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Clean Development Mechanism and Carbon Trading

-B.V.Raghunandan, SVS College, Bantwal

UGC Sponsored National Conference on,”The Green Umbrella: Green Business Opportunities”

Canara First Grade College, Mangalore

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The Constitution of India• It is the duty of the state to, “protect and improve the

environment and to safeguard the forests and wildlife of the country”

• It is the duty of every citizen, “to protect and improve the natural environment including forests, lakes, rivers and wildlife”

• It required Bhopal Gas Tragedy to make the Government to realise its duty to pass Environment Protection Act in 1986

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Certain Bitter Facts• Modern life is imported• Modern gadgets are

imported• Pollution is imported• Environment Protection is

also imported in being hypocritical

• The biggest polluter, the USA is a non-participant globally

• Anti-Septic Life damages environment more

• Man’s efforts are nothing before that of Nature

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Global Warming: Wrong Direction

• Concerns about global warming• Concern was about the increase in temperature

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Corrected Agenda

• The UN Conference on Human Environment called The Stockholm Conference,1972

• 26 Principles Emerged from the Conference addressed by Olaf Palme and Indira Gandhi

• In 1973, EU created Environmental and Consumer Protection Directorate

• The awareness became international

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The UN

Action

• Governing Council of the United Nations Environment Programme called for global action against Persistent Organic Pollutants, defined as, "chemical substances that persist in the environment, bio-accumulate through the food-web, and pose a risk of causing adverse effects to human health and the environment”

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Earth Summit

• Held in 1992 in Rio De Janeiro• Set up UNFCCC (United Nations Framework Convention on

Climate Change)• Prevention of climate change through reduction of green house

gases to 1990 levels by 2000 and a 5.2% reduction by 2008-12• Common but differentiated responsibilities

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Images of Earth Summit

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Kyoto Protocol• Adopted in 11 December, 1997 in Kyoto, Japan• Brought into force from February 16, 2005• Totally 192 countries ratified the Protocol • The USA, the prime polluter of the world had no

intention of signing the Protocol

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Elements of Kyoto Protocol• Divided the countries into Annex I

Countries and Annex II Countries• Annex I include developed countries

that have obligations to reduce GHG emissions to 1990 levels by 2000 and 5.1% below 1990 levels by 2008-12

• Annex II include developing countries not having any such obligations

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Elements …….contd.

• Gases identified were carbon di oxide, methane, nitrous oxide, sulphur hexafluoride, hydrofluorocarbon and perfluorocarbon

• Flexible Mechanisms: Clean Development Mechanism: carbon credit and trading

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Clean Development Mechanism

• A CDM Executive Board was set up• It will assess and approve projects in

Annex II countries• These projects will be awarded Certified

Emission Reduction • Annex I countries can meet their GHG

emission limitations by buying CERs (measured in carbon credit)

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Carbon Credit and Trading

• One carbon credit is equal to one metric tonne of carbon di oxide emission or one metric tonne of burning up oil

• A trading mechanism is created for determining the price on the basis of supply and demand

• Industrial units in Annex I countries can instal pollution control equipment or buy the carbon credits from Annex II countries

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Obligations of Kyoto Protocol

• Green-Annex I countries-having obligation• Red-Annex II countries-not having the obligation• Yellow-In Transition countries-Joint Implementation

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Ratification of Kyoto Protocol

• Green-Countries that have ratified the protocol• Red-Refused to ratify

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CDM Project Cycle

• Stages: Project Idea, Development, Approvals, Validation, Registration and Issue of CERs

• Finance: Debt, Equity, CER Forward Buying or CER Spot Buying

• Price: Fixed Price, Floating Price and the Combo

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Trading Mechanism

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Carbon Dioxide Emission

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Carbon di Oxide Emission

 • The USA  25.2%  • China 15.2%  • Russia 6.7%  • Japan 5.4%  • India  4.4%

• Germany 3.7%• U.K  2.4%• Canada  2.3%• Italy 2%• Mexico  1.7%• France 1.6%

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Eligibility to Participate

• The country should have ratified the protocol• The project should have calculated the assigned amount

of carbon emission• Establish a national system for estimating emissions and

removals of greenhouse gases within the country.• They must have in place a national registry to record and

track and must annually report such information to the secretariat.

