See

discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/295256786

ANALYTICAL STUDY OF CARBON CREDIT TRADE

PERFORMANCE IN INDIA

Article in International Journal of Management and Economics · January 2013

CITATIONS READS

0 47

1 author:

Sanjay Aswale
Shri Chhatrapati Shivaji College, Omerga
43 PUBLICATIONS 1 CITATION

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Green marketing View project

All content following this page was uploaded by Sanjay Aswale on 20 February 2016.

The user has requested enhancement of the downloaded file.

ABSTRACT

ANALYTICAL STUDY OF CARBON CREDIT TRADE PERFORMANCE IN INDIA

Dr. Sanjay Aswale
Head and Research Guide, Commerce & Management Science
Shri Chhatrapati Shivaji College, Omerga

Emission Trade known as Carbon Trade is a product of Kyoto protocol. It is introduced by United
Nation Framework Convention on Climate Change (UNFCCC) in 1997. Carbon credit means the
emission of the one tone carbon dioxide or equivalent greenhouse gases (GHGs). This paper focused
on the concept and performance of Carbon Trade and its related terms. The questions regarding
awareness of carbon credit trade, control global warming due to Carbon credit trade and the status of
India in the Carbon Credit trade are analyzed in this paper. For the purpose of this study Greenhouse
gas emission, CDM and CERs are the determinant variables that tested with the Carbon trade of India
and its contribution to control global warming. The data analysis revealed that there is no significant
relation between carbon credit trade and attitude of control Global warming. Hence the hypothesis H1
is accepted by the researcher in this study that attitude of Carbon Credit Trade, Clean Development
Management and Greenhouse Gas Emission are not facilitated by positive attitude towards Global
warming. It can be conclude that Carbon Credit Trade is strongly facilitated towards controlling
global warming automatically. The trends in performance of Carbon Credit trade is analyzed by using One
way ANOVA and Means Matrix with the help of SigmaXl software. Analysis of data revealed that the trend of
Carbon Credit Control since 2005 is increasing and in the 2030 it will be in same direction. India is second
position after China. So the second hypothesis framed in this study entitled “The performance of Carbon
credit Trade is increasing trends after India’s joining CDM is accepted”. This study found that India
has great opportunity to reduce greenhouse gas and supply excess CO2 in the international carbon
market. But the study found that India will remain second position after China in Carbon credit trade
in 2030.

Key Words – Carbon trade, Greenhouse Gas Emission, Clean Development Management
INTRODUCTION:
Production, distribution of limited goods and services by various agents in a given geographical
location is known as trade. Transactions occur when two parties agree to value or price of transacted
goods or service, commonly expressed in money or moneys wroth. Carbon emissions trading is a
form of emission trading that specifically targets carbon dioxide (calculated in tones of carbon
dioxide equivalent of tCO2) and it currently constitute the bulk of emissions trading. Under Carbon
trading, a country having more emission of carbon is able to purchase the right to emit more and the
country having less emission trades the right to emit carbon to other countries. More carbon emitting
countries, by this way try to keep the limit of carbon emission specified to them. Thus Carbon
Dioxide (CO2) the most important greenhouse gas produced by combustion of fuels has become a
cause of global panic as its concentration in the earth’s atmosphere has been rising alarmingly. This
devil however, is now turning in to a product that helps people, countries, consultants, traders,
corporations and even farmers earn billion of rupees. This was an unimaginable trading opportunity
not more than a decade ago. This paper highlights the issues on Carbon Credit Trade (CCT)
performance in India.

NEED FOR CARBON TRADING:

The need for carbon trading was felt when it was realized that the industries have been the biggest
polluter of green house gases which has resulted in global warming. A lot of effort was put in by the
NGOs and other institutions to bring the attention of the world towards the problem of global
warming. But this issue was not taken very seriously as a result of which nothing much was done in
this regard. Thus it was realized that the only way to get the attention of the world towards these
problems was by attaching some financial incentive to it. As a result the concept of Carbon trading
was introduced.

STATEMENT OF PROBLEM:
The concept of Carbon credit emerged in the Kyoto Protocol by organizing Eighth Conference of
Parties to the UNFCCC in Delhi in 2002. Then India entered in Carbon Market and became first
country in the world to supply SERs. But it is again failed. There is need to study about the attitude
towards Carbon Credit Trade and Global warming. The performance of Carbon Credit Trade should
be analyzed to understand the future direction of carbon trade.

