Chitra Project

Carbon credits have recently been
available for purchase. Until now, I have only had a loose understanding of what
it meant to buy carbon credits. When booking a flight for myself and my
daughter, Expedia.ca offered the option of offsetting our carbon emmissions of
the plane ride by purchasing carbon credits. Because I am trying to have the
smallest carbon footprint that is conveniently possible (as are most people), I
opted in.
The Kyoto Protocol was initiated by the United Nations Framework Convention
on Climate Change and ratified (agreed to in principle) by 181 countries and the
European Union as a whole, individual entity in 1997, and was put into effect in
2005. This protocol was proposed by the international community to address and
reduce greenhouse gas emmissions that have led to global climate change.
Member countries are placed into different categories; Annex I countries make up
the industrialized nations. Annex II countries are developed countries that provide
financial support to the developing countries. The Annex II grouping consists of
countries that are members of the Organization for Economic Co-operation and
Development. The third and final category makes up the developing nations, who
have no limitations on greenhouse gas emissions as emissions are an essential
byproduct to building a stable economy and raising their citizens out of poverty.
Once these countries become “developed” they are then subject to the greenhouse
caps that Annex I and II countries currently have. Many countries are both Annex
I and II countries. The allowable emissions for member countries are between 6
and 8% less than their 1990 emission levels; meaning the limit is different for
every member country; keeping in mind that developing nations are exempt from
emission caps and are inelligible to sell carbon credits. It is up to each individual
country to regulate their industrial outputs to meet the 1990 levels of emissions.
Although the Kyoto meeting was one of many meetings that took place in the
COP’s (Conference of Parties), it is the most well known because it is the
conference that made countries legally liable for exceeding allowable greenhouse
emissions. The Kyoto Accord is the teeth in the United Nations Framework
Convention on Climate Change, and is therefore synonymous with raising global
awareness about climate change. Typically, companies who explore, produce and
promote alternate energy sources such as wind, solar and geothermal energy sell
carbon credits. Other organizations with available carbon credits include
companies that destroy carbon dioxide or other greenhouse gases directly. Carbon
dioxide sequestration is the process of converting CO2 gas into a solid form by
chemical or physical means. For example, carbon dioxide combined with quick
lime (calcium oxide) forms limestone that can be used in construction projects.
The Clean Development Mechanism is a governing set of rules set by the Kyoto
Protocol to determine which companies and projects can generate carbon credits.
This is necessary because anyone who sets up a company could promise that they
were developing/using/investing in alternative energy sources, start selling carbon
credits and make out like bandits while doing nothing to stop climate change. The
CDM is not the only regulatory body to certify carbon credits, but they are the
most well known. If you are purchasing a CDM certfied carbon credit, you know
that you are investing in a company that has been thoroughly investigated and
approved by the UN. The other carbon credit certification bodies include the
Chicago Climate Exchange, the Western Climate Initiative, and the Regional
Greenhouse Gas Initiative in the northeastern U.S. In addition, there are various
standards bodies who set the carbon emission bar such as the Chicago Climate
Exchange, the Voluntary Carbon Standard and the CDM Gold Standard (based on
the Kyoto Protocol).
Key to the establishment of carbon credit generation is the concept of
additionality. This principle is that a carbon credit isn’t truly environmentally
beneficial unless the carbon credit producer would not have been able to reduce
emissions or invest in researching renewable energy sources without the money
given to them from carbon credits. This avoids giving money to organizations that
would be doing the exact same business regardless of income from carbon credits.
To summarize, the money your company earns from carbon credits must be put to
additional greenhouse gas reducing initiatives. Who makes the decision about
additionality? The CDM board has established a set of guidelnes by which they
certify a company for selling carbon credits.
Who Buys Carbon Credits?
Countries for one; in order to comply with allowable emissions should they
exceed their amount. For example, pretend that I am only allowed to produce 10
tonnes of carbon dioxide, but I produce 15 tonnes; I can buy 5 tonnes worth of
carbon credits to bring my effective emission level back down to 10 tonnes.
Individuals and companies can also buy carbon credits, such as in my flight
example. Certain eco friendly products also contribute part of the sale of their
goods towards carbon credits, such as a $6 chocolate bar that I recently
purchased; every x amount of dollars = x tonnes of carbon dioxide or other
greenhouse gas. Typically, carbon credits sell between $1 and $30 per tonne.
Carbon Planet.com buys and sells carbon credits in three different incarnations.
First, you can buy a subscription that charges your credit card a monthly rate for a
certain amount of carbon credit. This rate can be established by them by looking
at the average emissions made by a single person in your country and calculating
an amount based on your age (how much carbon you have produced up until now
and in the future). You can buy a one time package to offset a specific carbon
expenditure such as a flight, or cross country drive, or you can pay for your entire
life; all the carbon you have and will produce based on the average emissions per
person in your country of residence. I would like to point out, that this isn’t an
endorsement of their products, nor am I affiliated with them in any way, but they
do provide a good description about the carbon credit currency.
the Clean Development Mechanism (CDM)

The CDM was established by Article 12 of the Protocol and refers to climate
change mitigation projects undertaken between Annex 1 countries and non-Annex
1 countries (see below). This new mechanism, whilst resembling JI, has important
points of difference. In particular, project investments must contribute to the
sustainable development of the non-Annex 1 host country, and must also be
independently certified. This latter requirement gives rise to the term "certified
emissions reductions" or CERs, which describe the output of CDM projects, and
which under the terms of Article 12 can be banked from the year 2000, eight years
before the first commitment period (2008-2012).
THE CLEAN DEVELOPMENT MECHANISM
The CDM is one of the "flexibility mechanisms" that is defined in the

Kyoto Protocol. The flexibility mechanisms are designed to allow Annex B
countries to meet their emission reduction commitments with reduced impact on
their economies (IPCC, 2007).The flexibility mechanisms were introduced to the
Kyoto Protocol by the US government. Developing countries were highly
skeptical and fiercely opposed to the flexibility mechanisms (Carbon Trust, 2009,
p. 6). However, in the international negotiations over the follow-up to the Kyoto
Protocol, it has been agreed that the mechanisms will continue.
The purpose of the CDM is to promote clean development in developing

countries, i.e., the "non-Annex I" countries (countries that aren't listed in Annex I
of the Framework Convention). The CDM is one of the Protocol's "project-based"
mechanisms, in that the CDM is designed to promote projects that reduce
emissions. The CDM is based on the idea of emission reduction "production"
(Toth et al., 2001, p. 660).These reductions are "produced" and then subtracted
against a hypothetical "baseline" of emissions. The emissions baseline are the
emissions that are predicted to occur in the absence of a particular CDM project.
CDM projects are "credited" against this baseline, in the sense that developing
countries gain credit for producing these emission cuts.
The economic basis for including developing countries in efforts to reduce

emissions is that emission cuts are thought to be less expensive in developing
countries than developed countries (Goldemberg et al., 1996, p. 30; Grubb, 2003,
p. 159).For example, in developing countries, environmental regulation is
generally weaker than it is in developed countries (Sathaye et al., 2001, p. 387-
389).Thus, it is widely thought that there is greater potential for developing
countries to reduce their emissions than developed countries.
From the viewpoint of bringing about a global reduction in emissions, emissions

from developing countries are projected to increase substantially over this century
(Goldemberg et al., 1996, p. 29).[6] Infrastructure decisions made in developing
countries could therefore have a very large influence on future efforts to limit
total global emissions (Fisher et al., 2007).[8] The CDM is designed to start off
developing countries on a path towards less pollution, with industralized (Annex
B) countries paying for these reductions.
There were two main concerns about the CDM (Carbon Trust, 2009, pp. 14–15).
One was over the additionality of emission reductions produced by the CDM (see
the section on additionality). The other was whether it would allow rich, northern
countries, and in particular, companies, to impose projects that were contrary to
the development interests of host countries. To alleviate this concern, the CDM
requires host countries to confirm that CDM projects contribute to their own
sustainable development. International rules also prohibit credits for some kind of
activities, notably from nuclear power and avoided deforestation.
To prevent industrialised countries from making unlimited use of CDM, the
framework has a provision that use of CDM be ‘supplemental’ to domestic
actions to reduce emissions. This wording has led to a wide range of
interpretations - the Netherlands for example aims to achieve half of its required
emission reductions (from a BAU baseline) by CDM.[citation needed] It treats Dutch
companies' purchases of European Emissions Trading Scheme allowances from
companies in other countries as part of its domestic actions.
The CDM gained momentum in 2005 after the entry into force of the Kyoto
Protocol. Before the Protocol entered into force, investors considered this a key
risk factor. The initial years of operation yielded fewer CDM credits than
supporters had hoped for, as Parties did not provide sufficient funding to the EB.
This left it understaffed.[citation needed]
The Adaptation Fund was established to finance concrete adaptation projects and
programmes in developing countries that are Parties to the Kyoto Protocol. [citation
needed]
The Fund is to be financed with a share of proceeds from clean development
mechanism (CDM) project activities and receive funds from other sources.
DIFFICULTIES IN CDM
Carbon leakage
In theory, leakage may be reduced by crediting mechanisms (Burniaux et al.,

2009, p. 38). In practice, the amount of leakage partly depends on the definition of
the baseline against which credits are granted. The current CDM approach already
incorporates some leakage. Thus, reductions in leakage due to the CDM may, in
fact, be small or even non-existent.
Additionality, transaction costs and bottlenecks
In order to maintain the environmental effectiveness of the Kyoto Protocol,

emission savings from the CDM must be additional (World Bank, 2010, p. 265).[4]
Without additionality, the CDM amounts to an income transfer to non-Annex I
countries (Burniaux et al., 2009, p. 40). Additionality is, however, difficult to
prove, and is the subject of vigorous debate.
Burniaux et al. (2009) commented on the large transaction costs of establishing

additionality. Assessing additionality has created delays (bottlenecks) in
approving CDM projects. According to World Bank (2010), there are significant
constraints to the continued growth of the CDM to support mitigation in
developing countries.
Incentives
The CDM rewards emissions reductions, but does not penalize emission increases
(Burniaux et al., 2009, p. 41). It therefore comes close to being an emissions
reduction subsidy. This can create a perverse incentive for firms to raise their
emissions in the short-term, with the aim of getting credits for reducing emissions
in the long-term.
Another difficulty is that the CDM might reduce the incentive for non-Annex I
countries to cap their emissions. This is because most developing countries
benefit more from a well-functioning crediting mechanism than from a world
emissions trading scheme (ETS), where their emissions are capped. This is true
except in cases where the allocation of emissions rights (i.e., the amount of
emissions that each country is allowed to emit) in the ETS is particularly
favourable to developing countries.
Combating global warming has broadly two components: decreasing the release
of greenhouse gases and sequestering greenhouse gases from the atmosphere.
Greenhouse gas emitters, such as coal-fired power plants, are known as
"sources", and places where carbon and other greenhouse gases, such as
methane, can be sequestered, i.e. kept out of the atmosphere, are known as
"sinks".
The world's forests, particularly rain forests, are important carbon sinks, both
because of their uptake of CO2 through photosynthesis and because of the amount
of carbon stored in their woody biomass and the soil. When rain forests are
logged and burned, not only do we lose the forests' capacity to take up CO2 from
the atmosphere, but also the carbon stored in that biomass and soil is released into
the atmosphere through release of roots from the soil and the burning of the
woody plant matter.
An emerging proposal, Reduced Emissions from Avoided Deforestation and