• They must annually report information on emissions and removals (carbon sinks) to the secretariat.

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Indian Scenario

Top Energy Guzzlers Million mt

Thermal Power 160.3

Iron & Steel 36.1

Cement 14.5

Fertilisers 12

Textiles 4.5

Aluminium 2.4

Pulp and Paper 1.4

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Indian Environment Laws

• 1882:The Easement Act allowed private use of ground water and made all surface water a state property

• 1927: Indian Forest Act (Amended in 1984)-transit of forest produce and the duties leviable

• 1948: The Factories Act: (Amendment in 1987)-application to hazardous processes

• 1970: The Merchant Shipping Act: waste arising from ships

• 1972: The Wildlife Protection Act: (Amended in 1991)

• 1974: The Water(Prevention and Control of Pollution Act)

• 1980: The Forest (Conservation) Act

• 1981: The Air (Prevention and Control) Act

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Indian Environment Laws…contd

• 1982: The Atomic Energy Act ..Radioactive waste

• 1986; The Environment Protection Act

• 1988: The Motor Vehicles Act: …hazardous waste

• 1991: The Coastal Regulation Zone…construction along coastal line

• 1991: The Public Liability Insurance Act …accidents due to hazardous material

• 1999; The Environment (siting for industrial projects) Rules

• 2000: The Ozone Depleting Substance (Regulation and Control) Rules

• 2001: The Batteries (Management and Handling) Rules

• 2002: The Noise Pollution Rules

• 2002: The Biological Diversity Act

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Indian Authority

• Ministry for Environment and Forests is the designated national authority

• Many companies have been registered as carbon traders

• MCX has tied up with ECX for offering Hedging and futures trading

• Both futures and OTC products are introduced

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Carbon Traders in India

• Grasim Industries Limited

• Tata Motors Limited• Tata Steel Limited• Tata Power Company

Limited• Reliance Energy Limited• Indo Gulf Fertilizers

Limited• Valera Global Limited

• Andhyodhaya Green Energy Limited

• Indus Technical and Finance Limited

• Rajasthan Renewable Energy Corporation

• Bajaj Financial Services Limited

• Blue Star Engineering Services Limited

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Arguments in Favour of carbon Trading

• Polluting countries must be penalised• Polluting countries should pay a price• Projects in Annex I countries have an

option: Install pollution control equipment or buy the carbon credit

• Enable the projects in developing countries to partially finance the energy saving plans

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Arguments Against……

• As Annex II countries have no obligations, MNCs will go to these countries through FDI

• Developed countries produce the goods that are consumed in developing countries-the user must be penalised than the producer

• Obligations should be on all the countries• Further temperature differential

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Future of Carbon Trading

• Looks Bleak• The USA has convinced 13 industrialised

nations to set up a new protocol after 2012• The countries can have the arrangement

internally• The steam has gone out of the movement

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Alternative: Get out of Popular Misconceptions

• Misconceptions are:• Nuclear energy is safer than thermal• Wind energy protects environment• All smoke is the same• All the smoke is bad for the environment• Clean environment through Phenyl, Ddt, BHC• Clean water through chlorine• Sponsoring Zero Based Research

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Alteration of Business Models

• Miniaturising hydel projects

• Developing technology for smaller units of production for local consumption

• Avoiding criss-cross movement of transportation

• Actively encouraging research in fuel cells

• Hybrid automobiles with fuel cells being one of the fuel

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Redefining Forest and Animal Welfare

• Man-Animal co-existence

• Encourage usage of animals in transportation

• Killing of wild animals alone should be banned

• Encourage rearing wild animals

• Encourage private Tiger Farms along with tiger national parks

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