REVIEW OF LITERATURE:
McCann, (2004) states that what is understood and accepted by the majority of the scientific
community is that the emissions of greenhouse gases from human activities are driving the process of
climate change. It is widely understood that mans greatest contribution to global warming is brought
about by the burning of fossil fuels, which in turn has resulted in billions of tonnes of CO2 being
released into the environment.
Rennings & Zwick (2001) focused on eco-innovation; the study carried out by is based on a sample
of eco-innovative firms for five European Union (EU) countries in manufacturing and service sectors.
The result of the study indicates that in most of the firms‟ employment does not change as a
consequence of eco-innovations.
Konar and Cohen (2001) - investigated the effect on firms‟ market performance of tangible and
intangible assets, including two environmental performance-related elements as explanatory factors.
Doonan et al. (2005) examined the role of communities to create incentives for local industrial
facilities to reduce pollution. They found that firms face both internal and external pressures to
improve their environmental performance. They found that the Government policies are much of a
barrier for the Canadian pulp and paper industries. However, financial and consumer markets are not
most important barriers. They found that education status of employee is one of the important
determinants of environmental performance.
Grubb (2003) - the Clean Development Mechanism (CDM) allows industrialized countries that have
committed to reducing their national carbon emissions. Since the cost of carbon abatement is often
lower in developing than in industrialized countries, the CDM allows industrialized countries to cost-
effectively reduce their greenhouse gas emissions while promoting sustainable development in
countries that host CDM projects.
Benecke 2009, Sirohi (2007)- India is one of the world's largest hosts of such clean development
projects. From 2003 to 2011, a total of 2,295 projects around one-quarter of the global total had been
registered with India's Designated National Authority for the Clean Development Mechanism.
Schroeder (2009)- China hosts more CDM projects than India. India's approach to governing the
CDM is best characterized as a ‘laissez faire’ system whereby the Indian government neither actively
promotes nor discourages CDM project implementation in different states. This stands in stark
contrast to China's national policy, which steers CDM investment toward the country's policy
priorities, such as renewable energy, and economically backward provinces.

OBJECTIVES OF THE STUDY:

The objectives of this paper are
1. To study the attitude towards Carbon Credit Trade and Global Warming
2. To analyze the performance of Carbon Trade in India from 2008 to 2012

HYPOTHESIS OF THE STUDY:

The following two hypotheses referring to the Carbon credit trade and attitude towards global
warming and performance of Carbon trade of India are proposed
H1 - There is no significant relation between carbon credit trade and attitude of control Global
warming.
H2 - The performance of Carbon credit Trade is increasing trends after India’s joining CDM

METHODOLOGY OF THE STUDY:

Sample Design: The stratified sampling method which is a form of random sampling is used in this
study. The universe is divided in to four groups. The 100 respondents from highest carbon emission
sectors were selected randomly as under
Table – 1
Sample of Respondents
Highest Carbon % of Carbon Emission to total Respondents
Emission Sector Carbon emission
Iron and Steel 72% 53
Electricity 28.4% 20
Agriculture 27.6% 20
Transport 6.8% 7
Total 100
Source –Ministry of Environment and Forest report 2010
Design Scale: In order to obtain reliable information from the respondents validated scales were
selected for data collection. In this study, the survey instrument of attitude towards the Global
warming as the independent variable was adopted from the scale developed by Tiwari (2007). The
respondents were asked to rate each item on five point Linkert scale from 1=Strongly Disagree to 5=
Agree. The secondary data relating to carbon credit trade and carbon emission were collected from
published report and articles.
Variables: - Attitude towards the Global warming
Independent Variable - Attitude of Carbon Credit Trade (CCT), Greenhouse Gas Emission (GGE)
and Clean Development Mechanism (CDM).
Techniques: The statistical technique like Regression analysis, ANNOVA is used to analysis of data
and hypothesis testing

