Welcome to the latest trend of trading 'polluting gases' where bankers maintain debit & credit of polluting account. Yes, Carbon Trading. Carbon trading is basically a commercialized activity that originates from protecting the earth from harmful emission of gases from industries. The concept of carbon credit is giving incentives to units which pollute less and disincentive the units that pollute more. Themost dangerous gases thrown out by the industrial units are - carbon dioxide,methane, nitrous oxide, hydroflourocarbons, perflurocarbons and sulphur hexafluoride, popularly called greenhouse gases.On the initiative of UNO (United Nations Organisation), Kyoto protocol was signed in 11December 1997 and it came into force from 16 December 2005. The Kyoto protocol aims to tackle global warming by setting target levels for nations to reduce greenhouse gas emission worldwide.
The Kyoto protocol is an agreement by which the ratifying countries have agreed to reduce their emission of greenhouse gases. Under the protocol, initial target is to reduce greenhouse gas emission to 5.2 per cent below 1990 base level. 172 countries have signed the Kyoto Protocol. These countries and their companies are the only ones allowed to engage in carbon trading.
Carbon trading (or Emission trading) is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. It is sometimes called cap and trade.Carbon emissions trading is emissions trading specifically for carbon dioxide (calculated in tonnes of carbon dioxide equivalent or (CO2e) and currently makes up the bulk of emissions trading. It is one of the ways countries can meet their obligations under the Kyoto Protocol to reduce carbon emissions and thereby mitigate global warming. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emissions must buy credits from those who pollute less.The transfer of allowances is referred to as a Trade.In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed.Thus, in theory, those that can easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society.Emissions trading principles are based on proposals by the Technocracy movement of the 1930's.Technocracy proposed a system of Energy Accounting, or emissions trading, to promote balanced and harmonious development throughout the world.
WHO ARE POTENTIAL BUYERS FOR CARBON CREDITS?
Any entity, typically a business, that emits CO2 to the atmosphere may have an interest or maybe required by law to balance their emissions through the mechanism of Carbon sequestration. These businesses may include power generating facilities or any kinds of manufacturers.
WHO ARE POTENTIAL SELLERS FOR CARBON FARMING CREDITS?
Entities that manage agricultural land might sell carbon credits based on the accumulation of carbon in their agricultural soils. Similarly, business entities that reduce their carbon emissionmay be able to sell their reductions to other emitters.
MARKET TREND
Carbon emissions trading has been steadily increasing in recent years. According to the World Bank's Carbon Finance Unit, 374 million metric tonnes of carbon dioxide equivalent (tCO2e)were exchanged through projects in 2005, a 240% increase relative to 2004 (110 mtCO2e) which was itself a 41% increase relative to 2003 (78 mtCO2e).In terms of dollars, the World Bank has estimated that the size of the carbon market was 11billion USD in 2005, 30 billion USD in 2006, and 64 billion in 2007. For greenhouse gases all trading countries maintain an inventory of emissions at national and installation level; in addition, the trading groups within North America maintain inventories at the state level through The Climate Registry. For trading between regions these inventories must be consistent, with equivalent units and measurement techniques. In some industrial processes emissions can be physically measured by inserting sensors and Flowmeters in chimneys and stacks, but many types of activity rely on theoretical calculations for measurement. Depending on local legislation, these measurements may require additional checks and verification by government or third party auditors, prior or post submission to the local regulator. Another critical part is enforcement without which the value of allowances are diminished. Enforcement can be done using several means, including fines or sanctioning those that have exceeded their allowances. Concerns include the cost of MRV and enforcement and the risk that facilities may be tempted to mislead rather than make real reductions or make up their shortfall by purchasing allowances or offsets from another entity.The net effect of a corrupt reporting system or poorly managed or financed regulator may be a discount on emission costs, and a (hidden) increase in actual emissions.
OPPORTUNITY FOR INDIAN COMPANIES
Almost all industrialized countries are huge buyer of carbon credit and all developing countries, where industrialization has not reached its peak, are supplier of carbon credit. Japan is the largest buyer of carbon credit while India and Brazil are amongst the largest suppliers of carbon credit. Being a developing country, India is exempted from the requirement of adherence to Kyoto protocol. India, however can sell the carbon credits to the developed countries.Most of the beneficiaries of the carbon trading are those companies that are investing in windmills, Biodiesel, Biogas. Actually by investing in such an alternative non-polluting source of energy, these companies will earn carbon credit in the form of CERs (Certified Emissions Reductions) to the tune they have not polluted the environment. These CERs will be sold by the Indian companies to companies, say in Japan, at market prevailing rate of CERs and make profit. Companies like Torrent Power have started projects, which enhance energy efficiency and in turn have earned CERs points. These CERs will be sold by Torrent Power to companies indeveloped countries and is expected to earn approximately Rs 200 crores. Several Indian companies are adopting such processes in their production units, which result in earning of CERs.Carbon trading has brought a huge opportunity for Indian companies. Companies can earn CERs by adopting energy saving and environment protecting methods and in turn can earn huge incomes by selling them. This opportunity will not exist forever for Indian companies. Once India is accepted as an industrialised country, she would have to adopt strict emission norms like other industrialised countries of the world and India may turn into a net buyer of carbon credit from other developing countries when that happens.
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