Degradation (REDD), would allow rain forest preservation to qualify for CDM
project status. REDD has gained support through recent meetings of the COP, and
will be examined at Copenhagen.
One of the difficulties of the CDM is in judging whether or not projects truly
make additional savings in GHG emissions (Carbon Trust, 2009, p. 54-56).[2] The
baseline which is used in making this comparison is not observable. According to
the Carbon Trust (2009), some projects have been clearly additional: the fitting of
equipment to remove HFCs and N2O. Some low-carbon electricity supply projects
were also thought to have displaced coal-powered generation. Carbon Trust
(2009) reviewed some approved projects. In their view, some of these projects
had debatable points in their additionality assessments. They compared
establishing additionality to the balance of evidence in a legal system. Certainty in
additionality is rare, and the higher the proof of additionality, the greater the risk
of rejecting good projects to reduce emissions.
[edit] Types
Additionality is a much contested. There are many rival interpretations of
additionality:
1. What is often labelled ‘environmental additionality’ has that a

project is additional if the emissions from the project are lower than the
baseline. It generally looks at what would have happened without the
project.
2. Another interpretation, sometimes termed ‘project additionality’,
the project must not have happened without the CDM.
A number of terms for different kinds of additionality have been discussed,

leading to some confusion, particularly over the terms 'financial additionality' and
'investment additionality' which are sometimes used as synonyms. 'Investment
additionality', however, was a concept discussed and ultimately rejected during
negotiation of the Marrakech Accords. Investment additionality carried the idea
that any project that surpasses a certain risk-adjusted profitability threshold would
automatically be deemed non-additional[16]. 'Financial additionality' is often
defined as an economically non-viable project becoming viable as a direct result
of CDM revenues.
Many investors argue that the environmental additionality interpretation would

make the CDM simpler. Environmental NGOs have argued that this interpretation
would open the CDM to free-riders, permitting developed countries to emit more
CO2e, while failing to produce emission reductions in the CDM host countries[17].
Schneider (2007) produced a report on the CDM for the WWF. [18] The findings of
the report were based on a systematic evaluation of 93 randomly chosen
registered CDM projects, as well as interviews and a literature survey (p. 5).
According to Schneider (2007, p. 72), the additionality of a significant number of
projects over the 2004-2007 period seemed to be either unlikely or questionable.
It is never possible to establish with certainty what would have happened without
the CDM or in absence of a particular project, which is one common objection to
the CDM. Nevertheless, official guidelines have been designed to facilitate
uniform assessment[19], set by the CDM Executive Board for assessing
additionality.
The risk of false credits
This section needs additional citations for verification.

Please help improve this article by adding reliable references. Unsourced material may be
challenged and removed. (April 2010)
As the CDM is an alternative to domestic emission reductions, the perfectly

working CDM would produce no more and no less greenhouse gas emission
reductions than without use of the CDM. However, it was recognized from the
beginning that if projects that would have happened anyway are registered as
CDM projects, then the net effect is an increase of global emissions as those
"spurious" credits will be used to allow higher domestic emissions without
reducing emissions in the developing country hosting the CDM project. Spurious
credits may also occur because of overstated baselines. Such an inclusion is
termed a "false positive".[citation needed]
On the other hand, if a project is rejected because the criteria are set too high,
there will be missed opportunities for emission reductions. Such a rejection is
termed a "false negative".[citation needed] For example, if it costs $75 to remove just
one tonne from a domestic power station in a developed country, while the same
money would reduce 37.5 tonnes of emissions through a genuinely additional and
sustainable CDM project in China, the project in China would be the more cost-
effective option. Some observers[who?] report that the CDM process is producing
far more of these false negatives than false positives.[citation needed]
By February 2009, there were 1202 projects with capacity of 41,881 MW (66%
from China) had applied for credits.[citation needed]
[edit] Industrial gas projects

Some CERs are produced from CDM projects at refrigerant-producing factories in
non-Annex I countries that generate the powerful greenhouse gas HFC 23 as a by-
product. These projects dominated the CDM's early growth, and are expected to
generate 20% of all credited emission reductions by 2012 (Carbon Trust, 2009,
p. 60).[2] Paying for facilities to destroy HFC-23 can cost only 0.2-0.5 €/tCO2.
Industrialized countries were, however, paying around 20 €/tCO2 for reductions
that cost below 1 €/tCO2. This provoked strong criticism.
The scale of profits generated by HFC-23 projects threatened distortions in

competitiveness with plants in industrialized countries that had already cleaned up
their emissions (p. 60). In an attempt to address concerns over HFC-23 projects,
the CDM Executive Board made changes in how these projects are credited.
According to the Carbon Trust (2009, p. 60), these changes effectively ensure
that:
• the potential to capture emissions from these plants is exploited;

• distortions are reduced;
• and the risk of perverse incentives is capped.
Critics of the CDM[who?] have stated that it would cost only €100 million to pay
producers to capture and destroy HFC 23 compared with €4.6 billion in CDM
credits, yielding what they believe are excessive profits to the sellers and
middlemen [14][15][16].[citation needed]
Carbon Trust (2009, p. 60) argued that
criticizing the CDM for finding low-cost reductions seemed perverse. They also
argued that addressing the problem with targeted funding was easy with hindsight,
and that before the CDM, these emission reduction opportunities were not taken.
Another argument in favour of the CDM[according to whom?] is that in a well-functioning

market, rent[clarification needed] is shared between buyer and seller, not held exclusively
by one of the parties to a transaction.[citation needed]
[edit] Hydropower
This section needs additional citations for verification.
Please help improve this article by adding reliable references. Unsourced material may be
challenged and removed. (April 2010)
NGOs have criticized the inclusion of large hydropower projects, which they
consider unsustainable, as CDM projects.[citation needed] Lately, both the CDM EB and
investors have become concerned about such projects for potential lack of
additionality. One reason was that many of these projects had started well before
applying for CDM status. In June 2008, third party validator TÜV SÜD Group
rejected a hydropower project in China because the project proponents could not
document that they had seriously considered CDM at the time the project was
started. In July 2008, third party validators agreed that projects applying for CDM
status more than one year after having taken their investment decision should not
qualify for CDM status.
Hydropower projects larger than 20 MW must document that they follow World
Commission on Dams guidelines or similar guidelines in order to qualify for the
European Union's Emissions Trading Scheme.[citation needed]
As of 21 July 2008,
CERs from hydropower projects are not listed on European carbon exchanges,
because different member states interpret these limitations differently
Carbon capture and storage
Negotiators have not yet been able to agree on whether, or how, carbon capture
and storage projects should be allowed under the CDM, although the technical
barriers to successfully implementing this technology delay the need for a
decision on this.[citation needed]
[edit] SuggestionsIn response to concerns of unsustainable projects or spurious

credits, the World Wide Fund for Nature and other NGOs devised a ‘Gold
Standard’ methodology to certify projects that uses much stricter criteria than
required, such as allowing only renewable energy projects[25].
For example, a South African brick kiln was faced with a business decision;
replace its depleted energy supply with coal from a new mine, or build a difficult
but cleaner natural gas pipeline to another country. They chose to build the
pipeline with SASOL. SASOL claimed the difference in GHG emissions as a
CDM credit, comparing emissions from the pipeline to the contemplated coal
mine. During its approval process, the validators noted that changing the supply
from coal to gas met the CDM's 'additionality' criteria and was the least cost-
effective option[26]. However, there were unofficial reports that the fuel change
was going to take place anyway, although this was later denied by the company's
press office[27].
[edit] Successes
Schneider (2007, p. 73) commented on the success of the CDM in reducing

emissions from industrial plants and landfills.[18] Schneider (2007) concluded by
stating that if concerns over the CDM are properly addressed, it would continue to
be an "important instrument in the fight against climate change."
[edit] See also
• Obtaining ownership of land by productive use