THEORATICAL FRAMEWORK:
The Collins English Dictionary defines a carbon credit as
“A certificate showing that a government or company has paid to have
a certain amount of carbon dioxide removed from the environment”
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.
Buyers and sellers can also use an exchange platform to trade, such as the Carbon Trade Exchange,
which is like a stock exchange for carbon credits. There are two main markets for carbon credits;
Compliance Market credits Secondary / Verified Market credits (VERs)
CARBON EMISSION:
Table – 2
Trends in Carbon Emission in India during 2008-12
Year CO2 Emission Percentage
( in Billion tones ) change
2008 1.56 -
2009 1.69 8.33
2010 1.78 5.32
2011 1.84 3.37
2012 1.97 7.07
Source –Compilation of data from internet
The above table shows the trends in carbon emissions in India from 2008 to 2012 and the percentage
changes in it for the above period. It can be seen that in India the carbon emissions which were at
1.56 billion tonnes in 2008-09, grew by 8.33 percent and thereafter it declined to a growth rate of a
positive 5.32 percent in 2009-10 and still by a lower positive growth at 3.37 percent in 2010-11 and
again in 2011-12 the growth was at a higher 7.07 percent as compared to its previous period. In all the
years under study the growth in carbon emissions was seen to be increasing as compared to its
previous period.
PROCESS OF CARBON TRADE:
The process or mechanism of Carbon credit was formalized in the Kyoto Protocol, an international
agreement between more than 170 countries. The stages of this mechanism includes
Assigned Amounts (AA):
Under the Kyoto Protocol, the 'caps' or quotas for Greenhouse gases for the developed Annex
1 countries are known as Assigned Amounts and are listed in Annex B.
Assigned Amount Units (AAUS):
The quantity of the initial assigned amount is denominated in individual units, called Assigned
amount units (AAUs), each of which represents an allowance to emit one metric tonne of carbon
dioxide equivalent, and these are entered into the country's national registry.
Operators:
In turn, these countries set quotas on the emissions of installations run by local business and other
organizations, generically termed 'operators'.
Clearing House (Trade):
Each operator has an allowance of credits, where each unit gives the owner the right to emit one
metric tonne of carbon dioxide or other equivalent greenhouse gas. Operators that have not used up
their quotas can sell their unused allowances as carbon credits, while businesses that are about to
exceed their quotas can buy the extra allowances as credits, privately or on the open market.
Clean Development Mechanism (CDM):
The companies reduce their emissions and adopt cleaner ways of doing business. For that purpose the
system inspires companies and governments to promote environment friendly procedures that lessen
greenhouse gas emission is known as Clean Development Mechanism (CDM). Carbon trading is as a
part of CDM. The following table shows the present status of CDM projects in global business
environment.
TABLE 3:
CLEAN DEVELOPMENT MECHANISM AS ON JULY 31, 2012
Total CDM projects in pipeline (UNFCCC) > 5600 -
Total no. of projects registered with UNFCCC 4424 -
Total No. of Registered projects from India 866 19.56%
Total No. of Registered projects from China 2198 49.64%
Expected CERs until end of 2012 (UNFCCC) out of the > 2700 Mn -
CDM projects in pipeline
Total No. CERs issued to Indian Projects 143.41 Mn 14.68%
Total No. CERs issued to Chinese Projects 976.64 Mn 60.05%
Source: http://www.idbi.com/pdf/Carbon-Magazines/IDBI-Carbon-Development-August-2012.
The above table reveals more than 5600 CDM project are in pipeline with United Nations
Framework Convention on Climate Change (UNFCCC) whereas 4424 registered and more than 2700
mn expected generation of Certified Emission Reduction. Out of these China leads with 2198
registered CDM projects accounting for 49.64% followed by India 866 projects i.e.19.56%. Total
CERs issued to registered projects, amounted to around 976.64 millions, of which China accounts for
60.05% followed by India at 14.68%.
It can be concluded that there is an opportunity of carbon trade to both the country India and China to
become the super power nation.
STATUS OF CARBON CREDIT TRADING:
The following table shows the major buyers of carbon credit under Clean Development Mechanism.
 Source: http://www.mcxindia.com/Uploads/Products
Figure 1: Major buyer of Clean Development Mechanism
The above figure shows the major buyer of CDM in global business environment. It is evident that
UK is the biggest buyer followed by Baltic Europe and Japan. Carbon trading has helped in raising
funds as well.

Source: http://www.mcxindia.com/Uploads/Products
Figure 2: Major supplier of Certified Emission Reduction (CER)

PERFORMANC OF CARBON TRADING IN INDIA:

