l i t y , ene r gy , o i l and gas ,
and chemi ca l cong l omer a t e s t o acqu i r e GHG ce r t i f i ca t e s .
Banks ent er t he f ray
Domes t i c banks s uch a s I CI CI , I DBI , HDFC and S BI a r e gea r i ng up t o t ap
t h i s new h i gh- r i s k and h i gh - r ewar d bus i nes s o f ca r bon f i nanc i ng , wher e
t he mar g i ns a r e qu i t e l uc r a t i ve i n t h e r ange o f 1 - 3%, h i ghe r t han f o r o t he r
p r o j ec t s . C i t i ng t he na t u r e o f dea l s a s one o f t he r eas ons f o r t he g r owi ng
oppor t un i t y i n ca r bon f i nanc i ng , K Uma M ahes hwar an o f Car bon
Pr ocur emen t Un i t , GTZ I n t e r na t i ona l Se r v i ces , s a i d , " I n Ch i na , Eur opeancompan i es buy i ng ca r bon c r ed i t en t e r i n t o ag r eemen t a t t he beg i nn i ng o f
t he p r o j ec t and a l s o p r ov i de f i nance f o r p r o j ec t deve l opmen t . Bu t i n
I nd i a , s i nce t he p r o j ec t s i ze i s s ma l l , many compan i es a r e s eek i ng f i nance
f r om f i nanc i a l i n s t i t u t i ons . "
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The g l oba l ca r bon t r ad i ng mar ke t i s un i que i n t he s ens e t ha t t he s e l l e r s
a r e f r om I nd i a o r o t he r deve l op i ng na t i ons , wh i l e t he buyer s a r e f r om
i ndus t r i a l i zed coun t r i e s . The ob j ec t i ves o f bo t h t he pa r t i e s a r e qu i t e
con t r a r y ; wh i l e buyer s wan t ca r bon c r ed i t s a t cheape r r a t e s , s e l l e r s wan t
t o max i mi ze t he va l ue . Be i ng unknown t o each o t he r , t hey w i l l be
ca r r y i ng p r econce i ved no t i ons and mi s g i v i ngs abou t t he genu i nenes s o f
t he con t r ac t . Th i s i s wher e banks have a p i vo t a l r o l e t o p l ay— act a s
f i nanc i e r s o f emi s s i on r educ t i on p r o j ec t s and b r i ng t oge t he r buyer s and
s e l l e r s on a common p l a t f o r m t h r ough c r ed i t mechan i s ms .
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Let t e r o f Cr ed i t ( L / C) i s one s uch f i nanc i ng mechan i s m, wher e a buyer
guar an t ees paymen t t h r ough h i s banker f o r goods r ece i ve d f r om t he s e l l e r .
L / C i s an a s s u r ance t o t he s e l l e r t ha t he w i l l r ece i ve t he paymen t and t he
s ame can be ava i l ed t h r ough an e s c r ow accoun t w i t h t he bank . Th i s apa r t ,
ca r bon de l i ve r y gua r an t ee i s ano t he r mechan i s m t h r ough whi ch banks
pr ov i de gua r an t ee t o t he buyer s o f ca r bon c r ed i t s t ha t t he s ame wi l l be
de l i ve r ed by s e l l e r s a s pe r t he t e r ms o f t he con t r ac t ( quan t i t y , de l i ve r y
s chedu l e , e t c . ) Th i s enab l es buyer s and s e l l e r s t o en t e r i n t o l ong- t e r m
f u t u r e con t r ac t s . Banks can t hus t ap t he i nves t men t po t en t i a l o f r ece i v i ng
huge amoun t s by way o f advances t o t hes e p r o j ec t s f r om over s eas buyer s .
Apar t f r om f i nanc i ng CDM pr o j ec t s and p r ov i d i ng l oans aga i ns t ca r bon
cr ed i t r ece i vab l es , banks o f f e r a s i ng l e po i n t de l i ve r y o f s e r v i ces s uch a s
adv i s o r y s e r v i ces , va l ue - added p r oduc t s l i ke s ecu r i t i za t i on o f ca r bon
cr ed i t r ece i vab l es , de l i ve r y gua r an t ees , e s c r ow mechan i s m, e t c . , t o t he i r
cus t omer s . M any banks have j o i ned t he ca r bon c r ed i t bandwagon ; f o r
i ns t ance , SBI i n Sep t ember 2007 en t e r ed i n t o M oUs wi t h M I TCON
Cons u l t ancy Se r v i ces L t d . , Ecos ecur i t i e s I nd i a P r i va t e L t d . , and Can t o r
CO2e I nd i a P r i va t e L t d . t o p r ov i de one - s t op des t i na t i on t o i ndus t r i e s f o r
CDM pr o j ec t s and emi s s i ons t r ade . I t has a l s o r ecen t l y en t e r ed i n t o an
M oU wi t h KFW ( a Ger man f i r m) ca r bon f und f o r j o i n t l y exp l o r i ng
f i nanc i ng o f s us t a i nab l e CDM oppor t un i t i e s i n va r i ous deve l opmen t and
i ndus t r i a l s ec t o r s . The bank has a l s o c l ea r ed one s uch l oan va l ued a t Rs 8
c r , aga i ns t t he r ece i vab l e t o a b i omas s - bas ed power p l an t i n I ndor e . A l s oi n t he o f f i ng a r e 3 - 4 s uch l oans pend i ng c l ea r ance wh i ch w i l l be
cons i de r ed once t hey compl e t e pu r chas e ag r eemen t f o r ma l i t i e s w i t h t he i r
buyer s .
I CI CI Bank has s i gned a $200 mn l i ne o f c r ed i t f r om J apan Bank f o r
I n t e r na t i ona l Cooper a t i on ( J BI C) t o f und ca r bon c r ed i t - r e l a t ed p r o j ec t s . I t
has a l s o s i gned an M oU wi t h Agr i ene r gy Cons u l t ancy ( t he I nd i an a r m o f
t he UK- bas ed cons u l t ancy , Agr i ene r gy L t d . ) t o p r omot e ca r bon c r ed i t
bus i nes s i n t he coun t r y . Under t h i s b i l a t e r a l a r r angemen t , t hey p r opos e t o
o f f e r a l a r ge s pec t r um o f CDM - r e l a t ed s e r v i ces t o gover nmen t bod i es ,
SM E un i t s and o t he r s e r v i ces .
24
Agr i ene r gy ' s s e r v i ces w i l l i nc l ude pa r t i c i pa t i on t h r oughou t t he ca r bon
cr ed i t p r o j ec t cyc l e , r i gh t f r om as s i s t ance t o c l i en t s i n i den t i f i ca t i on o f
CDM pr o j ec t s , t he i r r eg i s t r a t i on w i t h UN Execu t i ve Boar d .
