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Carbon Trading
Posted Date:
15 Nov 2007
Total Responses:
7
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Posted By: Rajeew Member Level: Bronze Points: 1
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What is carbon trading and how it can benefit to developing country?
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Responses
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| Author: Ajay Mishrilal Jhavar 15 Nov 2007 | Member Level: Silver | Rating:  Points: 5 | Hi Rajeew,
Carbon Trading
William H. Schlesinger*
Enthusiasm is spreading for cap-and-trade systems to regulate the amount of CO2 emitted to Earth's atmosphere. In 1990, the U.S. Environmental Protection Agency set a limit on SO2 emissions from obvious point sources and allowed those who emit less than their quota to trade excess allowances. As a result, regional acid deposition was dramatically reduced. Can the world do the same for CO2?
Fundamental differences in the biogeochemistry of SO2 and CO2 suggest that establishing a comprehensive, market-based cap-and-trade system for CO2 will be difficult. For SO2, anthropogenic point sources (largely coal-fired power plants), which are relatively easy to control, dominate emissions to the atmosphere. Natural sources, such as volcanic emanations, are comparatively small, so reductions of the anthropogenic component can potentially have a great impact, and chemical reactions ensure a short lifetime of SO2 in the atmosphere. CO2, in contrast, comes from many distributed sources, some sensitive to climate, others sensitive to human disturbance such as cutting forests. It is thus impossible to control all of the potential sources.
CREDIT: JAMES P. BLAIR/NATIONAL GEOGRAPHIC/GETTY Human-derived emissions from fossil fuel combustion are one of the smaller components of the atmospheric flux of CO2, which is dominated by exchange between forests and the oceans. During most of the past 10,000 years, the uptake and loss of CO2 from forests and the oceans must have been closely balanced, because atmospheric CO2 showed little variation until the start of the Industrial Revolution. CO2 from coal, oil, and natural gas combustion now comes from many segments of society, including electric power generation, industry, home heating, and transportation. Unbalanced by equivalent anthropogenic sinks for carbon, fossil fuel emissions account for the vast majority of the rise of CO2 in Earth's atmosphere. Caps on emissions, like those instituted for SO2, will be difficult to institute if the burden of reducing CO2 is to be borne equally by all emitters.
Because land plants take up CO2 in photosynthesis and store the carbon in biomass, forests and soils seem to be attractive venues to store CO2. Market-based schemes propose substantial payments and credits to those who achieve net carbon storage in forestry and agriculture, but these projected gains are often small and dispersed over large areas. We will need to net any such carbon uptake against what might have occurred without climate-policy intervention. Conversely, will Canada and Russia be billed for incremental CO2 releases that stem from the warming of cold northern soils as a result of global warming from the use of fossil fuels worldwide?
If credit is given to those who choose not to cut existing forests, the increasing total demand for forest products will shift deforestation to other areas. Frequent audits will be needed to determine current carbon uptake, insurance will be necessary to protect past carbon credits from destruction by fire or windstorms, and payments will be necessary if the forest is cut. All these efforts will be costly to administer, diminishing the value of the rather modest carbon credits expected from forestry and agriculture.
Many environmental economists recognize that a tax or fee on CO2 emission from fossil fuel sources is the most efficient system to reduce emissions and spread the burden equitably across all sources: industrial and personal. A tax on emissions of fossil fuel carbon could replace the equivalent revenue from income taxes, so the total tax bill of consumers would be unchanged. A higher tax on gasoline would preserve the personal right to drive a larger car or drive long distances, but it would also motivate decisions to do otherwise. A tax on emissions from coal-fired power plants, manifest in monthly electric bills, would motivate the use of alternative energies and energy-use efficiencies at home and in industry.
The biogeochemistry of carbon suggests that both emissions taxes and cap-and-trade programs will work best if restricted to sources of fossil fuel carbon. Other net sources and sinks of carbon in its global biogeochemical cycle are simply too numerous and usually too small to include in an efficient trading system. Simple, fair, and effective must be the hallmarks of policies that will wean us from the carbon-rich diet of the Industrial Revolution, and we must begin soon if we are to have any hope of stabilizing our climate.
10.1126/science.1137177
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William H. Schlesinger is dean of the Nicholas School of the Environment and Earth Sciences, Duke University, Durham, NC.
| | Author: Kenny 16 May 2008 | Member Level: Gold | Rating: Points: 2 | Good Ajay.
| | Author: Saranya 17 May 2008 | Member Level: Gold | Rating: Points: 2 | Hi Rajeev,
Carbon Trading:
Carbon trading is basically a commercialised activity that originates from protecting the earth from harmful emission of gases from industries. The concept of carbon credit is that of incentivising the units which pollute less and disincentivising the units that pollute more. The most dangerous gases thrown out by the industrial units are six in number - carbon dioxide, methane, nitrous oxide, hydroflourocarbons, perflurocarbons and sulphur hexafluoride. The group of such gases, which are responsible for removing greenery from our planet, are called greenhouse gases.