• No-lose target
• Climate, Community & Biodiversity Alliance
• China Carbon Forum (CCF)
[edit] Notes
a b
1. ^ IPCC (2007). "Glossary J-P. In (book section): Annex I. In:
Climate Change 2007: MReport of the Intergovernmental Panel on
Climate Change (B. Metz et al. Eds.)". Cambridge University Press,
Cambridge, U.K., and New York, N.Y., U.S.A..
http://www.ipcc.ch/publications_and_data/ar4/wg3/en/annex1sglossary-j-
p.html. Retrieved 2010-04-23.
2. ^ a b c d e Carbon Trust (March 2009). "Global Carbon Mechanisms:
Emerging lessons and implications (CTC748)". Carbon Trust website.
http://www.carbontrust.co.uk/Publications/pages/publicationdetail.aspx?
id=CTC748&respos=2&q=global+carbon+market&o=Rank&od=asc&pn
=0&ps=10. Retrieved 2010-03-31.
a b
3. ^ Grubb, M. (July-September 2003). "The Economics of the
Kyoto Protocol". World Economics 4 (3): 143–189.
http://www.econ.cam.ac.uk/rstaff/grubb/publications/J36.pdf. Retrieved
2010-03-25.
a b c d e
4. ^ World Bank (2010). "World Development Report 2010:
Development and Climate Change". The International Bank for
Reconstruction and Development / The World Bank, 1818 H Street NW,
Washington DC 20433. http://go.worldbank.org/BKLQ9DSDU0.
Retrieved 2010-04-06.
5. ^ Toth, F.L. et al. (2001). "Decision-making Frameworks. In:
Climate Change 2001: Mitigation. Contribution of Working Group III to
the Third Assessment Report of the Intergovernmental Panel on Climate
Change (B. Metz et al. Eds.)". Cambridge University Press, Cambridge,
U.K., and New York, N.Y., U.S.A..
http://www.ipcc.ch/publications_and_data/publications_and_data_reports.
htm. Retrieved 2010-01-10.
a b
6. ^ Goldemberg, J. et al. (1996). Introduction: scope of the
assessment. In: Climate Change 1995: Economic and Social Dimensions
of Climate Change. Contribution of Working Group III to the Second
Assessment Report of the Intergovernmental Panel on Climate Change
(J.P. Bruce et al. Eds.). Cambridge University Press, Cambridge, U.K.,
and New York, N.Y., U.S.A.. doi:10.2277/0521568544.
ISBN 9780521568548.
7. ^ Sathaye, J., et al. (2001). "Barriers, Opportunities, and Market
Potential of Technologies and Practices. In: Climate Change 2001:
Mitigation. Contribution of Working Group III to the Third Assessment
Report of the Intergovernmental Panel on Climate Change (B. Metz, et al.,
Eds.)". Cambridge University Press, Cambridge, U.K., and New York,
N.Y., U.S.A..
http://www.ipcc.ch/publications_and_data/publications_and_data_reports.
htm. Retrieved 2009-05-20.
8. ^ Fisher, B.S. et al. (2007). "3.1.3 Development trends and the
lock-in effect of infrastructure choices. In (book chapter): Issues related to
mitigation in the long term context. In: Climate Change 2007: Mitigation.
Contribution of Working Group III to the Fourth Assessment Report of the
Intergovernmental Panel on Climate Change (B. Metz et al. Eds.)". Print
version: Cambridge University Press, Cambridge, U.K., and New York,
N.Y., U.S.A.. This version: IPCC website.
http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch3s3-1-3.html.
9. ^ [1] UNFCCC Tools
10. ^ Burniaux, J-M. et al. (6 June 2009). "The Economics of Climate
Change Mitigation: How to Build the Necessary Global Action in a Cost-
Effective Manner. Economics Department Working Papers No. 701".
OECD website. http://appli1.oecd.org/olis/2009doc.nsf/linkto/eco-wkp
%282009%2942. Retrieved 2010-04-24.
11. ^ Barker, T. et al. (2007). "11.7.2 Carbon leakage. In (book
chapter): Mitigation from a cross-sectoral perspective. In (book): Climate
Change 2007: Mitigation. Contribution of Working Group III to the
Fourth Assessment Report of the Intergovernmental Panel on Climate
Change (B. Metz et al. Eds.)". Print version: Cambridge University Press,
Cambridge, U.K., and New York, N.Y., U.S.A.. This version: IPCC
website. http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch11s11-
7-2.html. Retrieved 2010-04-05.
12. ^ World Bank, 2010, States and Trend of the Carbon Market
http://siteresources.worldbank.org/INTCARBONFINANCE/Resources/St
ate_and_Trends_of_the_Carbon_Market_2010_low_res.pdf
13. ^ Gupta, S. et al. (2007). "13.3.3.4.2 Flexibility provisions. In
(book chapter): Policies, instruments, and co-operative arrangements. In:
Climate Change 2007: Mitigation. Contribution of Working Group III to
the Fourth Assessment Report of the Intergovernmental Panel on Climate
Change (B. Metz et al. Eds.)". Print version: Cambridge University Press,
Cambridge, U.K., and New York, N.Y., U.S.A.. This version: IPCC
website. http://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch13s13-
3-3-4.html. Retrieved 2010-04-02.
14. ^ "Delhi Metro is first rail project to earn carbon credits". The
Economic Times. 2008-01-05.
http://economictimes.indiatimes.com/news/news-by-
industry/transportation/railways/Delhi-Metro-is-first-rail-project-to-earn-
carbon-credits/articleshow/2676012.cms. Retrieved 2010-02-02.
15. ^ a b World Bank (n.d.). "The World Bank’s 10 years of experience
in carbon finance: Insights from working with carbon markets for
development & global greenhouse gas mitigation (brochure)". Carbon
finance on the World Bank website. http://go.worldbank.org/I18PR3E700.
16. ^ VROM (Netherlands Ministry of Housing, Spacial Planning and
the Environment
17. ^ Failed Mechanism: Hundreds of Hydros Expose Serious Flaws
in the CDM; International Rivers; December 2, 2007
a b
18. ^ Schneider, L. (5 November 2007). "Is the CDM fulfilling its
environmental and sustainable development objectives? An evaluation of
the CDM and options for improvement". WWF website.
http://www.panda.org/what_we_do/footprint/climate_carbon_energy/ener
gy_solutions/resources/?118000/An-evaluation-of-the-CDM-and-options-
for-improvement. Retrieved 2010-04-20.
19. ^ Tool for the demonstration and assessment of additionality
(Version 03), UNFCCC CDM EB, EB 29
20. ^ Müller, B. (March 2009). "Additionality in the Clean
Development Mechanism: Why and What?". Dr. Benito Müller's web
page on the Oxford Institute for Energy Studies website.
http://www.oxfordenergy.org/muller.php. Retrieved 2010-04-20.
21. ^ A New Initiative to Use Carbon Trading for Tropical Forest
Conservation] William F. Laurance(2007), Biotropica 39 (1), 20–24
22. ^ Stern, N. 2006. Stern Review of the Economics of Climate
Change
23. ^ Forests First in the Fight Against Climate Change, Global
Canopy Programme, 2007
24. ^ World Bank, State and Trends of the Carbon Market, 2010
25. ^ CDM Gold Standard
26. ^ CDM Project 0177 Lawley Fuel Switch Project UNFCCC
27. ^ Carbon trade watch
[edit] Further reading
• Boyd, E. et al (October 2007). "The Clean Development

Mechanism: An assessment of current practice and future approaches for
policy". Tyndall Centre for Climate Change Research.
http://www.tyndall.ac.uk/publications/working_papers/twp114_summary.s
html. Retrieved 2009-08-08.[dead link]
• Hepburn, C. (November 2007). "Carbon Trading: A Review of the
Kyoto Mechanisms". Annual Review of Environment and Resources 32:
375–393. doi:10.1146/annurev.energy.32.053006.141203.
http://arjournals.annualreviews.org/eprint/V5uDHeDwvfmeMnr3IuPZ/full
/10.1146/annurev.energy.32.053006.141203. Retrieved 2009-05-20.
[edit] External links

• Home page of United Nations website on Clean Development
Mechanisms
• Spreadsheet of Hydro Projects in the CDM Project Pipeline,
International Rivers
• Carbon-Scout Research Group focusing on CDM/JI project
assessment
• Clean Development Mechanism projects in & around India
• Institute for Global Environment Strategies
• Designated National Authority of India for CDM Projects
A carbon credit is a generic term for any tradable certificate or permit
representing the right to emit one tonne of carbon or carbon dioxide equivalent
(CO2-e).[1][2][3]
Carbon credits and carbon markets are a component of national and international
attempts to mitigate the growth in concentrations of greenhouse gases (GHGs).
One carbon credit is equal to one ton of carbon dioxide, or in some markets,
carbon dioxide equivalent gases. Carbon trading is an application of an emissions
trading approach. Greenhouse gas emissions are capped and then markets are used
to allocate the emissions among the group of regulated sources. The goal is to
allow market mechanisms to drive industrial and commercial processes in the
direction of low emissions or less carbon intensive approaches than those used
when there is no cost to emitting carbon dioxide and other GHGs into the
atmosphere. Since GHG mitigation projects generate credits, this approach can be
used to finance carbon reduction schemes between trading partners and around
the world.
There are also many companies that sell carbon credits to commercial and
individual customers who are interested in lowering their carbon footprint on a
voluntary basis. These carbon offsetters purchase the credits from an investment
fund or a carbon development company that has aggregated the credits from
individual projects. The quality of the credits is based in part on the validation
process and sophistication of the fund or development company that acted as the
sponsor to the carbon project. This is reflected in their price; voluntary units
typically have less value than the units sold through the rigorously validated
Clean Development Mechanism.[4]
Contents
[hide]
• 1 Definitions
• 2 Background
o 2.1 Emission allowances
o 2.2 Kyoto's 'Flexible mechanisms'
o 2.3 Emission markets
o 2.4 Setting a market price for carbon
• 3 How buying carbon credits can reduce emissions
o 3.1 Credits versus taxes
• 4 Creating real carbon credits
o 4.1 Additionality and its importance
o 4.2 Criticisms
• 5 See also
• 6 References
• 7 External links
[edit] Definitions
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”.[1]
The Environment Protection Authority of Victoria defines a carbon credit as a
“generic term to assign a value to a reduction or offset of greenhouse gas
emissions.. usually equivalent to one tonne of carbon dioxide equivalent (CO2-
e).”[2]
The Investopedia Inc investment dictionary defines a carbon credit as a “permit

that allows the holder to emit one ton of carbon dioxide”..which “can be traded in
the international market at their current market price”.[3]
[edit] Background
Burning of fossil fuels is a major source of industrial greenhouse gas emissions,

especially for power, cement, steel, textile, fertilizer and many other industries
which rely on fossil fuels (coal, electricity derived from coal, natural gas and oil).
The major greenhouse gases emitted by these industries are carbon dioxide,
methane, nitrous oxide, hydrofluorocarbons (HFCs), etc., all of which increase the
atmosphere's ability to trap infrared energy and thus affect the climate.
The concept of carbon credits came into existence as a result of increasing

awareness of the need for controlling emissions. The IPCC (Intergovernmental
Panel on Climate Change) has observed[5] that:
Policies that provide a real or implicit price of carbon could

create incentives for producers and consumers to significantly
invest in low-GHG products, technologies and processes. Such
policies could include economic instruments, government funding
and regulation,
while noting that a tradable permit system is one of the policy instruments that has
been shown to be environmentally effective in the industrial sector, as long as
there are reasonable levels of predictability over the initial allocation mechanism
and long-term price.
The mechanism was formalized in the Kyoto Protocol, an international agreement
between more than 170 countries, and the market mechanisms were agreed
through the subsequent Marrakesh Accords. The mechanism adopted was similar
to the successful US Acid Rain Program to reduce some industrial pollutants.
[edit] Emission allowances
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.[6] 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.[7]
In turn, these countries set quotas on the emissions of installations run by local
business and other organizations, generically termed 'operators'. Countries
manage this through their national registries, which are required to be validated
and monitored for compliance by the UNFCCC.[8] 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. As demand for energy grows over time,
the total emissions must still stay within the cap, but it allows industry some
flexibility and predictability in its planning to accommodate this.
By permitting allowances to be bought and sold, an
operator can seek out the most cost-effective way of reducing its emissions, either
by investing in 'cleaner' machinery and practices or by purchasing emissions from
another operator who already has excess 'capacity'.
Since 2005, the Kyoto mechanism has been adopted for CO2 trading by all the
countries within the European Union under its European Trading Scheme (EU
ETS) with the European Commission as its validating authority.[9] From 2008, EU
participants must link with the other developed countries who ratified Annex I of
the protocol, and trade the six most significant anthropogenic greenhouse gases.
In the United States, which has not ratified Kyoto, and Australia, whose
ratification came into force in March 2008, similar schemes are being considered.
[edit] Kyoto's 'Flexible mechanisms'
A tradable credit can be an emissions allowance or an assigned amount unit which