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I CI CI w i l l p r ov i de s e r v i ces i n t he a r eas o f commer c i a l i za t i on o f Cer t i f i ed
Emi s s i on Reduc t i on Cer t i f i ca t e ( CERC) , coor d i na t i on and bank i ng
s e r v i ces and deb t - f i nanc i ng o f CDM pr o j ec t s . The bank i s a l s o wor k i ng
wi t h SM Es f o r ca r bon c r ed i t mar ke t and has f o r med s pec i f i c ve r t i ca l t eam
t o t ap oppor t un i t i e s a r i s i ng t o I nd i an SM Es f r om c l i ma t e change and
ca r bon c r ed i t s . By adop t i ng a mul t i - p r onged appr oach , i t has t i ed up w i t h
cons u l t an t s t o o f f e r adv i ce t o i t s c l i en t s on ca r bon c r ed i t l i nked p r o j ec t s ,
ene r gy cons e r va t i on , e t c . Bes i des , t he bank i s a l s o p l ann i ng t o c r ea t e an
ene r gy e f f i c i en t awar enes s p r ogr am f o r t he i r c l i en t s .
S i mi l a r l y , I DBI has s e t up s pec i a l des k o f f e r i ng end- t o - end s o l u t i ons t o
co r por a t e s o f ca r bon c r ed i t bus i nes s . The bank has ce r t a i n t i e - ups f o r
t echn i ca l and f i nanc i a l a s s i s t ance , and t he p r oduc t s deve l oped i nc l ude
pr ov i d i ng gua r an t ees f o r ca r bon de l i ve r i e s and e s c r ow s e r v i ces f o r
paymen t . Go i ng a s t ep f u r t he r , bo t h I CI CI Bank and I DBI Bank have p l ans
t o f o r m a l l i ances , "W e have f o r med a ded i ca t ed t eam f o r ca r bon c r ed i t .
E f f o r t s a r e a l s o t aken t o f o r ge a l l i ances f o r t h i s i n i t i a t i ve . The bank has
l aunched ` Go Gr een ' — a p r ogr am whi ch g i ves SM Es an oppor t un i t y t o
r educe t he i r ca r bon f oo t p r i n t , " s a i d San j eev M an t r i , GM , Smal l
En t e r p r i s e s Gr oup o f I CI CI Bank .
Ri s k- reward t rade- o f f
25
Hi gh and va r y i ng degr ees o f r i s ks a r e a s s oc i a t ed w i t h ca r bon c r ed i tf i nanc i ng depend i ng on t he na t u r e o f t he p r o j ec t and t he l eve l o f i t s
f i nanc i ng . Accor d i ng t o Somak Ghos h , Gr oup P r es i den t , Cor por a t e
F i nance & Deve l opmen t Bank i ng , Yes Bank , t he r e a r e s eve r a l p r o j ec t
s pec i f i c r i s ks wh i ch i nc l ude under pe r f o r mance , cap i t a l / ope r a t i ona l cos t s
ove r r un , cu r r ency r i s ks caus ed by i n f l a t i on and mar ke t r i s ks s uch a s t he
i ns o l vency o f coun t e r pa r t y , and banks need t o deve l op p r ope r f i nanc i ng
mechan i s ms f ac t o r i ng i n t he un i que r i s ks p r es en t ed by CDM pr o j ec t s . I n
I nd i a , des p i t e huge po t en t i a l , t he i n i t i a t i ve t aken by banks t o f und ca r bon
f i nance p r o j ec t s i s mov i ng a t a s na i l ' s pace , f u r t he r aggr ava t i ng t he r i s k
f ac t o r s f o r new f i nanc i a l i n s t i t u t i ons wh i ch a r e en t e r i ng t he ca r bon
mar ke t . Accor d i ng t o T i mot hy Pa t r i ck Fox , Car bon F i nance Exper t ,
I n s t i t u t e f o r F i nanc i a l M anagemen t & Res ea r ch , "F i nanc i a l i n s t i t u t i ons
wi l l be f o r ced t o ca r r y a h i ghe r componen t o f r i s k w i t h a d i mi n i s hed r a t e -
o f - r e t u r n due t o h i ghe r cap i t a l cos t s and w i l l r equ i r e ca r e f u l eva l ua t i on o f
p r o j ec t s . "
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However , " t he r e i s a huge po t en t i a l i n f i nanc i ng ca r bon c r ed i t - r e l a t ed
pr o j ec t s , " s ays BK Ba t r a , Ch i e f Gener a l M anager , I DBI . He op i nes t ha t
ca r bon t r ade p r ov i des s cope f o r o t he r bus i nes s es l i ke t echno l ogy t r ans f e r ,
cap i t a l i nves t men t s , c r os s - bor de r f und i ng p r oduc t s and r emi t t ances . Apar t
f r om gener a t i ng h i gh mar g i ns t ha t i nc l ude commi s s i on , b r oke r age , e t c .
f r om t he ca r bon c r ed i t t r ans ac t i ons , banks c i t e b r oaden i ng o f t he p r oduc t
por t f o l i o a s key i ncen t i ve t o en t e r t h i s mar ke t . The p r o j ec t enab l es banks
t o p r ov i de an i n t e r na t i ona l p l a t f o r m f o r buyer s and s e l l e r s and i nc r eas e
t he s cope o f a l l i ed bus i nes s . PV Anan t ha Kr i s hnan , Execu t i ve V i ce -
Pr es i den t and Coun t r y Head , HDFC Bank , obs e r ves , "F i nanc i ng o f CDM
pr o j ec t s becomes an ex t ens i on o f bank i ng s e r v i ces t ha t we p r ov i de t o
r e t a i n ou r cus t omer s . " However , Ba t r a cau t i ons t ha t t he r e i s h i gh r i s k
i nvo l ved s i nce t he mar ke t i s f u t u r e - bas ed and , a s w i t h any bus i nes s ,
r e t u r ns a r e commens ur a t e w i t h r i s ks . "The r i s ks i nc l ude p r o j ec t s no t be i ng
i mpl emen t ed i n t he manner t hey wer e env i s aged o r no t be i ng ab l e t o
gener a t e e s t i ma t ed CER r evenues and even t he unce r t a i n t y o f p r i ces
c r as h i ng , " r eckons he .