On the initiative of UNO (United Nations Organisation), Kyoto protocol was signed in 11 December 1997 and it came into force from 16 December 2005. The Kyoto protocol aims to tackle global warming by setting target levels for nations to reduce greenhouse gas emission worldwide. The Kyoto protocol is an agreement by which the ratifying countries have agreed to reduce their emission of greenhouse gases. Under the protocol, initial target is to reduce greenhouse gas emission to 5.2 per cent below 1990 base level. 172 countries have signed the Kyoto Protocol. Australia has also recently ratified the protocol. These countries and their companies are the only ones allowed to engage in carbon trading.
How it works?
A central authority fixes the limit of the amount of a pollutant that can be emitted into the environment. Now this limit becomes the permit of pollutants allowed into the environment. This permit is devised into several smaller units and distributed to several companies in the form of permit or credit or allowance. This permit or credit or allowances gives licenses to emit a fix amount of pollutant into the environment.
Now if a company, say SRF, is able to emit only eight units of greenhouse gases out of 10 units allotted to it, then SRF will be having two units of emission as ‘credit outstanding’ in its ‘pollution’ account. On the other side, if a company say MRF emits 12 units instead of 10 units allotted to it then MRF will be having two units of ‘debit balance’ in its pollution account. Now SRF will be able to transfer its two ‘credit balance’ to two debit balance account of MRF. So both the companies’ pollution account will be matched and the environment also is able to digest a certain scientifically fixed amount of pollutants. This transfer from SRF to MRF will be for some monetary consideration and hence it is referred as carbon trading.
Carbon credit, as defined by Kyoto protocol, is one metric tonne of carbon emitted by burning of fossil fuels. The GWP (Global Warming Potential) factors are used to convert each of the five gases (like methane, for example) that are not CO2 into tonnes of CO2 equivalent (CO2E), which is the standard of trading. To bring the buyers and sellers of carbon trading on one platform and to augment the process of carbon trading, carbon credits are traded at CO2E exchange in Britain, CDM (Clean Development Mechanism) exchange in Europe. In India recently, MCE (Multi Commodity Exchange) has announced carbon trading exchange with license agreement from Chicago climate exchange. Like the usual stock exchange, carbon credits have all spot transactions, forward settlement and options of trading.
Prices of credit trading vary and some time back was in the range of Euro six to Euro 12 per tonne of CO2. An estimate suggests that in 2004, 107 million tonnes of CO2 were exchanged through carbon trading worldwide. There is a steep penalty to the tune of Euro 40 per tonne to the companies emitting more than their quota. So companies that are having huge carbon credit can sell these to companies that are deficient in carbon credit or that have exhausted their quota for huge prices.
Regards,
Saranya.
| | Author: Saranya 17 May 2008 | Member Level: Gold | Rating: Points: 2 | Hi Rajeew,
Carbon trading is a big opportunity for Indian companies.
Almost all industrialised countries are huge buyer of carbon credit and all developing countries, where industrialisation has not reached its peak, are supplier of carbon credit. Japan is the largest buyer of carbon credit while India and Brazil are amongst the largest suppliers of carbon credit. Being a developing country, India is exempted from the requirement of adherence to Kyoto protocol. India, however can sell the carbon credits to the developed countries.
Most of the beneficiaries of the carbon trading are those companies that are investing in windmills, Biodiesel, Biogas. Actually by investing in such an alternative non-polluting source of energy, these companies will earn carbon credit in the form of CERs (Certified Emissions Reductions) to the tune they have not polluted the environment. These CERs will be sold by the Indian companies to companies, say in Japan, at market prevailing rate of CERs and make profit. Companies like Torrent Power have started projects, which enhance energy efficiency and in turn have earned CERs points. These CERs will be sold by Torrent Power to companies in developed countries and is expected to earn approximately Rs 200 crores. Several Indian companies are adopting such processes in their production units, which result in earning of CERs. Similarly, companies like Chennai Petroleum, Jaypee Associates, Grasim Industries, and Gujarat Fluro Chemicals are going to make huge profits through carbon trading.
Carbon trading has brought a huge opportunity for Indian companies. Companies can earn CERs by adopting energy saving and environment protecting methods and in turn can earn huge incomes by selling them. This opportunity will not exist forever for Indian companies. Once India is accepted as an industrialised country, she would have to adopt strict emission norms like other industrialised countries of the world and India may turn into a net buyer of carbon credit from other developing countries when that happens.
Regards,
Saranya...
| | Author: SRIMATHI 17 May 2008 | Member Level: Diamond | Rating: Points: 2 | wow great
| | Author: Saranya 18 May 2008 | Member Level: Gold | Rating: Points: 2 | Have you got your answer Rajeew?
| | Author: Saranya 18 May 2008 | Member Level: Gold | Rating: Points: 2 | hello..
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