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THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT

AHMEDABAD

CARBON CREDIT

CARBON CREDITS

EMITTING GAINS

Report by:

Jayesh Dave
Jigar Patel
Jignesh Mehta
Jay sheth
Mahesh Panchal
Archit Gupta
Pratik Sureja

Reported to:

Prof. Jarana pathak

International Institute of Planning and Management


Gulbai Tekra

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

Ahemdabad

Contents

1. Executive Summary

……………… 3

2. Effect of Global Worming. ………………

3. What is Carbon Credit? ……………...

4. How does Carbon Credit save planet?

………………9

5. What is Kyoto Protocol Product?

……………... 11

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

6. Carbon Credit calculator. ……………..

17 7. What is Carbon Rating?

………………23

Executive Summary

We the student of IIPM to get loyal opportunity to take interest and to survey entire world
economy is facing problem gaining Carbon Credit To study the impact of carbon trading
on Indian companies.

With the increase in Greenhouse Gas (GHG) emissions in the atmosphere, the global
temperature have been on a constant rise. In last 65 years the amount of anthropogenic

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

(made or induced by humans) carbon dioxide has risen from 280 parts per million to 380.
With the current energy mix favoring the use of fossil fuels, the level is expected to
increase at a rapid pace. This has led to a global phenomenon called the Greenhouse
Effect. By increasing day to day pollution from various industry in our locality region or
as well as overseas Industry like US, Europe, Asia etc. Basically our projects related to
the carbon emission reduction in developing countries. Carbon dioxide, the most
important greenhouse gas produced by combustion of fuels, has become a cause of global
panic as its concentration in the Earth's atmosphere has been rising alarmingly. Carbon
credits are a part of international emission trading norms. They incentivise companies or
countries that emit less carbon. The total annual emissions are capped and the market
allocates a monetary value to any shortfall through trading. Businesses can exchange, buy
or sell carbon credits in international markets at the prevailing market price.

What is Greenhouse effect?

The sun heats up the earth by sending solar rays towards us. Some of these rays don’t get
through our atmosphere. Those that do, warm up the earth. When the earth warms up it
radiates its own rays of heat – infrared rays. Greenhouse gases absorb those, which don’t
escape past the atmosphere. These greenhouse gases warm the earth so it is at the
temperature we experience now. Without this process the earth would be some 30o C
cooler and life on our planet would be very different. However, we are producing too
many greenhouse gases, which mean they are absorbing more heat and warming the earth
too much – this is called global warming. One of the main greenhouse gases is carbon
dioxide, which can be created from chopping down and burning of trees. The fuel used in
cars and machinery also creates carbon dioxide, as do coal and natural gas. Therefore, if
we reduce the use of fuel and reduce deforestation, the amount of greenhouse gas around
earth should also be reduced. Scientists say it is already too late to prevent global
warming and therefore climate change, but by reducing greenhouse gases we could still
limit the impact. Even a change in temperature of under 1 o C is enough to cause changes
in rainfall and sea.
Effect of Global Warming

• Seawaters could rise almost a meter in this century, and will continue to move up.
• Some coastal regions already see seasonal flooding, and the situation is expected
to worsen as water levels rise.
• Coral reefs are under pressure from changes in water level and temperature. As
most carbon goes into sea, plankton could suffer, and that would affect species
higher up the food chain.

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

What is carbon credit?

As nations have progressed we have been emitting carbon, or gases which result in
warming of the globe. Some decades ago a debate started on how to reduce the emission
of harmful gases that contributes to the greenhouse effect that causes global warming. So,
countries came together and signed an agreement named the Kyoto Protocol.

India and China are likely to emerge as the biggest sellers and Europe is going to be the
biggest buyers of carbon credits.

Last year global carbon credit trading was estimated at $5 billion, with India's
contribution at around $1 billion. India is one of the countries that have 'credits' for
emitting less carbon. India and China have surplus credit to offer to countries that have a
deficit.

India has generated some 30 million carbon credits and has roughly another 140 million
to push into the world market. Waste disposal units, plantation companies, chemical
plants and municipal corporations can sell the carbon credits and make money.

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

Carbon, like any other commodity, has begun to be traded on India's Multi Commodity
Exchange since last the fortnight. MCX has become first exchange in Asia to trade
carbon credits.

Developed countries, mostly European, had said that they will bring down the level in the
period from 2008 to 2012. In 2008, these developed countries have decided on different
norms to bring down the level of emission fixed for their companies and factories.

A company has two ways to reduce emissions. One, it can reduce the GHG (greenhouse
gases) by adopting new technology or improving upon the existing technology to attain
the new norms for emission of gases. Or it can tie up with developing nations and help
them set up new technology that is eco-friendly, thereby helping developing country or its
companies 'earn' credits.