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Bank i ng s ec t o r expe r t s op i ne t ha t t r ad i ng i n ca r bon p r oduc t s i s
compl e t e l y d i f f e r en t f r om t he r egu l a r pa r t i c i pa t i on i n f i nanc i a l mar ke t s a s
t he cha r ac t e r i s t i c s o f mar ke t pa r t i c i pan t s d i f f e r i n bo t h t hes e t r ades . Th i s
i s due t o t he vas t vo l ume i nvo l ved and l ack o f s t a f f w i t h s u f f i c i en t
exper t i s e t o eva l ua t e t he p r o j ec t s , a s a l s o a number o f r i s ks a t va r i ous
l eve l s o f t he p r o j ec t f i nance cyc l e . Nove l f i nanc i ng i ns t r umen t s , s uch a ss pec i a l pu r pos e veh i c l e s , CDM bonds , e t c . , can be deve l oped w i t h
e f f i c i en t and t r ans pa r en t p r ocedur es . Regu l a t o r y r i s ks a t cen t r a l and s t a t e
l eve l s f o r m t he co r e e l emen t o f commer c i a l r i s k wh i ch can be ove r come
wi t h e f f ec t i ve appr ova l r u l e s . The o t he r r i s ks i nc l ude f a i l u r e o f
t echno l ogy , p r ocedur a l de l ays , po l i t i ca l r i s k , c r ed i t r i s k , neg l i gence i n
dea l i ng w i t h ca r bon i ns t r umen t de l i ve r y r i s k , e t c . Ba l anc i ng t he r i s k -
r ewar d t r ade - o f f f o r ms t he c r ux o f ca r bon f i nanc i ng . F i nanc i ng p r o j ec t s
t ha t a r e no t s uppor t ed by s t r ong ba l ance s hee t pos e s i gn i f i can t cha l l enges
and en t a i l add i t i ona l r i s ks , s uch a s ope r a t i ona l r i s k , p r i ce r i s k , de f au l tr i s ks , p r o j ec t r eg i s t r a t i on r i s k , execu t i on r i s k , po l i cy r i s k , e t c . , obs e r ves
M ant r i . He adds t ha t banks can ea r n good r e t u r ns by t he i r i nvo l vemen t
and t o t a l pa r t i c i pa t i on i n t he p r o j ec t r i gh t f r om f i nanc i ng t o CDM
r eg i s t r a t i on t o t r ad i ng o f t he i s s ued ca r bon c r ed i t s .
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Anot he r hu r d l e i s t he exchange r i s k . W hi l e banks can app l y hedg i ng t oo l s
f o r f o r war d con t r ac t s i nvo l v i ng huge amoun t s t o mi t i ga t e t he r i s k ,
e f f ec t i ve r egu l a t o r y c l a r i t y w i l l s t r eng t hen and encour age banks t o
ac t i ve l y pa r t i c i pa t e .
Gl obal t rends
Though t he i mpac t o f emi s s i ons has l i ke l y s t a r t ed bu t may no t be
compl e t e l y f e l t f o r many mor e yea r s t o come , t he f u t u r e c l i ma t e po l i cy i s
t ak i ng a de f i n i t e and concr e t e s hape . As t he i n i t i a l yea r o f t he f i r s t Kyo t o
commi t men t pe r i od ( 2008- 2012) has commenced , i t i s expec t ed t ha t by
2012 t he wor l d ca r bon mar ke t w i l l w i t nes s an exponen t i a l g r owt h a t $200
bn p . a . t r ans f e r r i ng ha l f o f t ha t amoun t f r om t he i ndus t r i a l i zed na t i ons t o
t he deve l op i ng ones . As pe r t he W or l d Bank ' s S t a t e and Tr ends o f Car bon
M ar ke t 2008 r epor t , As i a con t i nues t o domi na t e t he mar ke t w i t h abou t87% of vo l umes t r ans ac t ed and 91% of va l ues , l ed by Ch i na w i t h CDM
t r ans ac t i ons a t 73%, f o l l owed by I nd i a and Br az i l ( 6%) , Af r i ca ( 5%) ,
Eas t e r n Eur ope and Cen t r a l As i a ( 1%) .
Though I nd i a has 259 p r o j ec t s , t he av e r age annua l i ncome f r om r eg i s t e r ed
pr o j ec t s t h r ough 2012 i s expec t ed t o be on l y 15% as compar ed t o Ch i na
wi t h 101 r eg i s t e r ed p r o j ec t s w i t h annua l i ncome a t 44%. Ch i na ' s s ucces s
has r e s u l t ed i n CDM be i ng n i cknamed as ` Ch i na Deve l opmen t
M echan i s m ' , t he ma i n r eas on ( f o r Ch i na ' s s ucces s ) be i ng an oppo r t un i t y i to f f e r s i t s buyer s t o d i ve r s i f y t he i r po r t f o l i o s . Ch i na w i t h i t s l a r ge
i ndus t r i a l bas e , economi es o f s ca l e i n o r i g i na t i on and f avor ab l e
i nves t men t c l i ma t e i s con t i nu i ng t o r eap t he bene f i t s . The mar ke t power
o f Ch i na p l ayed a v i t a l r o l e i n ma i n t a i n i ng an i n f o r ma l p r i c i ng po l i cy by
r a i s i ng t he mi n i mum pr i ce f l oo r i n t he US$10 .40- 11 .70 r ange , wh i ch was
accep t ab l e t o p r i va t e Eur opean buyer s who con t i nued t o s how s t r ong
demand .
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The s cena r i o i n I nd i a i s d i f f e r en t , i n t he s ens e , I nd i an p r o j ec t s gene r a t e
s mal l vo l umes o f ca r bon c r ed i t s , and s i nce t h e mar ke t i s d r i ven ma i n l y by
SM Es , t he s ame have t o be p r ocur ed f r om d i f f e r en t p r o j ec t s , wh i ch i s
cumber s ome . PSUs and p r i va t e s ec t o r can c l ub t hes e s ma l l p r o j ec t s
t oge t he r and s i gn i f i can t l y i mpr ove t he mar ke t g r owt h , wh i l e i n Ch i na ,
l a r ge quan t i t y o f c r ed i t s can be t r aded f r om one s i ng l e p r o j ec t .
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Banks i n o t he r pa r t s o f t he wor l d a r e t r y i ng t o r eac h a r eas t ha t have f a i l ed
t o bene f i t much f r om ca r bon t r ad i ng . Banco Sumi t omo M i t s u i Br as i l e i r o
i n Br az i l i nc r eas ed i t s po r t f o l i o o f ca r bon c r ed i t s l a s t yea r by 1 .5 mi l l i on
c r ed i t s , gene r a t ed f r om 15 s ma l l and med i um- s i zed p r o j ec t s , i nc l ud i ng
b i omas s power gene r a t i on , s ma l l hydr o p r o j ec t s and me t hane t echno l ogy .
The Uni t ed Na t i ons i s t r y i ng t o come up w i t h meas ur es t o b r i ng mor e
banks i n t o t he mar ke t . Yvo de Boer , Execu t i ve Sec r e t a r y o f t he UN
Fr amewor k Conven t i on on C l i ma t e Change , s a i d t he s ys t em cou l d be
ad j us t ed t o he l p gover nmen t s i s s ue ` c l i ma t e bonds ' , wh i ch wou l d he l p a
deve l op i ng coun t r y gover nmen t t o s e t up a na t i ona l emi s s i ons t a r ge t .