was originally allocated or auctioned by the national administrators of a Kyoto-
compliant cap-and-trade scheme, 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.
The Kyoto Protocol provides for three mechanisms that enable countries or
operators in developed countries to acquire greenhouse gas reduction credits[10]
• Under Joint Implementation (JI) a developed country with

relatively high costs of domestic greenhouse reduction would set up a
project in another developed country.
• Under the Clean Development Mechanism (CDM) a 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.
• Under International Emissions Trading (IET) countries can trade in
the international carbon credit market to cover their shortfall in Assigned
amount units. Countries with surplus units can sell them to countries that
are exceeding their emission targets under Annex B of the Kyoto Protocol.
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.
[edit] Emission markets
For trading purposes, one allowance or CER is considered equivalent to one

metric ton of CO2 emissions. These allowances can be sold privately or in the
international market at the prevailing market price. These trade and settle
internationally and hence allow allowances to be transferred between countries.
Each international transfer is validated by the UNFCCC. Each transfer of
ownership within the European Union is additionally validated by the European
Commission.
Climate exchanges have been established to provide a spot market in allowances,

as well as futures and options market to help discover a market price and maintain
liquidity. Carbon prices are normally quoted in Euros per tonne of carbon dioxide
or its equivalent (CO2e). Other greenhouse gasses can also be traded, but are
quoted as standard multiples of carbon dioxide with respect to their global
warming potential. These features reduce the quota's financial impact on business,
while ensuring that the quotas are met at a national and international level.
Currently there are six exchanges trading in carbon allowances: the Chicago
Climate Exchange, European Climate Exchange, NASDAQ OMX Commodities
Europe, PowerNext, Commodity Exchange Bratislava and the European Energy
Exchange. NASDAQ OMX Commodities Europe listed a contract to trade offsets
generated by a CDM carbon project called Certified Emission Reductions
(CERs). Many companies now engage in emissions abatement, offsetting, and
sequestration programs to generate credits that can be sold on one of the
exchanges. At least one private electronic market has been established in 2008:
CantorCO2e.[11] Carbon credits at Commodity Exchange Bratislava are traded at
special platform - Carbon place [12].
Managing emissions is one of the fastest-growing segments in financial services

in the City of London with a market estimated to be worth about €30 billion in
2007. Louis Redshaw, head of environmental markets at Barclays Capital predicts
that "Carbon will be the world's biggest commodity market, and it could become
the world's biggest market overall."[13]
[edit] Setting a market price for carbon
This section includes a list of references, related reading or external links, but its
sources remain unclear because it lacks inline citations. Please improve this article
by introducing more precise citations where appropriate. (August 2008)
Unchecked, energy use and hence emission levels are predicted to keep rising
over time. Thus the number of companies needing to buy credits will increase,
and the rules of supply and demand will push up the market price, encouraging
more groups to undertake environmentally friendly activities that create carbon
credits to sell.
An individual allowance, such as an Assigned amount unit (AAU) or its near-

equivalent European Union Allowance (EUA), may have a different market value
to an offset such as a CER. This is due to the lack of a developed secondary
market for CERs, a lack of homogeneity between projects which causes difficulty
in pricing, as well as questions due to the principle of supplementarity and its
lifetime. Additionally, offsets generated by a carbon project under the Clean
Development Mechanism are potentially limited in value because operators in the
EU ETS are restricted as to what percentage of their allowance can be met
through these flexible mechanisms.
Yale University economics professor William Nordhaus argues that the price of
carbon needs to be high enough to motivate the changes in behavior and changes
in economic production systems necessary to effectively limit emissions of
greenhouse gases.
Raising the price of carbon will achieve four goals. First, it will
provide signals to consumers about what goods and services are
high-carbon ones and should therefore be used more sparingly.
Second, it will provide signals to producers about which inputs use
more carbon (such as coal and oil) and which use less or none
(such as natural gas or nuclear power), thereby inducing firms to
substitute low-carbon inputs. Third, it will give market incentives
for inventors and innovators to develop and introduce low-carbon
products and processes that can replace the current generation of
technologies. Fourth, and most important, a high carbon price will
economize on the information that is required to do all three of
these tasks. Through the market mechanism, a high carbon price
will raise the price of products according to their carbon content.
Ethical consumers today, hoping to minimize their “carbon
footprint,” have little chance of making an accurate calculation of
the relative carbon use in, say, driving 250 miles as compared with
flying 250 miles. A harmonized carbon tax would raise the price of
a good proportionately to exactly the amount of CO 2 that is emitted
in all the stages of production that are involved in producing that
good. If 0.01 of a ton of carbon emissions results from the wheat
growing and the milling and the trucking and the baking of a loaf
of bread, then a tax of $30 per ton carbon will raise the price of
bread by $0.30. The “carbon footprint” is automatically calculated
by the price system. Consumers would still not know how much of
the price is due to carbon emissions, but they could make their
decisions confident that they are paying for the social cost of their
carbon footprint.
Nordhaus has suggested, based on the social cost of carbon emissions, that an
optimal price of carbon is around $30(US) per ton and will need to increase with
inflation.
The social cost of carbon is the additional damage caused by an

additional ton of carbon emissions. ... The optimal carbon price, or
optimal carbon tax, is the market price (or carbon tax) on carbon
emissions that balances the incremental costs of reducing carbon
emissions with the incremental benefits of reducing climate
damages. ... [I]f a country wished to impose a carbon tax of $30
per ton of carbon, this would involve a tax on gasoline of about 9
cents per gallon. Similarly, the tax on coal-generated electricity
would be about 1 cent per kWh, or 10 percent of the current retail
price. At current levels of carbon emissions in the United States, a
tax of $30 per ton of carbon would generate $50 billion of revenue
per year.[14]
[edit] How buying carbon credits can reduce

emissions
See also: Economics of global warming
Carbon credits create a market for reducing greenhouse emissions by giving a

monetary value to the cost of polluting the air. Emissions become an internal cost
of doing business and are visible on the balance sheet alongside raw materials and
other liabilities or assets.
For example, consider a business that owns a factory putting out 100,000 tonnes
of greenhouse gas emissions in a year. Its government is an Annex I country that
enacts a law to limit the emissions that the business can produce. So the factory is
given a quota of say 80,000 tonnes per year. The factory either reduces its
emissions to 80,000 tonnes or is required to purchase carbon credits to offset the
excess. After costing up alternatives the business may decide that it is
uneconomical or infeasible to invest in new machinery for that year. Instead it
may choose to buy carbon credits on the open market from organizations that
have been approved as being able to sell legitimate carbon credits.
We should consider the impact of manufacturing alternative energy sources. For

example, the energy consumed and the Carbon emitted in the manufacture and
transportation of a large wind turbine would prohibit a credit being issued for a
predetermined period of time.
• One seller might be a company that will offer to offset emissions

through a project in the developing world, such as recovering methane
from a swine farm to feed a power station that previously would use fossil
fuel. So although the factory continues to emit gases, it would pay another
group to reduce the equivalent of 20,000 tonnes of carbon dioxide
emissions from the atmosphere for that year.
• Another seller may have already invested in new low-emission
machinery and have a surplus of allowances as a result. The factory could
make up for its emissions by buying 20,000 tonnes of allowances from
them. The cost of the seller's new machinery would be subsidized by the
sale of allowances. Both the buyer and the seller would submit accounts
for their emissions to prove that their allowances were met correctly.
[edit] Credits versus taxes

Carbon credits and carbon taxes each have their advantages and disadvantages.
Credits were chosen by the signatories to the Kyoto Protocol as an alternative to
Carbon taxes. A criticism of tax-raising schemes is that they are frequently not
hypothecated, and so some or all of the taxation raised by a government would be
applied based on what the particular nation's government deems most fitting.
However, some would argue that carbon trading is based around creating a
lucrative artificial market, and, handled by free market enterprises as it is, carbon
trading is not necessarily a focused or easily regulated solution.
By treating emissions as a market commodity some proponents insist it becomes

easier for businesses to understand and manage their activities, while economists
and traders can attempt to predict future pricing using market theories. Thus the
main advantages of a tradeable carbon credit over a carbon tax are argued to be:
• the price may be more likely to be perceived as fair by those

paying it. Investors in credits may have more control over their own costs.
• the flexible mechanisms of the Kyoto Protocol help to ensure that
all investment goes into genuine sustainable carbon reduction schemes
through an internationally agreed validation process.
• some proponents state that if correctly implemented a target level
of emission reductions may somehow be achieved with more certainty,
while under a tax the actual emissions might vary over time.
• it may provide a framework for rewarding people or companies
who plant trees or otherwise meet standards exclusively recognized as
"green."
The advantages of a carbon tax are argued to be:
• possibly less complex, expensive, and time-consuming to