After 1997, India does not have any emission reduction target, but it is able to sell CERs in Carbon
Credit Market. In 2002, India was the host country to organize Eighth Conference of Parties to the
UNFCCC in Delhi to sensitize the business community about the opportunity provided by carbon
finance and the modalities of the emerging CDM.
By the end of 2004, India was the market leader in the forward sale of emission reductions, with 50 %
of the supply market. In 2005, as the Kyoto Protocol came into force and the EU ETS was enacted,
China entered the carbon market in full force. India dropped to third place in the global supply of
project-based emission reductions in 2005 (at 3%), behind China (73%) and Brazil (11%). In 2006
following the volatility in prices, many sellers in the carbon market became aware of the need to
adopt risk hedging strategies given the highly volatile nature of the CDM and other nascent carbon
markets. In 2007, India’s market share, measured in value of signed Emission Reduction Purchase
Agreements for either spot or forward sales, was at 6% in 2006, second only to China which supplied
73 per cent India’s carbon credits’ trading is reached approx. $100 billion in 2010. In 2007, a total of
160 new projects were registered that became 866 in 2012 with UNFCCC.
On the basis of data analysis in the above table it can be seen that India has evolved as a great player
in the global carbon credits market. Originator, developer and trader of carbon credits are setting up
offices in India. India had 2,123 approved CDM projects. Of these, 886 were registered with the
United Nations Framework Convention on Climate Change. There are a number projects being run by
SME’s to expand their processes. The estimated CER generation stands at 150 million.
The following table shows the comparative projected trends in performance of carbon trade of top
four countries in the world.
Table – 3
Projected Trend in Performance of Carbon Trade
China India Barzil Mexico
CDM Registered 2198 886 190 126
CERs ( Average annually) 220112 79718 1,16,853 78,258
CERs (Till 2012) 117,72,75,115 27,45,93,619 13,99,83,449 5,18,66,372
CERs (Till 2020) 352,56,78,490 51,92,17,554 30,92,93,429 11,32,12,412
CERs (Till 2030) 581,29,25,040 58,51,95,402 43,47,32,525 15,33,97,600
Source –Compilation of data from internet
(Note - One certificate of emission is equal to one ton CO2 emission)
The table reveals that China is the leading country in the world to registered CDM project (2198)
followed by India 886 projects. The average annual CERs generated by China is 220112 Mn tones
which may be 581 crores 29 lakh Mn tones in 2030. So far India as concern it may be 58 crores 51
lakh Mn tones in 2030. It will be only 10 per cent of the China’s CERs generated. India has 33 per
cent of CERs overall world, which is registered in UNFCCC after China. India will be going to earn
the 4,000 corers by carbon credit.

RESULTS & DISCUSSION:

The five point rating scale was tabulated and analyzed by using regression model with the help of
SigmaXL software. The result for regression model was significant shown in the following tables.
Table -4
Regression Analysis of Data
Dependent Variable SE
Coefficient T P
(Global Warming) Coefficient
Constant ( CCT) 6.351 4.249 1.495 0.2736
-
GHG -0.066860865 0.430576 0.8909
0.155283
CDM 0.718279 0.300854 2.387 0.1396
Source – Data analyzed with the help of SigmaXL software
Table-5
Analysis of Variance of Results
R square 0.718
F Value 17.362
P Value 0.0545
Adjusted R Square = 0.196 Significance = 0.000
Source – Data analyzed with the help of SigmaXL software
 H1 HYPOTHESIS TEST:
It is seen from the result of regression model that all the dependent variables CCT, GGE and CDM
were significant to the independent variable Global warming. The adjusted R square value (0.196)
revealed that three factors contributed 19.6 per cent to the dimension of attitude toward Global
warming. The data analysis revealed that there is no significant relation between carbon credit trade
and attitude of control Global warming. Hence the hypothesis H1 is accepted by the researcher in this
study that attitude of Carbon Credit Trade, Clean Development Mechanism and Greenhouse Gas
Emission are not facilitated by positive attitude towards Global warming. It can be conclude that
Carbon Credit Trade is strongly facilitated towards controlling global warming automatically.

H2 HYPOTHESI TEST:
Table - 6
One way ANOVA and Means Matrix Analysis

Summary Information CHINA INDIA BRAZIL MEXICO

Mean 2103659.20 275995 176863 63736
Standard Deviation 2523864.77 276847 192255 68422
F Value 2.898
T Value 0.0673
Source – Data analyzed with the help of SigmaXL softaware
The trends in performance of Carbon Credit trade is analyzed by using One way ANOVA and Means Matrix
with the help of SigmaXl software. Analysis of data revealed that the trend of Carbon Credit Control since
2005 is increasing and in the 2030 it will be in same direction. India is second position after China. So the
second hypothesis framed in this study entitled “The performance of Carbon credit Trade is increasing
trends after India’s joining CDM is accepted”.

TO CONCLUDE:
This study found that India has great opportunity to reduce greenhouse gas and supply excess CO2 in
the international carbon market. But the study found that India will remain second position after
China in Carbon credit trade in 2030. On the basis of the above analysis this study suggests to
increase the Carbon Credit Trade in India in future.

REFERENCES:
Bhatia & Bhargava (2006) - Global Warming and Clean Development Mechanism Projects: State and
Trends in India', the ICFAI Journal of Environmental Economics, 4(3): 71-81.
Chakraborty Debrupa (2006)- 'Perspectives of Climate Change Policies in Business Decision making
The ICFAI Journal of Environmental Economics, 4(4): 7-18.
Kalpagam & Karimullah (2007) 'Indian Business Prospects in the Global Emissions Market', Global
Business Review, 8(2): 237-249.
Internet accessed on 21-12-2014 - http://www.labnol.org http://unfccc.int http://www.business-
standard.com www.oecd.org/environment/outlookto2050

View publication stats