A l s o , M er r i l l Lynch Gl oba l Res ea r ch has r ecen t l y l aunched t he M LCX
Gl oba l CO2 Emi s s i ons I ndex bas ed on gu i de l i nes gove r n i ng t he EU ca r bon
mar ke t , wh i l e J P M or gan wou l d acqu i r e C l i ma t eCar e , a Br i t i s h company
t ha t bu i l ds c l ean - ene r gy p r o j ec t s i n t he deve l op i ng wor l d .
The f u t u r e ou t l ook f o r ca r bon mar ke t s i s en t i c i ng . Accor d i ng t o e s t i ma t es ,
t he I nd i an ca r bon mar ke t has t he po t en t i a l t o s upp l y 30 - 50% of t he
p r o j ec t ed g l oba l mar ke t o f 700 mi l l i on CERs by 20 12 . M aj o r p r o j ec t s s o l d
s o f a r i nc l ude r enewab l e ene r gy ( s uch a s w i nd power , b i omas s co -
gene r a t i on and hydr opower ) , ene r gy e f f i c i ency meas ur es i n s ec t o r s l i ke
cemen t , pe t r ochemi ca l s and power gene r a t i on , and a l s o r educ t i on o f
i ndus t r i a l gas es con t r i bu t i ng t o c l i ma t i c changes . However , t r ad i ng on t he
i n t e r na t i ona l p l a t f o r m r equ i r e s c l ea r - cu t , we l l - l a i d and i ncen t i ve - bas ed
po l i c i e s i n t he a r eas o f s e l ec t i on and c r i t e r i a o f p r o j ec t s , t i m i ng , s e l l e r -buyer communi ca t i on , e l i g i b i l i t y o f pa r t i c i pan t s , e t c .
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Hi t he r t o , t he SM Es wer e ava i l i ng t he bene f i t s o f ca r bon mar ke t i n I nd i a
wi t h ve r y l i t t l e o r no pa r t i c i pa t i on f r om PSUs . As t he exc l us i ve r i gh t s t o
dea l w i t h ca r bon mar ke t s r e s t s w i t h po l i cy maker s and r egu l a t o r s , i t i s
i ncumben t upon t hem t o cha l k ou t an e f f ec t i ve s t r a t egy t o expand t he i r
r each t o PSUs and a l s o encour age p r i va t e pa r t i c i pa t i on . A l s o , l ack o f
r egu l a t o r y c l a r i t y i s p r oh i b i t i ng many i n t e r es t ed p l aye r s f r om ob t a i n i ng
b i ds t h r ough pub l i c t r ad i ng .
A r epor t p r epa r ed by Conf ede r a t i on o f I nd i an I ndus t r y ( CI I ) s ugges t s
c r ea t i on o f a ca r bon mar ke t f und f o r acce l e r a t i ng t he capac i t y ,
deve l opmen t o f ca r bon f i nance oppor t un i t i e s , g r owt h and s t r eng t hen i ng o f
ca r bon mar ke t s . The r epor t a l s o emphas i zes t he need f o r an o r gan i zed
ca r bon exchange w i t h e - auc t i on i ng f ac i l i t y a l l owi ng on l y one s i de
b i dd i ng , wher e i n t e r med i a r i e s can buy CERs and a t t he oppor t une t i me
s e l l i n t he i n t e r na t i ona l mar ke t s f o r h i ghe r p r i ces . Th i s w i l l a s s u r e t he
p r o j ec t deve l ope r s o f ge t t i ng r eas onab l e r a t e s w i t h l ow p r ocedur a l cos t s .
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Las t bu t no t t he l eas t , I nd i an ca r bon mar ke t i n r e l a t i on t o i t s po t en t i a l i s
r e l a t i ve l y s ma l l . To cons o l i da t e and t ap t he oppor t un i t i e s , c r ea t i on o f a
ca r bon un i t unde r gover nmen t ' s con t r o l w i l l he l p i n p r epa r a t i on and
moni t o r i ng o f p r o j ec t s , f i nanc i ng , r eg i s t r a t i on and accoun t i ng , co l l ec t i ng
s t a t e du t y f o r t he r eg i s t r a t i on and r evenue f r om s a l e o f ca r bon un i t s . A
r obus t s t r uc t u r e w i t h s i mpl i f i ed p r ocedur es , c r ea t i ng awar enes s and
pr ov i d i ng upda t ed i n f o r ma t i on abou t r e l a t ed bene f i t s t o p r o j ec t owner s ,
p r omot i ng l oca l expe r t i s e on p r o j ec t deve l opmen t and encour ag i ng
i n t e r na t i ona l pa r t i c i pa t i on o f buyer s and i nves t o r s , and p r ov i d i ng t ax
i ncen t i ves t o banks f o r f i nanc i ng CDM pr o j ec t s w i l l cos t - e f f ec t i ve l y
r educe GHG emi s s i ons , wh i l e con t r i bu t i ng t o t he g r owt h o f t he i r
economi es i n a s us t a i nab l e manner . Tha t w i l l f u r t he r s pawn new
oppor t un i t i e s f o r banks .
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CURRENT GLOBAL TRENDS
As pe r a W or l d Bank ' s s t udy r epor t , t he ca r bon c r ed i t s t r aded g l oba l l y i n
2007 was s l ow , a s aga i ns t r ap i d g r owt hs r eco r ded i n t he p r ev i ous yea r s .
The f i nd i ngs s ugges t t ha t t he number o f GHG r educ t i on p r o j ec t s f unded
by i ndus t r i a l i zed na t i ons and t he i r p r i va t e s ec t o r en t i t i e s i n deve l op i ng
coun t r i e s has e f f ec t i ve l y s t a l l ed . The vo l ume o f ca r bon c r ed i t s c r ea t ed by
t he CDM t o t a l ed 551 mi l l i on t ons wor t h o f ca r bon i n 2007 , up s l i gh t l y
f r om 537 mi l l i on t ons i n 2006 , compar ed w i t h 350 mi l l i on t ons i n 2005 ,
nea r i ng 100 mi l l i on t ons i n 2004 and 50 mi l l i on t ons i n 2003 . However ,
va l ue - wi s e , t he g l oba l ca r bon mar ke t g r ew t o a whopp i ng $64 bn i n 2007 .
As pe r Po i n t Car bon , a cons u l t i ng f i r m es t i ma t es , t he g l oba l mar ke t i n
ca r bon i s expec t ed t o be wor t h €34 bn by t he end o f t h i s decade . A
g l i mps e o f s ome s e l ec t ed coun t r i e s ' commi t men t s ( t a r ge t s f o r emi s s i on
r educ t i ons ) under Kyo t o P r o t oco l f o r t he pe r i od 2008- 12 i s p r ov i ded i n
Tab l e 1 .