India, China and some other Asian countries have the advantage because they are
developing countries. Any company, factories or farm owner in India can get linked to
United Nations Framework Convention on Climate Change and know the 'standard' level
of carbon emission allowed for its outfit or activity. The extent to which I am emitting
less carbon (as per standard fixed by UNFCCC) I get credited in a developing country.
This is called carbon credit.

Carbon dioxide, the most important greenhouse gas produced by combustion of fuels, has
become a cause of global panic as its concentration in the Earth's atmosphere has been
rising alarmingly.

This devil, however, is now turning into a product that helps people, countries,
consultants, traders, corporations and even farmers earn billions of rupees. This was an
unimaginable trading opportunity not more than a decade ago.

Carbon credits are a part of international emission trading norms. They incentivise
companies or countries that emit less carbon. The total annual emissions are capped and
the market allocates a monetary value to any shortfall through trading. Businesses can
exchange, buy or sell carbon credits in international markets at the prevailing market
price.

India and China are likely to emerge as the biggest sellers and Europe is going to be the
biggest buyers of carbon credits.

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

Last year global carbon credit trading was estimated at $5 billion, with India's
contribution at around $1 billion. India is one of the countries that have 'credits' for
emitting less carbon. India and China have surplus credit to offer to countries that have a
deficit.

India has generated some 30 million carbon credits and has roughly another 140 million
to push into the world market. Waste disposal units, plantation companies, chemical
plants and municipal corporations can sell the carbon credits and make money.

Carbon, like any other commodity, has begun to be traded on India's Multi Commodity
Exchange since last the fortnight. MCX has become first exchange in Asia to trade
carbon credits.

So how do you trade in carbon credits? Who can trade in them, and at what price?

How does it work in real life?

Assume that British Petroleum is running a plant in the United Kingdom. Say, that it is
emitting more gases than the accepted norms of the UNFCCC. It can tie up with its own
subsidiary in, say, India or China under the Clean Development Mechanism. It can buy
the 'carbon credit' by making Indian or Chinese plant more eco-savvy with the help of
technology transfer. It can tie up with any other company like Indian Oil [Get Quote], or
anybody else, in the open market.

In December 2008, an audit will be done of their efforts to reduce gases and their actual
level of emission. China and India are ensuring that new technologies for energy savings
are adopted so that they become entitled for more carbon credits. They are selling their
credits to their counterparts in Europe. This is how a market for carbon credit is created.

Every year European companies are required to meet certain norms, beginning 2008. By
2012, they will achieve the required standard of carbon emission. So, in the coming five
years there will be a lot of carbon credit deals.

Understanding the system and logic

Science has correlated climate over the ages with core samples from ice sheets and found
that carbon dioxide levels fluctuate with climatic events. Only recently has science been
able to understand how this CO2 actually works to trap the heat in the atmosphere and by

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

calling it the greenhouse effect gives us the basic understanding of what goes on.

It’s pretty simple really in theory. All growing things absorp carbon which ultimately
ends up in the soil. Planting trees reduces the carbon in the atmosphere but not if they are
then cut down and burnt and crops that are planted and harvested will not actually store
carbon within them. Long term plans are needed. Crops can be farmed in such a way that
the soils are not ploughed to let the stored carbon escape. Weeds and borders to fields can
be encouraged. Forests can be left to stand. Fuel usage can be cut and power generation
can be more efficient and all this reduced consumption of carbon will mean that less
carbon credits will have to be purchased.

The money that purchases carbon credits will ultimately be used to give grants to further
carbon saving schemes. New Zealand has already funded some wind generation projects
from the money gained from selling carbon credits. Ireland has recently purchased 95%
of its carbon credits from overseas to offset the millions of tons of CO2 its industries will
develop for the forthcoming year. The other 5% will come from internally as they have
new practices of farming and been planting trees since 1990. Some treebound countries
do not necessarily have loads of carbon credits to sell as they have not made any attempts
to increase the number of trees since 1990. There are complications to be conquered
though. In Australia, Virgin has tried to introduce it's airline but has been deterred by the
need to offset it's CO2 pollution by the purchase of Carbon Credits which makes them
uncompetitive

How does it work in real life?

Assume that British Petroleum is running a plant in the United Kingdom. Say, that it is
emitting more gases than the accepted norms of the UNFCCC. It can tie up with its own
subsidiary in, say, India or China under the Clean Development Mechanism. It can buy
the 'carbon credit' by making Indian or Chinese plant more eco-savvy with the help of
technology transfer. It can tie up with any other company like Indian Oil [Get Quote], or
anybody else, in the open market.

In December 2008, an audit will be done of their efforts to reduce gases and their actual
level of emission. China and India are ensuring that new technologies for energy savings

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

are adopted so that they become entitled for more carbon credits. They are selling their
credits to their counterparts in Europe. This is how a market for carbon credit is created.