implement. This advantage is especially great when applied to markets
like gasoline or home heating oil.
• perhaps some reduced risk of certain types of cheating, though
under both credits and taxes, emissions must be verified.
• reduced incentives for companies to delay efficiency
improvements prior to the establishment of the baseline if credits are
distributed in proportion to past emissions.
• when credits are grandfathered, this puts new or growing
companies at a disadvantage relative to more established companies.
• allows for more centralized handling of acquired gains
• worth of carbon is stabilized by government regulation rather than
market fluctuations. Poor market conditions and weak investor interest
have a lessened impact on taxation as opposed to carbon trading.
[edit] Creating real carbon credits
The principle of Supplementarity within the Kyoto Protocol means that internal
abatement of emissions should take precedence before a country buys in carbon
credits. However it also established the Clean Development Mechanism as a
Flexible Mechanism by which capped entities could develop real, measurable,
permanent emissions reductions voluntarily in sectors outside the cap. Many
criticisms of carbon credits stem from the fact that establishing that an emission
of CO2-equivalent greenhouse gas has truly been reduced involves a complex
process. This process has evolved as the concept of a carbon project has been
refined over the past 10 years.
The first step in determining whether or not a carbon project has legitimately led
to the reduction of real, measurable, permanent emissions is understanding the
CDM methodology process. This is the process by which project sponsors submit,
through a Designated Operational Entity (DOE), their concepts for emissions
reduction creation. The CDM Executive Board, with the CDM Methodology
Panel and their expert advisors, review each project and decide how and if they do
indeed result in reductions that are additional[15]
[edit] Additionality and its importance
It is also important for any carbon credit (offset) to prove a concept called
additionality. The concept of additionality addresses the question of whether the
project would have happened anyway, even in the absence of revenue from
carbon credits. Only carbon credits from projects that are "additional to" the
business-as-usual scenario represent a net environmental benefit. Carbon projects
that yield strong financial returns even in the absence of revenue from carbon
credits; or that are compelled by regulations; or that represent common practice in
an industry are usually not considered additional, although a full determination of
additionality requires specialist review.
It is generally agreed that voluntary carbon offset projects must also prove
additionality in order to ensure the legitimacy of the environmental stewardship
claims resulting from the retirement of the carbon credit (offset). According the
World Resources Institute/World Business Council for Sustainable Development
(WRI/WBCSD) : "GHG emission trading programs operate by capping the
emissions of a fixed number of individual facilities or sources. Under these
programs, tradable 'offset credits' are issued for project-based GHG reductions
that occur at sources not covered by the program. Each offset credit allows
facilities whose emissions are capped to emit more, in direct proportion to the
GHG reductions represented by the credit. The idea is to achieve a zero net
increase in GHG emissions, because each tonne of increased emissions is 'offset'
by project-based GHG reductions. The difficulty is that many projects that reduce
GHG emissions (relative to historical levels) would happen regardless of the
existence of a GHG program and without any concern for climate change
mitigation. If a project 'would have happened anyway,' then issuing offset credits
for its GHG reductions will actually allow a positive net increase in GHG
emissions, undermining the emissions target of the GHG program. Additionality
is thus critical to the success and integrity of GHG programs that recognize
project-based GHG reductions."
[edit] Criticisms
Environmental restrictions and activities have been imposed on businesses

through regulation. Many are uneasy with this approach to managing emissions.
The Kyoto mechanism is the only internationally agreed mechanism for

regulating carbon credit activities, and, crucially, includes checks for additionality
and overall effectiveness. Its supporting organisation, the UNFCCC, is the only
organisation with a global mandate on the overall effectiveness of emission
control systems, although enforcement of decisions relies on national co-
operation. The Kyoto trading period only applies for five years between 2008 and
2012. The first phase of the EU ETS system started before then, and is expected
to continue in a third phase afterwards, and may co-ordinate with whatever is
internationally agreed at but there is general uncertainty as to what will be agreed
in Post–Kyoto Protocol negotiations on greenhouse gas emissions. As business
investment often operates over decades, this adds risk and uncertainty to their
plans. As several countries responsible for a large proportion of global emissions
(notably USA, Australia, China) have avoided mandatory caps, this also means
that businesses in capped countries may perceive themselves to be working at a
competitive disadvantage against those in uncapped countries as they are now
paying for their carbon costs directly.
A key concept behind the cap and trade system is that national quotas should be
chosen to represent genuine and meaningful reductions in national output of
emissions. Not only does this ensure that overall emissions are reduced but also
that the costs of emissions trading are carried fairly across all parties to the trading
system. However, governments of capped countries may seek to unilaterally
weaken their commitments, as evidenced by the 2006 and 2007 National
Allocation Plans for several countries in the EU ETS, which were submitted late
and then were initially rejected by the European Commission for being too lax.[16]
A question has been raised over the grandfathering of allowances. Countries

within the EU ETS have granted their incumbent businesses most or all of their
allowances for free. This can sometimes be perceived as a protectionist obstacle
to new entrants into their markets. There have also been accusations of power
generators getting a 'windfall' profit by passing on these emissions 'charges' to
their customers.[17] As the EU ETS moves into its second phase and joins up with
Kyoto, it seems likely that these problems will be reduced as more allowances
will be auctioned.
Establishing a meaningful offset project is complex: voluntary offsetting activities

outside the CDM mechanism are effectively unregulated and there have been
criticisms of offsetting in these unregulated activities. This particularly applies to
some voluntary corporate schemes in uncapped countries and for some personal
carbon offsetting schemes.
There have also been concerns raised over the validation of CDM credits. One
concern is related to the accurate assessment of additionality. Others relate to the
effort and time taken to get a project approved. Questions may also be raised
about the validation of the effectiveness of some projects; it appears that many
projects do not achieve the expected benefit after they have been audited, and the
CDM board can only approve a lower amount of CER credits. For example, it
may take longer to roll out a project than originally planned, or an afforestation
project may be reduced by disease or fire. For these reasons some countries place
additional restrictions on their local implementations and will not allow credits for
some types of carbon sink activity, such as forestry or land use projects.
[edit] See also
Energy portal
• Cap and trade
• Carbon finance
• Carbon leakage
• Carbon offset
• Carbon project
• Carbon Trade Watch
• CDM Gold Standard
• Emissions trading
• Energy speculation
• Kyoto Protocol emissions trading
• Nutrient trading
• Removal Units
• Emissions Reduction Currency System
[edit] References
a b
1. ^ "Collins English Dictionary - Complete & Unabridged 10th
Edition". Carbon credit. William Collins Sons & Co. Ltd/Harper Collins
Publishers. 2009. http://dictionary.reference.com/browse/carbon+credit.
a b
2. ^ "Climate change glossary". Carbon credit. Environment
Protection Authority Victoria. 2008-09-02.
http://www.epa.vic.gov.au/climate-change/glossary.asp#CAM. Retrieved
2010-02-16.
a b
3. ^ "Investment Dictionary". Carbon Credit Definition.
Investopedia Inc. http://www.investopedia.com/terms/c/carbon_credit.asp.
4. ^ "Making Kyoto work:data, policies, infrastructures". UNFCCC
press briefing. 2007-11-20. http://unfccc.meta-
fusion.com/kongresse/071120_pressconference07/templ/ply_unfccc.php?
id_kongresssession=806&player_mode=isdn_real. Retrieved 2010-01-25.
5. ^ "Climate Change 2007: Mitigation of Climate Change, Summary
for Policymakers from IPCC Fourth Assessment Report". Working Group
III, IPCC. 2007-05-04. pp. Item 25 and Table SPM.7, pages 29–31.
http://www.mnp.nl/ipcc/docs/FAR/Approved%20SPM
%20WGIII_0705rev5.pdf. Retrieved 2007-05-10.
6. ^ "Kyoto Protocol Targets". UNFCCC.
http://unfccc.int/kyoto_protocol/items/3145.php. Retrieved 2010-01-25.
7. ^ "Kyoto Protocol Reference Manual On Accounting of Emissions
and Assigned Amount". UNFCCC.
http://unfccc.int/resource/docs/publications/08_unfccc_kp_ref_manual.pdf
. Retrieved 2010-04-07.
8. ^ "UNFCCC Compliance under the Kyoto Protocol". UNFCCC.
http://unfccc.int/kyoto_protocol/compliance/items/2875.php. Retrieved
2010-01-25.
9. ^ "EU climate change policies: Commission asks member states to
fulfill their obligations". EUROPA - Press Releases. 2006-04-06.
http://europa.eu/rapid/pressReleasesAction.do?
reference=IP/06/469&format=HTML&aged=1&language=EN&guiLangu
age=en. Retrieved 2010-01-27.
10. ^ "The Mechanisms under the Kyoto Protocol". UNFCCC.
http://unfccc.int/kyoto_protocol/mechanisms/items/1673.php. Retrieved
2010-01-27.
11. ^ CantorCO2e (2008-09-09). "CantorCO2e Launches First Internet
CER Auction". Press release. http://www.highbeam.com/doc/1G1-
184638199.html. Retrieved 2010-01-27.
12. ^ http://www.carbonplace.eu
13. ^ Kanter, James (2007-06-20). "Carbon trading: Where greed is
green". The New York Times.
http://www.nytimes.com/2007/06/20/business/worldbusiness/20iht-
money.4.6234700.html?_r=1. Retrieved 2010-01-27.
14. ^ Nordhaus,, William (2008). "A Question of Balance - Weighing
the Options on Global Warming Policies". Yale University Press.
http://nordhaus.econ.yale.edu/Balance_2nd_proofs.pdf.
15. ^ UNFCCC CDM project database
16. ^ "France and Italy seek to avoid EU carbon clash". Reuters
AlertNet - www.alertnet.org. 2006-12-13.
http://www.alertnet.org/thenews/newsdesk/L12929039.htm. Retrieved
2010-01-27.
17. ^ Carr, Mathew; Kishan, Saijel (2006-07-16). "Europe Fails Kyoto
Standards as Trading Scheme Helps Polluters". Bloomberg.com.
http://www.bloomberg.com/apps/news?
pid=20601087&sid=awS1xfKpVRs8&refer=home. Retrieved 2010-01-27.
[edit] External links
• Differences between carbon credit and carbon offsets.

• COMET-VR: a Decision Support System for agricultural
producers, land managers, soil scientists and other agricultural interests to
Measure and Model carbon based on land management choices.
• 1605(b)a US Voluntary Reporting Registry.
• The great carbon credit con: Why are we paying the Third World
to poison its environment?, The Daily Mail, May 31, 2009
• PanAmerican Properties on Carbon Credits: An Informational Web
Site on Carbon Credits and the Use of Paulownia in Reforestation. The
site includes a glossary of terms and sample documents pertinent to the
Carbon Credit Industry.
FOCUS
This analysis examines the possibilities for forest preservation

and forest generation and regeneration in the overall context of evolving
international policy negotiations and strategies for climate change
mitigation through the Clean Development Mechanism. We are basing this
analysis on several assumptions:
That global warming is occurring and is a potential threat to

humanity and the ecosystem.
That climate change is at least in part due to human causes
That the quantified emissions limitations and reductions

obligations are adequate to address the problem.
That the overall design of the Kyoto Protocol is adequate (with

the exceptions of elements which are directly related to the Clean
Development Mechanism and its functioning)
That other flexibility mechanisms (emissions trading, bubbles,

and joint implementation) are non-negotiable
While all of the above elements are perpetually questioned and criticized
-- casting doubts upon not only the elements of the responses outlined in
the Protocol, but also the fundamental problem itself -- for the purposes of
this analysis we will control those elements in order to adequately address
the issues directly related to the Clean Development Mechanism and land
use changes and forestry.
BUILDING ON JOINT IMPLEMENTATION
Joint Implementation, first proposed by Norway and Germany in 1991 and