The Annex 1 count r i e s i nc l ude: Ger many , Aus t r a l i a , Aus t r i a , Be l a r us ,
Be l g i um, Bu l ga r i a , Canada , Eur opean Communi t y , Denmar k , Spa i n , US ,
Es t on i a , Rus s i a , F i n l and , F r ance Gr eece , Hungar y , I r e l and , I ce l and , I t a l y ,
J apan , La t v i a , L i t huan i a , Luxembur g , Nor way , New Zea l and , Ne t he r l ands ,
Po l and , Por t uga l , UK, Czech- S l ovak i a , Rumani a , Sweden , Swi t ze r l and ,
Tur key and Ukr a i ne . ( Sour ce : Br az i l i an M i n i s t r y o f For e i gn Re l a t i ons ) .
Nort h Amer i ca - US
31
US, t he wor l d ' s b i gges t po l l u t e r , w i t hd r ew f r om t he Kyo t o P r o t oco l T r ea t y
i n 2001 on t he p r e t ex t t ha t t h i s t r ea t y wou l d caus e adve r s e e f f ec t s on US
economy. However , US a r e we l l awar e o f t he ha r mf u l e f f ec t s o f t he
ca r bon emi s s i ons l ead i ng t o g r eenhous e e f f ec t and g l oba l war mi ng .
Ther e f o r e , US deve l oped vo l un t a r y i n i t i a t i ves s uch a s Vo l un t a r y Car bon
M ar ke t s ( VCM s ) and Renewab l e Ener gy Cr ed i t ( REC) s ys t ems whi ch
d i f f e r f r om CERs us ed f o r ca r bon t r ad i ng under t he CDM of t he Kyo t o
Pr o t oco l . W hi l e CERs a r e compl i ance - bas ed ( GHG r egu l a t ed ) , VCM s a r e
t hos e wh i ch a r e c r ea t ed by t r ad i ng f i r ms who t ake on vo l un t a r y
commi t men t s t o r educe GHG emi s s i ons f o r a va r i e t y o f r eas ons . Car bon
cr ed i t s deve l oped i n t he US canno t be t r aded , s o l d , o r pu r chas ed i n t he
g l oba l mar ke t s ope r a t i ng under t he Kyo t o P r o t oco l r egu l a t i ons .
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Though t he r e a r e no na t i ona l p r ogr ams i n t he US , t he r e a r e s eve r a l s t a t e
o r r eg i ona l l eve l p r ogr ams f o r vo l un t a r y GHG r educ t i ons . Fo r exampl e ,
t he US compan i es wh i ch deve l op r enewab l e ene r gy p r o j ec t s a r e ab l e t o s e t
up and ob t a i n RECs , wh i ch i s t he o f f s e t c r ed i t i ng mechan i s m i n many
s t a t e s i n t he US . However , t he r e a r e no na t i ona l s t anda r ds o r ce r t i f i ca t i on
pr oces s f o r RECs . However , CCX i s Nor t h Amer i ca ' s f i r s t vo l un t a r y
ca r bon mar ke t bas ed on cap - and- t r ade s cheme , wh i ch i s a l s o p r eva l en t i n
Canada and M ex i co . I t has a s e t o f f l ex i b l e r u l e s t ha t he l ps a w i de va r i e t y
o f p r o j ec t s t o pa r t i c i pa t e . The t a r ge t s wer e t o be me t t h r ough i n t e r na l
r educ t i on e f f o r t s o r pu r chas i ng c r ed i t s f r om o t he r f i r ms o r t h r ough
emi s s i on r educ t i on p r o j ec t s . The r e was a commi t men t t o r educe t he GHG
emi s s i ons by 4% be l ow 1998- 2001 l eve l by 2006 .
Canada
The Al be r t a Car bon M ar ke t i s a compl i ance - bas ed mar ke t i n Canada ,
wher e CCs a r e t r aded . CCX i s i mp l emen t i ng a s a new aux i l i a r y p l a t f o r m
i n Canada named as ` M ont r ea l C l i ma t e Exchange ' . However , t he
f r amewor k CCX us ed t o de l i ve r o f f s e t s t o t h i s t r ad i ng p l a t f o r m a t
M ont r ea l C l i ma t e Exchange and i t i s s i mi l a r t o t he r equ i r emen t s o f
p r o j ec t - bas ed s ys t ems . Thus A l be r t a has j u s t s t a r t ed ( i n l a t e 2007) t he
f i r s t compl i ance - bas ed mar ke t i n Nor t h Amer i ca . Br i t i s h Co l umbi a S t a t e
i n Canada has made a p r opos a l t o cu t annua l g r eenhous e gas emi s s i ons
33% be l ow t he cu r r en t l eve l s by 2020 t h r ough a l eg i s l a t i on wh i ch w i l lmake a s u i t ab l e p r opos a l .
Europe
Car bon t r ad i ng i s mos t deve l oped i n t he Eur opean Uni on ( EU) wher e t he
EU Emi s s i on Tr ad i ng Scheme accoun t s f o r 80% of t he g l oba l ca r bon
t r ad i ng mar ke t .
UK
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The UK Emi s s i on Tr ad i ng Scheme i s a vo l un t a r y emi s s i ons p r ogr am,
f o r med t o g i ve t he UK gover nmen t and va r i ous UK compan i es t he
neces s a r y f ami l i a r i t y i n ca r bon t r ad i ng . Thes e UK compan i es j o i n i n
exchange f o r a 90% d i s coun t on t he i r c l i ma t e change l evy and s uch
d i s coun t wou l d no t be a l l owed i f a member company f a l l s i n commi t men t .
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Ther e wer e 38 pa r t i c i pan t s i n t h i s s cheme whi ch l a s t ed f r om 2002- 2006
and t he ex t en t o f emi s s i on r e l eas es avo i ded was o f t he o r de r o f 11 .88
mi l l i on t ons . Fu t u r e For es t s i s t he l a r ges t and o l des t r e t a i l o f f s e t p r ov i de r
i n UK, wh i ch i nves t s i n GHG of f s e t f o r es t r y p r o j ec t s i n UK and ab r oad .
Ano t he r UK f i r m v i z . C l i ma t e Car e f ocus es on ene r gy- bas ed p r o j ec t s w i t h
l o f t y expans i on bene f i t s i n deve l op i ng coun t r i e s .
Germany
Ger many i s t he l ead i ng coun t r y i n p r o t ec t i ng c l i ma t e and has under t aken
t o cu t emi s s i ons by 21% f r om 2008- 2012 compar ed t o 1990 GHG
emi s s i ons l eve l , unde r EU bur den- s ha r i ng w i t h i n t he pu r v i ew o f Kyo t o
Pr o t oco l . A t mos f a i r i s an o f f s e t con t r i bu t o r i n Ger many , l oya l i n
p r ov i d i ng h i gh qua l i t y ene r gy- bas ed o f f s e t s p l aced i n deve l op i ng
coun t r i e s . Ger many s ens ed c l i ma t i c c r i s i s a decade ago and o f f e r eds eve r a l i ncen t i ves f o r under t ak i ng many r enewab l e ene r gy p r o j ec t s l i ke
s o l a r and w i nd power .