Every year European companies are required to meet certain norms, beginning 2008. By
2012, they will achieve the required standard of carbon emission. So, in the coming five
years there will be a lot of carbon credit deals.

How do carbon credits save the planet?

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

Where do Carbon Credits fit in the planet saving action plan?

For individuals:

1. Recognize that everything we do has associated greenhouse gas emissions


2. Reduce your emissions.
3. Offset with fully certified carbon credits today (because the planet can't wait)

Farmers Union’s Carbon Credit Program


Farmers Union’s Carbon Credit Program allows agri producers and landowners to earn
income by storing carbon in their soil through no-till crop production, conversion of
cropland to grass, sustainable management of native rangelands and tree plantings
on previously non-forested or degraded land. In addition, the capture of methane from
anaerobic manure digester systems can also earn carbon credits.

Farmers Union has earned approval from the Chicago Climate Exchange to aggregate
carbon offsets (carbon credits) and sell them on behalf of producers. Farmers Union
enrolls producer acreage into blocks of marketable offsets that are traded on the
Exchange, much like other agricultural commodities are sold. Proceeds from the sales are
then forwarded to producers as each pool of carbon credits is marketed. National Farmers
Union’s Carbon Credit Program earned more than $8 million for producers in its first two
year of operation.

No-till crop production offsets are eligible in most central and eastern states. Seeded grass
acres can be enrolled in most states and managed native rangeland offsets are offered
mostly in central and western states. Maps are available on this Web site that show
eligible states and counties. They are automatically programmed into the enrollment
system and payment estimator. Forestry and agricultural methane projects also are
available in every state.

Farmers Union offers continuous online enrollments for all offset types, although pools of
enrollments are closed periodically for verification and registration of offsets. Producers

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THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

provide land descriptions or map designations for the land they enroll in the program. The
entered information is then transferred directly into Farmers Union’s database. Producers
then follow up by sending in FSA 578 forms that detail their cropland acres, pasture
descriptions, grazing plans for range acres and current maps. Producers also remit a
signed contract. It is necessary for producers to have a valid e-mail address, as well as a
post office address, for communication and verification purposes.

Agricultural methane offsets are also available, but only sample contracts and
applications are available online. These individual projects will require producers or
landowners to send in all materials by mail. Pooling, verification and marketing of carbon
offsets will follow.

What is Kyoto Protocol?

“The Kyoto Protocol is a legally binding agreement under which industrialized nations
will reduce their collective emissions of greenhouse gases by 5.2% compared to the year
1990 (but note that, compared to the emission levels that would be expected by 2010
without the Protocol, this target represents a 29% cut). The goal is to lower overall
emissions from six greenhouse gases – carbon dioxide, methane, nitrous oxide, sulfur
hexafluoride, HFCs and PFCs – calculated at an average over the five-year period of
2008-12. National targets range from 8% reductions for European Union and some others
to 7% for the US, 6% for Japan, 0% for Russia, and permitted increases of 8% for
Australia and 10% for Iceland.” The protocol also reaffirms the principle that developed
countries have to pay and supply technology to other countries for climate related studies
and projects.

The protocol provides three mechanisms to the developed nations to meet


the emission targets.

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

1) Joint Implementation (JI): The Kyoto Protocol provides for developed countries
to implement projects that reduce emissions, or remove carbon from the atmosphere in
other developed countries in lieu of Emission Reduction Units (ERUs). These ERUs
can be used to meet the emission reduction targets. A JI project might involve, for
example, replacing a coal-fired power plant with a more efficient combined heat and
power plant. JI projects must have approval of all the parties involved, and must lead
to emissions reductions or removal that are additional to any that would have occurred
without the project. Projects from the year 2000 that meet the JI requirements may be
listed as JI projects. However, ERUs may only be issued in relation to periods from 2008
onwards.

2) Clean Development Mechanism (CDM) Projects: The CDM provides for


developed countries to implement project activities that reduce emissions in developing
countries in return for certified emission reductions (CERs). The CERs generated by
such project activities can be used by developed countries to help meet their emission
targets under the Protocol. The protocol also stresses that such project activities are
to assist the developing country host parties in achieving sustainable development. A
CDM project activity might involve, for example, a rural electrification project using
solar panels or the installation of more energy efficient boilers. The protocol refrains
developed countries from using CERs generated out of nuclear facilities to meet the
targets.

3) Emissions Trading: The Kyoto Protocol provides that developed countries can
acquire units from other developing parties and use them towards meeting their emissions
target. This enables developed countries to make use of low cost opportunities to
reduce emissions. Only developed countries in specified in Annexure I to the Kyoto
Protocol with emission limitation and reduction commitments inscribed in Annex B to
the Protocol may participate in such trading. Such countries must therefore be prepared
to transfer units when they do not require them for compliance with their own emission
targets.

