Carbon Credit - Printable Version

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Carbon Credit - shweta - 12-14-2016

Carbon Credit - significance and role in development of a country


A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent (tCO2e) equivalent to one tonne of carbon dioxide.

A permit which allows a country or organization to produce a certain amount of carbon emissions and which can be traded if the full allowance is not used.
The United Nations summit in Reo di janeiro in 1992 leads to the formation of "United Nation Framework Convention on Climate Change (UNFCCC) ". This is also called "Earth Summit ". It is mainly aimed to reduce greenhouse gas emissions by the world nations. The members of UNFCC decided to meet every year in order to address the problem of climate change. So, in a course of time UNFCC members met at Kyoto in 1997 and suggested “Kyoto Protocol “ to address climate change issue . After a serious of discussions, eventually Kyoto protocol became effective only in 2005 by ratifying most of the countries.

A credit can be an emissions allowance which was originally allocated or auctioned by the national administrators of a cap-and-trade program, or it can be an offset of emissions. Such offsetting and mitigating activities can occur in any developing country which has ratified the Kyoto Protocol, and has a national agreement in place to validate its carbon project through one of the UNFCCC's approved mechanisms. Once approved, these units are termed Certified Emission Reductions, or CERs. The Protocol allows these projects to be constructed and credited in advance of the Kyoto trading period.
 
Features of Kyoto protocol

1.    World nations are divided in to
·         Annex countries (Industrially developed nations)    like U.S, U.K, Japan etc and
·         Non - Annex countries(Developing or under developing nations) like Brazil, India etc.

2.    As per Kyoto protocol, industrialized nations should reduce their greenhouse gas emissions by 5.2 % by 2012 against 1990 levels. They also responsibility to provide technology & financial assistance to Non - Annex nations to reduce their emissions. Whereas developing nations set free to and no compulsion to bind the emission targets.
The Kyoto Protocol provides for three mechanisms that enable countries or operators in developed countries to acquire greenhouse gas reduction credits
                A. Emission Trading / Carbon trading
               B. Clean Development Mechanism (CDM)
C. Joint Implementation (JI)


A. Emission Trading / Carbon trading

           Every Industrialized nation has given certain quota of units called Kyoto unit, which is equivalent to emission of 1 Ton of CO2 or equivalent emissions of other greenhouse gases like Methane, Nitrogen oxides etc. If any nation exceeds these quota, it needs to be purchase Kyoto units from other nations which saved Kyoto units by reducing their emissions and bind below the assigned amount units (AAU). All these transactions are expressed in Carbon credits which gives right to emit 1 Ton of CO2 or equivalent amount of other greenhouse gases. This is called "Carbon Trading / Emission Trading.

So, to bind assigned quota of Kyoto units, each industrialized nation persuade their companies and factories to strictly adhere to assigned limit. Like these, e mission trading aimed to reduce greenhouse gas emissions from highly industrialized nations.
International Emissions Trading (IET) countries can trade in the international carbon credit market to cover their shortfall in allowances. Countries with surplus credits can sell them to countries with capped emission commitments under the Kyoto Protocol.


B.  Clean Development Mechanism (CDM)

Developed country can 'sponsor' a greenhouse gas reduction project in a developing country where the cost of greenhouse gas reduction project activities is usually much lower, but the atmospheric effect is globally equivalent. The developed country would be given credits for meeting its emission reduction targets, while the developing country would receive the capital investment and clean technology or beneficial change in land use.

         Alternatively to Carbon credit  , Industrialized nations could opt to bind their target emissions by promoting Cleaner and carbon free technologies in  Non - Annex countries like India, Brazil etc. Industrialized nations can assist in finance & cleaner technology to Developing nations in their energy sector and their by credit Kyoto units. Clean development mechanism may equally applicable to companies in Developed nations as well. They also can acquire Carbon credit by promoting clean & green technologies like solar energy, Wind energy etc.


C. Joint Implementation (JI)

Developed country with relatively high costs of domestic greenhouse reduction would set up a project in another developed country.
These carbon projects can be created by a national government or by an operator within the country. In reality, most of the transactions are not performed by national governments directly, but by operators who have been set quotas by their country.


Carbon Credits and India

India is not obliged to cut emissions, as its energy consumption is relatively low. Also, India has an advantage in the global carbon market because the investments required are relatively small due to lower input costs. The biggest buyers of Indian carbon credits are European countries followed by Japan, Australia and Canada. The main sources of carbon credits in India are biomass projects, small hydro projects (less than 15 MW in size) and wind power projects along with some energy efficiency improvement projects. These comprise nearly 55% of Indian carbon credits. Some of the projects are Torrent Power (which switched to natural gas recently), Suzlon's land bank projects, Suryachakra Group's four biomass projects, Godavari Power and Ispat gas projects.
India wants to protect the vulnerable sectors of Society in its sustainable development strategy. In its Action Plan 8 National Missions have been listed namely

1.       National Solar Mission to increase the share of this energy for decentralized distribution and to create affordable and convenient solar power systems.
2.       National Mission for Enhanced Energy Efficiency to introduce cost effectiveness and shift to energy efficient appliances.
3.       National Mission of Sustainable Habitats to optimize energy application in large building and efficient urban waste management.
4.       National Water Mission to conserve water and ensure equitable distribution between States and areas.
5.       National Mission for Sustaining the Himalayan Eco System by safeguarding the Himalayan Glacier.
6.       National Mission for Green India by undertaking afforestation of 6 million hectares to reach the National target of 33% green cover.
7.       National Mission for Sustainable Agriculture by developing thermal resistance crops and supported by Bio-technology, geo-spatial technology and IT
8.       National Mission on Strategic Knowledge to fund high quality and focused research on climate change.

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