Rus s i a
Rus s i a i s t he t h i r d l a r ges t GHG emi t t e r i n t he wor l d . Ener gy and t r ans por t
r e l a t ed CO 2 emi s s i ons cons t i t u t e 84% of Rus s i a ' s t o t a l GHG emi s s i ons .
Rus s i a has t he p r i nc i pa l emi s s i ons a l l owance s u r p l us and i s a key p l aye r
i n t he a r eas o f ene r gy and c l i ma t e po l i c i e s . I t has been t ak i ng adequa t eene r gy e f f i c i ency meas ur es t o pa r t i c i pa t e i n t he Kyo t o P r o t oco l F l ex i b l e
M echan i s m.
Swi t zer l and
M yCl i ma t e i s an o f f s e t p r ov i de r i n Swi t ze r l and commi t t ed t o p r ov i de
s us t a i nab l e deve l opmen t bene f i t s t o ene r gy o f f s e t s i n deve l op i ng
coun t r i e s . Eur ope i s t he b i gges t buyer o f ca r bon c r ed i t s f r om t he
deve l op i ng coun t r i e s f r om As i a .
As i an Count r i e s Mal ays i a
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Car bon t r ad i ng mar ke t i n M al ays i a i s expec t ed t o be wor t h be t ween RM
3.2 bn and RM 6 .4 bn i n t he nex t f i ve yea r s , a s mor e compan i es i n t h i s
coun t r y a r e conce r ned abou t h i gh GHG emi s s i on l eve l s f o r c i ng t hem t o
pa r t i c i pa t e i n env i r onmen t a l l y s us t a i nab l e p r o j ec t s .
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The pa l m o i l p l an t a t i on i ndus t r y i s expec t ed t o bene f i t f r om ca r bon
t r ad i ng , a s i t i s an ene r gy- i n t ens i ve i ndus t r y wh i ch can r ece i ve ca r bon
cr ed i t s f r om i t s ope r a t i ons . As pe r t he r e s ea r ch f i nd i ngs o f t he M al ays i a
Ener gy Cen t r e , M al ays i a has po t en t i a l l y 100 mi l l i on t ons o f ca r bon c r ed i t ,
wh i ch i s wor t h $60 bn g l oba l l y and can go up t o $1 t n i n a decade .
I ndones i a
I ndones i a , wh i ch s u f f e r ed t h r ough t h r ee decades o f c i v i l war and heavy
human l os s i n 2004 t s unami , i s expec t ed t o s ee $26 mn i n ca r bon c r ed i t s
f o r p r o t ec t i ng r a i n f o r es t and env i r onmen t . I t s U l u M as on p r o j ec t , backed
by t he Gover nmen t o f Aceh , Fauna and F l o r a I n t e r na t i ona l and Car bon
Cons e r va t i on f o r p r o t ec t i ng 1 .9 mi l l i on ac r e o f U l u M as on f o r es t i s
expec t ed t o r educe emi s s i ons f r om de f o r es t a t i on i n deve l op i ng coun t r i e s .
Chi na
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Chi na i s expec t ed t o be t he l a r ges t s e l l e r o f CERs i n t he wor l d and Eur ope
wi l l be t he l a r ges t buyer . Of l a t e , t he Ch i nes e gover nmen t has been
mak i ng good e f f o r t s t o s ave ene r gy and r educe CO 2 emi s s i on l eve l s . By2010 , Ch i na p r opos es t o ach i eve ene r gy cons umpt i on r educ t i on o f 20%
per un i t o f GDP. I t had d r awn ene r gy s av i ng p l ans f o r i t s new as we l l a s
o l d coa l - bas ed power p l an t s . I t has p r opos a l s t o r ep l ace o r moder n i ze i t s
ou t da t ed p l an t s t o r educe ca r bon emi s s i ons . However , d i f f e r en t p r i va t e
bus i nes s s ec t o r s a l s o have t he i r i nd i v i dua l p l ans t o r educe ca r bon
emi s s i ons .
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CARBON CREDIT AND INDIA
Among t he deve l op i ng coun t r i e s , I nd i a was t he f o r emos t t o o f f e r a
hedg i ng t oo l f o r ca r bon c r ed i t s ea r ned t h r ough t he CDM pr o j ec t s . The
I nd i an gover nmen t i s s ued a no t i f i ca t i on on J anuar y 4 , 2008 by b r i ng i ngCERs under t he r ea l m o f t r adab l e commodi t i e s . Bu t , t he f o r war d mar ke t i s
s t i l l i n a nas cen t s t age . However , a f r e s h beg i nn i ng i s be i ng made by
s ome compan i es t o en t e r i n t o f o r war d con t r ac t s f o r ca r bon t r ad i ng . I nd i a
has r ecen t l y begun t o t r ade on i t s ca r bon c r ed i t t r ad i ng exchanges v i z .
M ul t i Commodi t y Exchange o f I nd i a L t d . ( M CX) and Na t i ona l Commodi t y
and Der i va t i ves Exchange o f I nd i a L t d . ( NCDEX) .
M CX en t e r ed i n t o an a l l i ance w i t h CCX i n 2005 t o i n t r oduce ca r bon
cr ed i t s i n I nd i a . M CX, wh i ch i s i n t o f u t u r es t r ad i ng , has become t he f i r s t
ca r bon commodi t y exchange i n As i a . M CX i s on l y f o r I nd i ans and I nd i an
compan i es . Thos e I nd i an compan i es wh i ch adher e t o t he UNFCCC nor ms
and t ake up new t echno l og i es a l one can s e l l ca r bon c r ed i t s . I n I nd i a , t he r e
a r e nea r l y 400 compan i es wh i ch adher e t o UNFCCC nor ms and as a r e s u l t
can s e l l ca r bon c r ed i t s t o t he Eur opean coun t r i e s . The compan i es he r e a r e
ge t t i ng p r i ce s i gna l s f o r t he ca r bon f o r t he de l i ve r y i n t he nex t f ou r t o
f i ve yea r s . Bu t t hes e compan i es a r e l ook i ng f o r bes t s u i t ed p r i ce . M CX
t r ades i n ca r bon c r ed i t s emana t i ng f r om CDM pr o j ec t s , mos t l y i n key
s ec t o r s o f t he I nd i an economy. Thes e I nd i an compan i es a r e t h i nk i ng t ha t
i f t he Eur opeans f a i l t o mee t t he i r emi s s i on t a r ge t l eve l s by 2010 , o r
2012 , t he demand wi l l go up s i gn i f i can t l y and t hey can ge t a be t t e r p r i ce .