later included in the UNFCCC at Rio in 1992 as an ambiguous mechanism
in article 4.2a, allowed for one country to gain emissions "credit" in
exchange for achieving a greenhouse gas reduction in another country.
Although there was little debate about its original inclusion in 1992, Joint
Implementation grew to be a highly contentious subject. By the first
Conference of the Parties in Berlin, it was decided to undertake a pilot
phase of "Activities Implemented Jointly" in which Joint Implementation
would be tested and evaluated. This pilot phase was a concession
to several Latin American countries, notably Costa Rica, which
had already begun implementing several AIJ projects. However,
evaluation proved to be difficult and reservations were expressed
by members of the OECD countries and many developing
countries. (11)
It was at this point that member nations came together at third Conference
of the Parties in Kyoto, Japan. There the negotiations on JI were revisited.
The Group 77 (representing 132 developing-country members) and China
insisted that Articles 3 and 6 dealing with Joint Implementation be deleted
because they "felt that such concepts [could] not lead to the reduction and
limitation of GHG emissions for achieving the objectives of the
Convention. By contrast, several countries, led by the United States and
Costa Rica, pushed strongly for inclusion of the flexibility mechanisms
and the continuation of AIJ. Furthermore, the United States backed a
proposal submitted by Brazil, and tentatively supported by G77 and China,
the CDM. The final result was a semi compromise which included the
vaguely defined CDM, left out many references to AIJ, and included a few
other flexibility mechanisms, namely emissions trading and "bubbles". (12)
THE INTRODUCTION OF CDM
Based on the general understanding of the CDM, there is little difference

between the original "fundamentally flawed" concept of JI and the new
CDM. As defined by the Kyoto Protocol is a mechanism that allows
developing countries or individual countries to propose private-sector
projects for reducing their greenhouse gas emissions. "When these
authorized projects succeed in reducing emissions, the amount of the
reductions can be sold as carbon credits to a special body established by
the Conference of the Parties. Developed nations, which must meet their
own reduction targets, would then be able to buy these carbon credits." (13)
The carbon credit could then be applied to part of the developed nation’s
total emissions reduction commitment, thus utilizing a market mechanism
to achieve total global emissions reductions in the most inexpensive
manner. The Kyoto Protocol also includes a provision which sets aside a
share of the total proceeds from certified project activities which would
then be directed towards assisting those countries which are most
vulnerable to the harmful effects of global climate change to adapt. The
most obvious examples are the small, low-lying island states, which face
possible inundation and which will require massive financial assistance to
cover the costly changes needed to avoid submergence. Or by contrast,
those nations, in already dry-land areas, who will face increasingly
adverse conditions for agricultural productivity and consequently could
face severe famine and drought, will require financial and technical
assistance. Finally, the Protocol mandates that the purpose of the CDM is
"to assist Parties not included in Annex I (developing countries) in
achieving sustainable development and in contributing to the ultimate
objective of the convention…[and] be subject to the authority and
guidance of the Conference of the Parties serving as the meeting of the
Parties to this Protocol …." (14)
Under Article 12.5, the Protocol states the general parameters within
which CDM project must fit. Thus, any project activity designed must:
1. Promote sustainable development within the host country;

2. Voluntary participation approved by each Party involved;
3. Real, measurable, and long-term benefits related to the

mitigation of climate change; and
4. Reductions in emissions that are additional to any that would

occur in the absence of the certified project activity.
Other key elements of the CDM include:
1. Certified emissions reductions will be awarded to Annex I

project sponsors;
2. Participation of private or public entities is invited;
3. Some portion of the proceeds will be used to cover

administrative expenses; and
4. Early banking for projects is included as of the year 2000. (15)
There is more than one type of carbon. Keep reading to find out about the rainbow of
carbon ‘colors.’
BLACK CARBON
First, we will look at good ole basic black carbon, also known as soot. It is produced by
diesel engines, coal-fired power plants, industrial processes, and outdoor cooking stoves
in Asia and Africa. Black carbon is the second biggest contributor to rising global
temperatures, and is responsible for 18 percent of the earth’s warming, according to
recent studies. Carbon dioxide is in the number one spot, and is responsible for 40
percent of earth’s warming.
Black carbon can be reduced using simple technologies. Over half of the world’s
population burns fuel indoors to heat their homes and cook their food, according to the
World Health Organization (WHO). One study found that 60 million low-soot cooking
stoves, if sold in India for $5 each, would cost $300 million, which is much cheaper than
the cost of many technologies. The energy problem can be advanced a long way by pretty
low-tech stuff.
BROWN CARBON
Next we will go down a hue and look at brown carbon. Brown carbon both cools the
earth’s surface and warms the atmosphere. Arizona State University research scientist,
James Anderson said brown carbon has “light absorbing properties that lie between
strongly absorbing black carbon and materials that only scatter light and do not absorb.”
Anderson also said brown carbon needs to be factored into climate change models.
GREEN CARBON
Now we move on to green carbon, which is stored in the Earth’s terrestrial ecosystems,
such as forests. It is also known as carbon sequestration. Forest soils and vegetation store
about 40 percent of all carbon. Deforestation exceeds regrowth globally. Land use
change, namely tropical deforestation, releases an estimated 1.6 billion tons of carbon
every year, which is equivalent to 25 percent of the carbon emissions from fossil fuel
combustion.
A study by the World Wildlife Federation (WWF) Sweden concluded that preserving
forestland is five times better than carbon capture and sequestration (CCS) to reduce
carbon emissions. Stopping forest loss is also the most cost-effective way to mitigate
climate change next to energy efficiency, according to the study.
BLUE CARBON
Finally, we will look at blue carbon, or carbon stored in the world’s oceans. Of all the
carbon stored on earth, 93 percent is in the oceans. Protecting oceans is cost effective.
“Protecting the world’s oceans will cost governments far less than the amount they spend
on subsidies for fishing fleets and will lead to bigger catches in the long run,” according
to a study by WWF International and Britain’s Royal Society for the Protection of Birds.
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Renewable Revolution: Low-Carbon Energy by 2030...

Posted by carboncredit in CO2, Carbon Credits, Climate Change on December 31, 2009 |
Comments Off
Humanity can prevent catastrophic climate change if we act now and adopt policies that
reduce energy usage by unleashing the full potential of energy efficiency in concert with
renewable energy resources.
Worldwatch Report: Renewable Revolution: Low-Carbon Energy by 2030

Humanity can prevent catastrophic climate change if we act now and adopt policies that
reduce energy usage by unleashing the full potential of energy efficiency in concert with
renewable energy resources like solar or wind energy. However, this goal is not likely to
be achieved if our only measure of success is emissions reductions; climate change is
fundamentally a development issue, not a pollution problem. As a result, target-setting
has failed to achieve needed reductions in energy-related carbon dioxide (CO2) emissions
to date.
What is needed is a transformation of the entire global energy system. No one benefits
from the release of greenhouse gas emissions, but developed and developing nations alike
will benefit in numerous ways from the transition to an energy-efficient and renewable
world. A strong international agreement can accelerate this transition, while recognition
of the potential that these resources offers can encourage governments to set aggressive
targets for renewable energy and energy efficiency as well as emissions reductions. A
combination of political will and the right policies can get the world on track to mitigate
climate change in the near term while also meeting demand for energy services,
providing energy access for the world’s poorest, boosting the global economy, bolstering
energy security, and improving the natural environment and human health.
Between 1990 and 2007, world gross domestic product increased 156 percent while
global energy demand rose 39 percent, pushing up global CO2 emissions by 38 percent.
Were it not for advances in energy efficiency—gains achieved without aggressive
policies—the increase in energy use and associated emissions would have been much
greater. Even so, more than half of the energy that we consume does not provide us with
useful services, and there is enormous potential for improvement in all sectors of the
economy.
In 2007, renewable energy provided more than 18 percent of total final energy supply.
Solar energy, wind power, and other renewable technologies have experienced double-
digit annual growth rates for more than a decade. The renewable share of additional
global power generation (excluding large hydropower) jumped from 5 percent in 2003 to
23 percent in 2008, and this ratio is significantly greater in many individual countries.
Renewable technologies are already enabling Germany, Spain, Sweden, the United
States, and several other countries to avoid CO2 emissions.
Used in concert, renewable energy and energy efficiency can take us farther than either
approach can individually. Synergy between renewable energy and energy efficiency
occurs in four key ways:
• Improvements in energy efficiency make it easier, cheaper, and faster for renewable
energy to achieve a large share of total energy production, while also rapidly reducing
emissions associated with energy use. The money saved through efficiency can help
finance additional efficiency and renewable energy generation capacity.
• Wherever renewable energy technologies displace thermal processes (such as fuel
combustion or nuclear power), the result is a major reduction in the amount of primary
energy required. Fossil fuel or nuclear power plants typically release more than half of
their input energy as waste heat.
• Many renewable technologies are well-suited for distributed uses, generating fuels,
electricity, and heat close to where it is consumed and thus reducing transmission and
transportation losses so that less primary energy is required to provide the same energy
services.
• Direct use of solar energy for passive heating and lighting does not require any energy
conversion technology to provide desired energy services.
Global energy scenarios offer wide-ranging estimates of how much energy renewable
sources can contribute, and how quickly this can happen. Many scenarios show a gradual
shift to renewables that still envisions a major role for fossil fuels for most of this
century. The current report, however, offers alternative hypothetical scenarios for 2030
that envision a transformation, or step-change, in how the world produces and uses
energy that could lead to much more aggressive change.
Through major improvements in energy efficiency, combined with a rapid scale-up in

renewable energy that relies primarily on technologies that are already commercially
available today, we could be halfway to an all-renewable world within the next two
decades. Such a transition is essential if we are to get on track to achieve emissions
reductions that the Intergovernmental Panel on Climate Change (IPCC) says are required
by 2050 to prevent runaway climate change.
Around the world, such evolutions are already under way. Güssing in Austria, Rizhao in
China, the Danish island of Samsø, and several other communities—from small villages
to larger cities—have begun or achieved energy transformations, using various
combinations of innovations. Each community has taken its own path, but all have shared
a major emphasis on improving energy efficiency in concert with a dramatic ramp-up in
renewables.
For the world to avoid catastrophic climate change and an insecure economic future, this
transition must be accelerated, with success stories scaled up and strategies shared across
national boundaries. Shifting to a sustainable energy system based on efficiency and
renewable energy will require replacing a complex, entrenched energy system. It will also
require a large dose of political will and strong, sustained policies.
Policy choices have been critical—far more important than renewable resource potential
—in driving the energy transformations seen to date. Moving forward, three strategies
must be used concurrently, and in concert, to achieve this goal:
1. Put a price on carbon that increases over time. This can be achieved through a cap-and-
trade system or through a “bottom tax” that sets a floor under fossil fuel prices and
increases each year. To encourage an effective transition, most of the revenue generated
from these policies in the near term can be redirected to help individuals and businesses
adjust to higher prices while adopting and advancing the needed technologies.
2. Enact policies that overcome institutional and regulatory barriers and path-
dependencies and drive the required revolution. Aggressive near- and long-term policies
and regulations are needed to support sustainable markets and significantly accelerate the
transition to an efficient and renewable energy system, while eliminating regulatory
barriers that favor existing fossil fuel technologies.
3. Develop a strategy for phasing out existing, inefficient carbon-emitting capital stock
(such as old coal-fired power plants) that includes elimination of fossil fuel subsidies.
The transition to a highly efficient economy that utilizes renewable energy is essential for
developed and developing countries alike. This is the only way that degradation of
Earth’s climate system can be halted, and the only real option for raising billions of
people out of poverty. The current reliance on fossil fuels is not supportable by poor
developing countries, and increasing demand for fossil fuels is creating dangerous
competition for remaining available resources of oil and gas. The challenge is to devise a
transition strategy that improves the lives of all citizens by providing them with essential
energy services that do not disrupt the climate system, degrade the environment, or create
conflict over resources.
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Low-carbon economy will usher in new era of corpor...

