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WHAT IS CARBON CREDIT?WHAT IS CARBON CREDIT?

AA carboncreditcarboncredit is a generic term for anyis a generic term for anytradable certificate or permit representing thetradable certificate or permit representing theright to emit one tonne of carbon or carbonright to emit one tonne of carbon or carbon

dioxide equivalent (CO2dioxide equivalent (CO2--e).e). One carbon credit is equal to one ton of carbonOne carbon credit is equal to one ton of carbon

dioxide, or in some markets, carbon dioxidedioxide, or in some markets, carbon dioxide

equivalent gases.equivalent gases. Carbon trading is an application of anCarbon trading is an application of an emissionsemissions

tradingtrading approach.approach.

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HOW CARBON CREDITSHOW CARBON CREDITS

EMERGEDEMERGED

Rapid industrial

growth

Fast energy

Consumption

Increased CO2

&GHG

Global

warming

Kyoto

Protocol

Limits for

emissionsCDM,JI,IET

Carbon trading

Carbon credits

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HOW BUYING CARBONHOW BUYING CARBON

CREDITS CAN REDUCECREDITS CAN REDUCE

EMISSIONS?EMISSIONS? It create a market for reducing greenhouseIt create a market for reducing greenhouse

emissionsby giving a monetary value to theemissionsby giving a monetary value to thecost of pollutong the air. Emissions becomecost of pollutong the air. Emissions become

internal cost of doing business & are visibleinternal cost of doing business & are visibleon balance sheet as well.on balance sheet as well.

Example; consider a businessthat owns aExample; consider a businessthat owns a

factory putting out 100,000 tonnes of GHGfactory putting out 100,000 tonnes of GHGemissions. So factory is either required toemissions. So factory is either required toreduce emissions till quota level say 80,000reduce emissions till quota level say 80,000tonnes or is required to purchase carbontonnes or is required to purchase carboncredits to offset the excess.credits to offset the excess.

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Credits versus taxesCredits versus taxes

By treating emissions as a market [[commodity) it becomes easierBy treating emissions as a market [[commodity) it becomes easierfor business to understand and manage their activities.for business to understand and manage their activities.

Thus the main advantages of a tradable carbon credit over aThus the main advantages of a tradable carbon credit over acarbon tax are: the price is more likely to be perceived as fair bycarbon tax are: the price is more likely to be perceived as fair bythose paying it, as the cost of carbon is set by the market, andthose paying it, as the cost of carbon is set by the market, andnot by politicians.not by politicians.

Investors in credits have more control over their own costs.Investors in credits have more control over their own costs.

the flexible mechanisms of the Kyoto Protocol ensure that allthe flexible mechanisms of the Kyoto Protocol ensure that all

investment goes into genuine sustainable carbon reductioninvestment goes into genuine sustainable carbon reductionschemes, through its internationallyschemes, through its internationally--agreed validation process.agreed validation process.

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AdditionalityAdditionality

Additionality is a term used by Kyoto's CleanAdditionality is a term used by Kyoto's Clean

Development Mechanism to describe the factDevelopment Mechanism to describe the fact

that a carbon dioxide reduction project (carbonthat a carbon dioxide reduction project (carbonproject) would not have occurred had it notproject) would not have occurred had it notbeen for concern for the mitigation of climatebeen for concern for the mitigation of climate

change.change.

a project that has proven additionality is aa project that has proven additionality is abeyondbeyond--businessbusiness--asas--usual project.usual project.

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Carbon credit in IndiaCarbon credit in India

India had 310 ecoIndia had 310 eco--friendly projects awaitingfriendly projects awaiting

approval by the UN. Once cleared, theseapproval by the UN. Once cleared, these

projects can fetch about Rs 29,000 crore in theprojects can fetch about Rs 29,000 crore in thenext seven years.next seven years.

Indias carbon credit market is growing, as manyIndias carbon credit market is growing, as many

players (industries) are adopting the Cleanplayers (industries) are adopting the Clean

Development Mechanism (CDM)Development Mechanism (CDM)

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CARBON TRADINGCARBON TRADING

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CARBON TRADINGCARBON TRADING

AA carbontrading systemcarbontrading system allows the development of aallows the development of amarket through which carbon dioxide or carbonmarket through which carbon dioxide or carbonequivalents can betraded between participants, whetherequivalents can betraded between participants, whethercountries or companies.Each carbon credit is equal tocountries or companies.Each carbon credit is equal to100 metric tons of carbondioxide, which can be traded100 metric tons of carbondioxide, which can be tradedor exchanged in market.or exchanged in market.

There are two kinds of carbon tradingThere are two kinds of carbon trading

Emission tradingEmission trading Trading in ProjectTrading in Project--based Credits.based Credits.

The two categories are put together as Hybrid tradingThe two categories are put together as Hybrid tradingSystemSystem

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TYPES OF CARBONTYPES OF CARBON

TRADINGTRADING1. EMISSION TRADING:1. EMISSION TRADING: A company can reduce its emission by half the cost of allowanceA company can reduce its emission by half the cost of allowance

bought from other companybought from other company

On the other hand, a company with higher expenditure forOn the other hand, a company with higher expenditure forreduction of its emissions buys the required allowance fromreduction of its emissions buys the required allowance fromother company to save its emission costother company to save its emission cost

2. PROJECT2. PROJECT--BASED TRADING:BASED TRADING:

Government & World Bank subsidized credit for projectGovernment & World Bank subsidized credit for project--basedbased

trading to the companies calculating how much carbon dioxidetrading to the companies calculating how much carbon dioxideequivalent they save/reducesequivalent they save/reduces

ProjectProject--based Credit trading includes baselinebased Credit trading includes baseline--andand--credit tradingcredit tradingand offset tradingand offset trading

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CONTINUE..CONTINUE..

3.HYBRID TRADING SYSTEM:3.HYBRID TRADING SYSTEM:

In Hybrid trading system, both emission tradingIn Hybrid trading system, both emission trading

and offset trading are used and try to makeand offset trading are used and try to makeallowance exchangeable for projectallowance exchangeable for project--basedbasedcredits.credits.

Hybrid trading system is enormously complex asHybrid trading system is enormously complex asit is not only difficult to try to create credibleit is not only difficult to try to create credible

credit and make them equivalent to allowancecredit and make them equivalent to allowance

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THANK YOU !THANK YOU !