The CER f u t u r es f o r Febr ua r y 2009 on M CX p l a t f o r m i s r epor t ed l y
t r ad i ng a t Rs . 1 ,427 pe r con t r ac t .
35
CERs o r ca r bon c r ed i t s a r e t r aded on t he NCDEX a l s o . However , t i l l
t oday , t he compan i es wh i ch a r e i n t o ca r bon t r ad i ng a r e s t i l l unc l ea r on
t he phys i ca l de l i ve r y mechan i s m whi ch i s c r ea t i ng conf us i on i n t he
t r ad i ng s ys t em. W i t h i n a f ew days o f t he t r ad i ng on NCDEX, t he t r ad i ng
vo l ume had t ouched Rs .15 - 20 c r on a da i l y bas i s wh i ch was t h r ee t o f ou rt i mes t he expec t a t i on . Bu t , g l oba l compan i es r equ i r i ng o f f s e t t i ng t he i r
emi s s i ons by buy i ng ca r bon c r ed i t s f r om I nd i a a r e no t ab l e t o pa r t i c i pa t e
i n NCDEX t r ad i ng . Thus t he t r ad i ng on NCDEX i s on l y f r om p r i ce
d i s cover y po i n t o f v i ew and no t f r om t he po i n t o f phys i ca l de l i ve r y o f
CERs .
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However , M CX as we l l a s NCDEX i n i t i a t i ves s e r ve t o addr es s t hes e
i ne f f i c i enc i es i n t he ca r bon mar ke t s by p r ov i d i ng t he p r i ce d i s cover y and
hedg i ng p l a t f o r ms t o t he buyer s and t he s e l l e r s o f CERs . The F i na l
Se t t l emen t P r i ce w i l l be r e l evan t t o ce r t a i n de l i ve r ab l e CERs . The I nd i an
compan i es have been hes i t a t i ng t o en t e r t he f o r war d mar ke t s i n
expec t a t i on o f appr ec i a t i on i n p r i ces o f ca r bon c r ed i t s . Bu t o f l a t e , t hey
have been ava i l i ng t he s e r v i ces o f t he r epu t ed cons u l t an t s i n t he f i e l d f o r
f o l l owi ng p r uden t s t r a t eg i es and a ba l anced por t f o l i o o f ca r bon c r ed i t s .
36
I nd i a s i gned a Kyo t o P r o t oco l i n 2002 r ega r d i ng ca r bon emi s s i on bu tt r ad i ng was commenced i n 2007 . Ther e i s huge s cope f o r I nd i a i n Car bon
Cr ed i t T r ad i ng ( CCT) a s i t i s one o f t he l ead i ng gene r a t i ons o f CER
t hr ough CDM . CCT i s t he pos t Kyo t o P r o t oco l i mp l emen t a t i on phas e . I t
b r i ngs a p l a t f o r m t ha t p r ov i des t r ans pa r ency and v i b r an t s i t ua t i on i n
emi s s i on mar ke t . I t he l ps t he buyer s and s e l l e r s o f ca r bon c r ed i t t o s e t t l e
a f a r e dea l i n t he commodi t i e s mar ke t .
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I nd i a and Ch i na a r e l i ke l y t o emer ge a s t he b i gges t s e l l e r s and Eur ope i s
go i ng t o be t he b i gges t buyer o f ca r bon c r ed i t s .
The s ucces s o f CER depends upon t he f e t ch i ng o f economi ca l p r i ces f o r
t he i mpl emen t e r s o f CDM . Ef f ec t i ve con t r o l o f GHG par t i cu l a r l y ca r bon
i s a f unc t i on o f t r ans pa r en t and e f f ec t i ve p r i c i ng o f CER r ece i ved by
CDM . I n t he p r es en t s cena r i o , commodi t y exchanges appea r t o be a be t t e r
mode by whi ch g r ea t e r ex t en t o f gover nance o f t r ans pa r ency can be
ex t ended t o ca r bon mar ke t . M CX i s t he na t i ona l l eve l on l i ne commodi t y
exchange whi ch p r ov i des t he p l a t f o r m f o r t r ad i ng ca r bon c r ed i t on l i ne .
Car bon Cr ed i t Fu t u r es Con t r ac t ( CCFC) i s expec t ed t o cas h i n I nd i an
f i r ms by cu r b i ng ene r gy us age t h r ough c l ean t echno l og i es . M CX i s
expec t ed t o have a l eve l o f a r ound 130- 150 mi l l i on t ons o f ca r bon c r ed i t
gene r a t i on by t he I nd i an compan i es .
"Launch i ng o f ca r bon c r ed i t f u t u r es on t he I nd i an t r ad i ng p l a t f o r m wou l d
pr ov i de t r ans pa r ency t o mar ke t s and he l p p r oduce r s ea r n r emuner a t i ve
r e t u r ns ou t o f env i r onmen t a l l y c l ean p r o j ec t s " , s a i d J os eph M as s ey ,
Depu t y M anag i ng D i r ec t o r o f M CX.
Tr ad i ng i n new gener a t i on commodi t i e s l i ke ca r bon c r ed i t s has p l aced
M CX on t he g l oba l map o f i nnova t i ve exchange f o r p r ov i d i ng g l oba l
p r oduc t s t o t he I nd i an i ndus t r y . On J anuar y 21 , 2008 M CX l aunched
f u t u r es t r ad i ng i n ca r bon c r ed i t s . I t i s t he exchange wher e f u t u r es t r ad i ngi n ca r bon c r ed i t s can be done , mak i ng i t As i a ' s f i r s t eve r commodi t y
exchange , and among t he s e l ec t f ew i n l eague w i t h t he CCX and t he ECX.
M CX has en t e r ed i n t o a s t r a t eg i c a l l i ance w i t h CCX i n Sep t ember 2005 t o
i n i t i a t e ca r bon t r ad i ng i n I nd i a . As pe r t he l i cens i ng ag r eemen t w i t h CCX,
M CX can l i s t i t s m i n i ve r s i on o f ECX Car bon F i nanc i a l I n s t r umen t s ( CFI )
and Ch i cago C l i ma t e Fu t u r es Exchange ( CCFE) , Su l phur F i nanc i a l
I ns t r umen t ( SFI ) on t he M CX t r ad i ng p l a t f o r m. The I nd i an mar ke t i s a
po t en t i a l mar ke t f o r CCT and M CX i s go i ng t o make t h i s happen .
Nor mal l y , t he con t r ac t exp i r e s on a yea r l y bas i s i n t he mon t h o f December
and peop l e / t r ade r s wh i ch a r e i nvo l ved i n buy i ng and s e l l i ng can make
s e t t l emen t s . Thes e s e t t l emen t s may a l s o happen p r i o r t o December .