Posted by carboncredit in CDM, CO2, Carbon Credits, Climate Change, Credits Trading
on December 31, 2009 | Comments Off
International moves to promote energy self-sufficiency and cut carbon emissions will
create a unique opportunity for innovative start-ups to emerge as key infrastructure
players over the next few years.
The transition to a low-carbon economy will spark a period of historic flux within the
business community, characterised by fast-emerging companies and heightened mergers
and acquisition activity across the clean tech sector.
The rollout of smart grid and renewable energy technologies will also usher in
transformative alliances between automakers, utilities, battery makers, communications
providers and renewable energy firms as they each seek to play a role in the development
of integrated low-carbon infrastructure projects.
Companies that identify their roles and capitalise on these new alliances earliest will
establish sizable leads in nascent clean technology markets.
New forms of public-private partnerships will be necessary in creating a ubiquitous,

national smart grid, but these new models of collaboration must be closely managed to
ensure technologies are rolled out quickly and effectively.
Underpinning these clean technology transformations is increased support from the

investment community
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Economic losses due to climate change on the rise...

Posted by carboncredit in CO2, Carbon Credits, Climate Change, Credits Trading on
December 31, 2009 | Comments Off
There has been a marked increase in major natural catastrophes worldwide since 1950.
Economic losses from catastrophes in the period since 1980 totalled approximately
$1,600 billion (in original values). However, natural catastrophe losses were far less in
2009 as against 2008 due to the absence on the whole of major catastrophes and a very
benign North Atlantic hurricane season.
Total number of destructive natural hazard events was above the long-term average, at
850. Consequently, despite the lack of really disastrous events, there were substantial
economic losses of $50 billion and insured losses amounted to $22 billion compared with
$200 billion and $50 billion, respectively, in the previous year. By way of further
comparison, the average number of hazardous events with relevant losses over the past 10
years was approximately 770 per annum. Economic losses came to around $115 billion
on average and insured losses $36 billion.
What is noticeable about the 2009 loss statistics is the high level of individual severe-
weather losses in the USA, three events alone each causing insured losses of over
$1billion. In all, severe weather events accounted for 45% of global insured losses. In the
USA, losses due to heavy thunderstorms accompanied by hail, torrential rain or tornados
rose from $ 4 billion to $ 10 billion a year on average, taking inflation into account.
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Consultants, banks to help cos raise funds for CDM...

Posted by carboncredit in CDM, Carbon Credits, Credits Trading, India, Sugar, Textiles,
Wind Energy on December 27, 2009 | Comments Off
Raising finance for companies eyeing renewable energy projects would no more be a
tough task as banks and consultants are working on innovative solutions to help these
companies.
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With UN climate summit at Copenhagen finally passed, now focus would be on reducing
emission of greenhouses gases that are warming the atmosphere. The reduction in
greenhouse gases means that more and more companies resort to Clean Development
Mechanism (CDM) projects, whereby not only they could reduce carbon dioxide
emissions but also earn through carbon credits.
Sensing this as a viable business proposition, consultants as well as banks are eager to
flutter their wings and help companies soar, by addressing their financing problems.
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Give credit to Carbon Trading...

Posted by carboncredit in CDM, Carbon Credits, Credits Trading, India on December 27,
2009 | Comments Off
The global trade in carbon credits has taken off fairly well with the turnover going up
from $11 billion in 2005 to $118 billion in 2008. Carbon markets investments planned
have exceeded all expectations. But the resistance to the idea seems to be gathering steam
with many in the developed countries pointing out procedural deficiencies and arguing
that carbon trading will confer unfair advantages on companies in developing countries
like China and India, the major sellers of carbon credit.
But despite growing opposition, the concept of carbon trading continues to soar steadily,
boosting the number of emission-reducing projects in the pipeline from 490 in end-2005
to 4,782 in November 2009, and pushing up the total carbon credits supply from 704
million CERs to 2,820 million CERs during the period.
One reason the concept of carbon credits has gained popularity is its ability to create a
political alliance of forces on opposing sides like Left-wing environmentalists and free
market proponents. While the former believe that the polluters have no significant
incentives for self-regulation and have to be curbed through government intervention, the
latter believe that such command and control intervention would wreak havoc and that
the market would eventually offer an optimal solution.
Carbon trading regulations helped break the impasse by providing a clear target that the
environmentalists could embrace, while at the same time favouring the market
mechanism over governmental regulation as advocated by the Right. An added advantage
of the carbon credits is that it optimises investments in emission-reduction projects by
encouraging projects in countries where the cost of reducing emissions is the least, which
generally goes in favour of developing countries.
Countries like India have favoured carbon trade, as it offers a win-win situation for both
entrepreneurs and the broader society. While innovative companies that help reduce
emissions are provided with carbon credits, which they can encash to boost viability or
earn profits, the gains to society accrue in the form of a smaller destabilising impact on
the environment.
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Chance for carbon-efficient companies in India to ...

IFC and Standard & Poor’s have launched the world’s first carbon-efficient index for
emerging markets that aims to mobilize more than $1 billion for carbon-efficient
companies over the next three years.
The innovative S&P/IFC Carbon Efficient Index will encourage carbon-based

competition among emerging-market companies, give carbon-efficient companies access
to long-term investors, and should help reduce carbon emissions in developing countries.
The index was developed by S&P using carbon data provided by environmental data
provider Trucost. IFC provided financial support to the S&P/Trucost consortium to
accelerate the carbon research on emerging-market companies, and it provided technical
support to help validate and refine the methodology.
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UN’s CDM Executive Board Mulling New Panel T...

The executive board of the United Nations’ Clean Development Mechanism is looking at
a proposal to set up a new independent panel to speed up the project approval process,
which currently can take up to two years, the head of the CDM executive board said
Friday.
The new panel would be separate and independent from the executive board, which
currently deals with applications for carbon-abatement projects in developing countries.
This would free up the executive board to devote its time to policy-related issues, CDM
Executive Board head Lex de Jonge told a news conference in Copenhagen that was
carried on a webcast.
“The objective is to speed up the process. The easy cases which now are in the procedure
for at least four months could be dealt with faster. The complex cases may take the same
amount of time as they do now, but the easy cases may be dealt with in a faster way,” de
Jonge said.
As well as assessing projects, the new panel could also approve cases. And if they reject a
case, the project developer could then take an appeal to the executive board, he added.
Currently there is no formal appeals process although there are five steps that a project
has to go through for approval. De Jonge said there was also an option of an independent
panel to deal with appeals.
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China, India and Brazil ahead in carbon credits...

Posted by carboncredit in CDM, Carbon Credits, Climate Change, Credits Trading, India,
Sugar, Textiles, Wind Energy on December 12, 2009 | Comments Off
Similarities and disparities among Bric countries in different spheres of economic activity
have been well-documented. But one area where the disparity is most visible is in
emission trading whereby countries having commitments under the Kyoto Protocol use
market mechanisms to acquire emission units from other countries and use them to meet
a part of their targets. This clean development mechanism (CDM) allows emission
reduction projects in developing countries to earn certified emission reduction (CER)
credit by reducing greenhouse gas emissions which are then sold to industrialised
countries to meet a part of the targets.
While China, India and Brazil heads the list of countries earning the maximum carbon
credits, Russia is nowhere in the picture with its contribution limited to a few joint
investment projects commissioned recently. Most recent numbers show that there are
4,782 CDM projects in the pipeline, of which 1,915 are registered, 2,590 are under
validation and 277 are still registration requests. And so far, only about 605 of the
registered projects have issued 355 million CER credits where each CER is equal to 1
tonne of carbon dioxide.
China holds the maximum share with 1,895 CDM projects, or 39.6% of those in the
pipeline, followed by India with 1,207, or 25.2% in the pipeline. Brazil, with 347
projects, accounts for 7.3%. The fourth major contender is Mexico with 162 projects and
a 3.4% share.
The total emission reduction potential of the 4,782 projects is 661 million CER credits
and this is expected to go up to 2,820 million CER credits by 2012. The 1,895 Chinese
projects currently have an emission reduction potential of 371 million CER credits that
will increase to 1,544 million credits by 2012, accounting for 54.8% of the global share.
India comes next with the 1,207 projects, having an emission reduction potential of 112
million CER credits that will go up to 454 million CER credits which is only 16.1% of
the total. Brazil’s current contribution to the emission reduction potential from its 347
projects in the pipeline is 30 million CER credits that will move up to 171 million credits
by 2012 ,accounting for 6.1% of the global potential.
One highlight of the CDM projects in the Bric countries is the disparity in the number of
CDM projects and the emission reduction potential. While China has a 39.6% share of
projects, its emission reduction potential is expected to be 54.8% by 2012, indicating that
its projects are much larger than the global norm.
In contrast, while India’s share of CDM projects in the pipeline is a substantial 25.2%
and its share of the CER credits is a meagre 16.1%, pointing to the small size of its CDM
projects. Brazil is more on par with global benchmarks with its share of projects and
emission reduction potential being a more comparable 7.3% and 6.1%, respectively.
Back-of-the envelope calculation shows that while globally the average emission
reduction potential of a CDM project is 5,90,000 CER, the average size of Chinese
projects was a high 8,15,000 CER credits. In contrast, the average size of Brazilian and
Indian CDM projects were sizably lower than the global average at 4,93,000 CER credits
and 3,76,000 credits, respectively.
However, disparities among CDM projects in the Bric countries are not restricted to size
alone. A further investigation shows that there is a significant variation in the kind of
projects chosen for gaining emission reduction credits.
When one looks at the distribution of carbon credit projects, we find that all the three
countries have greater concentration than the global average. While the largest four
segments contributed to around two-thirds of the total projects at the global level, the
share of the largest four segments was a high 85.6% in China followed closely by Brazil
with 84.4%. Among the three Bric countries, India had the least concentration with the
share of the four largest segments being at a much lower 74.4%.
Sector-wise details of carbon credit projects show that globally, the largest number of
projects was in the hydro segment (27.2%), followed by wind projects (17.3%), bio
energy (13.8%) and energy efficiency in generation (9.6%). The concentration of such
projects in China was similar with the first two places going to the hydro (4.4%) and
wind segments (17.3%). However, the third place went to EE projects in generation and
bio energy projects only had the fourth place in China.
Though the first four categories dominating the carbon credit projects in India are similar
to the global and Chinese structure, the ranking varied significantly. The wind segment
was the biggest category in India with a 27.7% share followed by bio energy segment
(24.8%), hydro (11%) and energy efficiency in generation (10.9%).
However, the ranking varied a little more substantially in the case of Brazil. While the
first place was for the bio energy projects with a 28.2% market share, the second went to
hydro projects with a 22.5% market share. What is especially striking is that the third and
fourth categories were substantially different from the global and the Chinese and Indian
rankings. While the third category was methane avoidance projects with a 21.6% market
share the fourth was landfill gas projects with a 12.1% share.
The concentration of emission reduction potential across segments is marginally lower