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The t o t a l t r ad i ng vo l ume o f ca r bon c r ed i t s r eached 9 ,600 t ons ( 48 l o t s ) on
t he f i r s t day o f t r ad i ng on M CX.
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Recen t l y , f i ve con t r ac t s o f ca r bon c r ed i t s a r e wor k i ng on M CX p l a t f o r m
wi t h exp i r y i n December 2008 , December 2009 , December 2010 ,
December 2011 and December 2012 . I nd i a , Ch i na , o t he r As i an and
Eur opean coun t r i e s a r e t he po t en t i a l mar ke t f o r ca r bon c r ed i t s .
I nd i a , t he wor l d ' s f ou r t h - l a r ges t emi t t e r o f ca r bon d i ox i de , f o r med e i gh t
commi s s i ons t o p r omot e s o l a r power , ene r gy e f f i c i ency and wa t e r
cons e r va t i on a s i t s eeks t o mi t i ga t e damage f r om t he chang i ng c l i ma t e .
They a r e :
• Na t i ona l So l a r M i s s i on
• Na t i ona l M i s s i on f o r Enhanced Ener gy Ef f i c i ency
• Na t i ona l M i s s i on f o r Sus t a i nab l e Hab i t a t
• Na t i ona l W at e r M i s s i on
• Na t i ona l M i s s i on f o r Sus t a i n i ng t he H i mal ayan Ecos ys t em
• Na t i ona l M i s s i on f o r a Gr een I nd i a
• Na t i ona l M i s s i on f o r Sus t a i nab l e Agr i cu l t u r e
• Na t i ona l M i s s i on on S t r a t eg i c Knowl edge f o r C l i ma t e Change .
Each o f t he e i gh t pane l s has an i n s t i t u t i ona l s t r uc t u r e cons i s t i ng o f
gover nmen t depa r t men t s , i ndus t r y expe r t s , academi cs and c i t i zen
r ep r es en t a t i ves . Each s o - ca l l ed mi s s i on w i l l dev i s e a s t a t e - f unded p l an
and have au t hor i t y t o ca r r y i t ou t . The mi s s i ons i nc l ude deve l op i ng
e f f i c i en t bu i l d i ng t echno l og i es and be t t e r manag i ng was t e , cons e r v i ng
wat e r , and s us t a i n i ng t he env i r onmen t o f t he H i mal ayas .
I nd i a ' s commi t men t t o ens u r e t ha t i t s pe r - cap i t a emi s s i ons o f g r een - hous e
gas es do no t exceed t hos e o f deve l oped na t i ons . Bu t t he new ac t i on p l an
makes no commi t men t t o cu t t i ng ove r a l l emi s s i ons . Des p i t e moun t i ng
i n t e r na t i ona l p r es s u r e , I nd i a has r e f us ed t o make any s pec i f i c
commi t men t s s o f a r on r educ i ng GHG emi s s i ons , po i n t i ng ou t t ha t i t s pe r -
cap i t a emi s s i ons a r e a f r ac t i on o f t hos e i n r i ch na t i ons .
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CONCLUSION
The i n t e r na t i ona l ca r bon mar ke t i s a key deve l opmen t i n t he g l ob a l cap i t a l
mar ke t and i s t he wor l d ' s f a s t e s t g r owi ng mar ke t . Today , t he i mpor t ance
of t he i nnova t i ve ca r bon c r ed i t s a s a pa r t o f t he i n t e r na t i ona l emi s s i ont r ad i ng no r ms , t o r educe GHG emi s s i ons wh i ch po l l u t e t he a i r , canno t be
over emphas i zed . The ca r bon c r ed i t t r ad i ng has r ece i ved a t r emendous
i n t e r es t ac r os s t he g l obe and i s a g r ea t oppor t un i t y f o r t he I nd i an and
o t he r g l oba l compan i es .
However , a r ecen t v i ew o f s ome exper t s i s t ha t t he emi s s i ons cap w i l l
choke g l oba l g r owt h . Ra t he r a d i r ec t t ax can r educe ca r bon emi s s i ons
mor e e f f ec t i ve l y t han t he compl ex cap - and- t r ade s ys t em. I n s ome o f t he
As i an coun t r i e s , CDM i s ac t ua l l y con t r i bu t i ng t o s a l e s o f f ake c r ed i t s by
deve l op i ng new hydr oe l ec t r i c p r o j ec t s w i t h l i t t l e t o no env i r onmen t a l
bene f i t , wor s en i ng t he c l i ma t e c r i s i s . Though t he ou t l ook f o r t he
l andmar k t r ea t y , i . e . t he Kyo t o P r o t oco l , i s s omewha t b l eak t oday due t o
va r i ous f l aws and f r auds i n ca r bon t r ad i ng and i t s con t i nuance beyond
2012 i s be i ng deba t ed , s t i l l ca r bon t r ad i ng con t i nues t o be a g r ea t
oppor t un i t y f o r t he deve l op i ng a s we l l a s t he deve l oped coun t r i e s o f t he
wor l d .
I nd i a and Ch i na a r e l i ke l y t o emer ge a s t he b i gges t s e l l e r s and Eur ope i s
go i ng t o be t he b i gges t buyer o f ca r bon c r ed i t s . Ca r bon c r ed i t mar ke t i s al i qu i d mar ke t . Recen t l y , M ar t i n S t uch t ey , pa r t ne r w i t h M ck i ns ey
( Economi c T i mes da t ed M ar ch 19 , 2008) conduc t ed a s t udy i n wh i ch i t has
been f ound t ha t 60% of g l oba l execu t i ves r ega r d c l i ma t e change a s be i ng
s t r a t eg i ca l l y i mpor t an t . I t i s s u r p r i s i ng l y no t ed t ha t one - t h i r d o f t he
compan i es s e l dom cons i de r ed c l i ma t e change . Bu t now c l i ma t e change has
become t he co r por a t e s oc i a l r e s pons i b i l i t y and accor d i ng l y has a
d i mens i on o f CER whi ch l eads t o CCT. M ar t i n a l s o a r gued t ha t t he r e i s a
r equ i r emen t o f W or l d Car bon Bank a t t he g l oba l l eve l wh i ch makes
bus i nes s v i ab l e i n t he l ong- t e r m g i v i ng p r omi nence t o l ow ca r boneconomy. I nd i an compan i es a r e f i nd i ng ca r bon c r ed i t mar ke t a s an
oppor t un i t y t o become t he l ead i ng p r o t ec t i on i s t s o f env i r onmen t . They
t r ea t i t a s a w i n - wi n s i t ua t i on and i t i s hoped t ha t i n t he comi ng yea r ,
compan i es w i l l be ab l e t o conf r on t b i gge r changes i n CCT. .
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