than in the case of project numbers, with the share of the first four segments hovering
around half with a 52.7% share. But as in the case of projects the level of concentration
of the first four largest segments in the Bric countries were higher than the global
benchmarks.
The highest concentration of emission reduction potential among the three Bric countries
was in Brazil where the four largest segments contributed a 79.7% share. The share of the
first four largest categories in China and India were much lower at 69.1% and 57%,
respectively.
Globally the top segments which had the highest emission reduction potential was the
HFC segments with a 16.9% share followed by hydro (16.7%), wind (10.2%) and N2O
(8.9%) segments. China has a similar ranking in the first three segments with the share
being 23.5%, 21.2% and 13%, respectively. However, energy efficiency in generation
was the fourth largest segment in China as compared to the N20 segment at the global
level.
In the case of India, the emission reduction potential was slightly different. While HFCs
was the largest segment as at the global level and in China the second most important
contributor was bioenergy mass segment with a 13.7% market share. Energy efficiency in
generation was the third most important segment with a 13.2% and wind the fourth
largest with a 12.9% share.
The ranking of the emission reduction potential of the first four most important segments
in Brazil was very different from that of the other two Bric countries and the global
trends. While landfill gas projects was the largest component with a 31.3% share, the
second space went to N20 projects (22%) followed by biomass projects (15.9%) and
hydro segments (10.5%).
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1467 potential Indian CDM projects to generate USD...

India has signed Memorandum of Understanding (MoU) on climate change with the
Governments of Italy, Canada, Denmark, Norway and China regarding cooperation
on climate change including clean development mechanism projects. No MoUs on
climate change have been signed so far with United States of America, Sweden and
European Union.
The percentage of Green House Gas (GHG) emitted by India accounts for only 3-4% of
the global GHG emissions. The National Communication to this effect has been
submitted to UNFCCC.
As on date, the National Clean Development Management (CDM) Authority has

accorded Host Country Approval to 1467 projects. Out of these, 469 projects have been
registered by the CDM Executive Board. If all the 1467 projects as mentioned above get
registered by the CDM Executive Board, it could attract approximately US$ 6.15 billion
dollars into the country by the year 2012 through sale of CERs. However, CDM projects
as mentioned above, if registered by the CDM Executive Board, have the potential to
generate 615 million CERs by 2012.
While the MoUs signed with Italy, Canada, Denmark and Norway are intended to
stimulate development and bilateral cooperation in the field of CDM, the Agreement
signed with China focuses on promotion of mutual understanding and coordination of
each other’s position on climate change related issues including international negotiations
and bilateral cooperation in areas relating to energy efficiency, renewable, power, clean
coal and other sectors of mutual interest.In a recent communication to the European
Union Council on International Climate Finance, the European Commission has proposed
assigning of about Euros 100 billion annually by 2020 to be shared between domestic
finance, carbon market based financing and international public support.
This estimate presupposes mitigation actions by developing countries especially that are
economically more advanced. The Commission has also proposed a fast start fund of
about Euros 5-7 billion per year for meeting the urgent climate financing needs in
developing countries, in particular least developed countries (LDCs) and Small Island
Developing States (SIDS).
No agreement on the scale of finance and institutional arrangements needed to raise and
provide finance for addressing climate change in developing countries has yet been
reached in UNFCCC because of continuing difference in the approach of developed and
developing countries on the matter.Developing countries including India have no
obligation under the UNFCCC to provide contribution to a fund for meeting climate
change needs. As a part of the Initial National Communication of India to the United
Nations Framework Convention on Climate Change (UNFCCC), studies in regard to the
vulnerability assessment and adaptation to climate change have been made. These
studies projected climate scenarios and likely impacts in various areas such as water
resources, agriculture, forests, natural eco-systems, coastal zones, health energy and
infrastructure.
Carbon Credits - Implications in India as financing instrument

22
9. Example of a Company:
9.1 SRF Limited
It is an industrial group engaged in the manufacturing of industrial synthetics, fluorochemicals,
industrial fabrics, packaging films and pharma chemicals. It operates a swing plant at Rajasthan, India
since 1989 that produces HFC 22, CFC 11 and CFC 12 alternately on campaign basis. The main
objective of the CDM project was to reduce the GHG emission through destruction of HFC 23 gases,
in a proposed thermal oxidation system.
The project cost was Rs. 13 crores and the benefits are expected in next ten years. SRF has been
releasing this gas into the atmosphere before identification of this project as a CDM project under the
Kyoto Protocol. Since April 2004, SRF has been storing HFC 23 waste gas. Thus, with the
implementation and operation of the thermal oxidation system, the project w ill reduce GHG emission
(in equivalent CO2 equivalent terms) that otherwise would have continued to occur in absence of the
project. The annual sale is expected to be of 3.83 million CERs or 3.83 million tons of CO2 equivalent
gases. The after tax cash flows from the project are in table
Table 9.1: After tax cash-flows of SRF

Description
After tax cash flow (Rs. Crores)
Initial Investment
-13
FY06
59.362
FY07
59.362
FY08E
59.362
FY09E
59.362
FY10E
59.362
FY11E
59.362
FY12E
59.362
FY13E
59.362
FY14E
59.362
FY15E
59.362
The CER rate is taken to be a 5 USD. The Re/USD rate has been taken as 41 and tax rate @ 33%. The
IIR in this case is calculated on the incremental expenditure needed for meeting CDM requirements.
Carbon Credits - Implications in India as financing instrument
23
10. Conclusion
Carbon credits emanating from CDM projects can be considered as enhancers of equity returns rather
than as a reliable long term source of cash flows for projects. As soon as the future trends for carbon
credits are frozen after year 2012, they would be viewed as source for long term cash flows as well.
Projects ought to be developed so that they are CDM compatible. Due to OTC markets, the market is
illiquid and non transparent, firms need to negotiate deals with knowledge of the market trends and
potential problems arising after year 2012 deadline for current round of emissions reduction. The
CERs are also heterogeneous in nature depending on origin and quality of CERs and quality of
project. The CDM cycle is perceived to be long and the complexity of rules and regulations is a barrier
to usage of this opportunity. With the expectation of the maturity of the carbon market, carbon credits
will become an important consideration in project financing in developing countries especially India.
CDM cash flow increases IRR of the project

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Carbon credits have recently been

Who Buys Carbon Credits?

the Clean Development Mechanism (CDM)

THE CLEAN DEVELOPMENT MECHANISM

The CDM is one of the "flexibility mechanisms" that is defined in the

The purpose of the CDM is to promote clean development in developing

The economic basis for including developing countries in efforts to reduce

From the viewpoint of bringing about a global reduction in emissions, emissions

In theory, leakage may be reduced by crediting mechanisms (Burniaux et al.,

Additionality, transaction costs and bottlenecks

In order to maintain the environmental effectiveness of the Kyoto Protocol,

Burniaux et al. (2009) commented on the large transaction costs of establishing

An emerging proposal, Reduced Emissions from Avoided Deforestation and

1. What is often labelled ‘environmental additionality’ has that a

A number of terms for different kinds of additionality have been discussed,

Many investors argue that the environmental additionality interpretation would

The risk of false credits

This section needs additional citations for verification.

As the CDM is an alternative to domestic emission reductions, the perfectly

[edit] Industrial gas projects

The scale of profits generated by HFC-23 projects threatened distortions in

• the potential to capture emissions from these plants is exploited;

Another argument in favour of the CDM[according to whom?] is that in a well-functioning

Carbon capture and storage

[edit] SuggestionsIn response to concerns of unsustainable projects or spurious

Schneider (2007, p. 73) commented on the success of the CDM in reducing

[edit] See also

• Obtaining ownership of land by productive use

[edit] Further reading

• Boyd, E. et al (October 2007). "The Clean Development

[edit] External links

The Collins English Dictionary defines a carbon credit as “a certificate showing

The Investopedia Inc investment dictionary defines a carbon credit as a “permit

Burning of fossil fuels is a major source of industrial greenhouse gas emissions,

The concept of carbon credits came into existence as a result of increasing

Policies that provide a real or implicit price of carbon could

[edit] Emission allowances

By permitting allowances to be bought and sold, an

[edit] Kyoto's 'Flexible mechanisms'

A tradable credit can be an emissions allowance or an assigned amount unit which

• Under Joint Implementation (JI) a developed country with

These carbon projects can be created by a national government or by an operator

[edit] Emission markets

For trading purposes, one allowance or CER is considered equivalent to one

Climate exchanges have been established to provide a spot market in allowances,

Managing emissions is one of the fastest-growing segments in financial services

[edit] Setting a market price for carbon

An individual allowance, such as an Assigned amount unit (AAU) or its near-

The social cost of carbon is the additional damage caused by an

[edit] How buying carbon credits can reduce

Carbon credits create a market for reducing greenhouse emissions by giving a

We should consider the impact of manufacturing alternative energy sources. For

• One seller might be a company that will offer to offset emissions

[edit] Credits versus taxes

By treating emissions as a market commodity some proponents insist it becomes

• the price may be more likely to be perceived as fair by those

The advantages of a carbon tax are argued to be:

• possibly less complex, expensive, and time-consuming to

[edit] Creating real carbon credits

Environmental restrictions and activities have been imposed on businesses

The Kyoto mechanism is the only internationally agreed mechanism for

A question has been raised over the grandfathering of allowances. Countries