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

Where does India qualify?


India being a developing country is not included in the Annexure I of the protocol.
Hence, India cannot qualify for JI and emission trading mechanisms. It qualifies to be
a host country for the CDM projects.
CD
CER Trading
A transaction in CER trading involves buying of GHG emissions credits by entities
(companies, Governments, etc.) from companies or Governments involved in projects
related to carbon emission reduction in developing countries. The idea is to make
developed countries pay for their wild ways with emissions while at the same time
rewarding countries with good behavior in this regard. For example, a company in
India can prove it that it has prevented emission of x-tons of carbon, it can sell this
much amount of points or carbon credits to a company in say, the US which has been
emitting carbon. This allows industries in developed countries to offset their emissions
of carbon dioxide by investing in reforestation and clean energy projects in developing
countries such as large-scale tree plantations as a lucrative alternative to reducing
emissions. Planting 100,000 hectares of new forest can remove 1mn ton of carbon per
year from the atmosphere.

CER Trading

15 IIPM-INTERNATIONAL, AHEMDABAD Monday, November 03,


Carbon Credits : Emitting Gains 2008
Benefits likely to be derived from CDM Projects

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AHMEDABAD

• Developed countries will be able to meet their targets of reducing emissions at


much lower cost.

Country US $/ ton Carbon


Japan 400
USA 200
India 25

• Developing countries will be able to access the latest technology. Further, the
parties involved in carbon credit sale would be able to put in additional
investments into their routine business through the carbon credit earnings.

• Overall it will lead to reduction of GHG emissions.


Company A

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CDM Applicability
The industries, which can qualify for the CDM projects, are as follows:
1. Renewable energy
 Wind power
 Solar energy
 Biomass power
 Hydel power
 Geothermal
 Tydel Power
2. Fuel switching from fossil fuel to green fuel like biomass, rice husk, etc.
Energy efficiency measures related to
 Boiler
 Pumps
 Turbines
 Installation of various speed drives
 Efficient cooling systems
 Back pressure turbines, etc
3 Cogeneration in industries having both steam and power
requirement
 In waste management
 Capturing of landfill methane emission to generate power
 Utilization of waste and waste water emissions for generation of energy for
 captive use of power generation
4 In transport
 Fuel switch from gasoline and diesel to natural gas
 Modal shift from air to train, road to train at macro level
 Replacement of shipment of certain raw materials through road to pipelines

To study the impact of carbon trading on Indian companies, we have selected a


spectrum of stocks which comprises of SRF Ltd (SRF), Gujarat Fluorochemicals Ltd
(GFL), Balrampur Chini Mills Ltd (BCML), Usha Martin Ltd (UML), Nahar Spinning
Mills Ltd (NSML), Kalpataru Power Transmissions Ltd (KPTL) and Tamil Nadu
Newsprints and Paper Ltd (TNPL).

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

Why is the world talking about carbon credit?


With the increase in Greenhouse Gas (GHG) emissions in the atmosphere, the global
temperatures have been on a constant rise (See Chart 1). In last 65 years the amount
of anthropogenic (made or induced by humans) carbon dioxide has risen from 280
parts per million (ppm) to 380 ppm. With the current energy mix (See Chart 2) favoring
the use of fossil fuels, the level is expected to increase at a rapid pace. This has led to
a global phenomenon called the Greenhouse Effect.

Where does India qualify?


India being a developing country is not included in the Annexure I of the protocol.
Hence, India cannot qualify for JI and emission trading mechanisms. It qualifies to be
a host country for the CDM projects.

Examples of global companies that have taken initiatives to reduce


emissions
 American Electric Power is investing in renewable energy projects in Chile,
exploring ways to burn coal more cleanly, and testing methods to sequester carbon.
 Florida Power and Light invested in 42 wind facilities and energy efficiency,
eliminating the need to build 10 power plants.
 General Electric purchased Enron’s wind business and a solar energy company;
doing research on earth-friendly hydrogen and lower emission jet engines and
locomotives.
 General Motors is in the process of developing hydrogen-powered cars that don’t
emit CO2.
 Toyota, the world leader in hybrid gas-electric cars that deliver superior fuel
efficiency.

The Market for Carbon Trading


Data on carbon trading is available since 1998 and according to the statistics available
the total volume of carbon credits traded have increased from close to 18mn tons of
CO2 equivalent in 1998 to around 107mn tons of CO2 equivalent in 2004. In the
current year the volumes have already reached levels of 43mn tons of CO2 equivalent.

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

STEPS TO PURCHASE CARBON CREDIT


Step1
Calculate your carbon footprint. You can search online under “calculate my carbon
footprint” and find dozens of websites that ask you a series of questions to determine just
how much carbon dioxide your lifestyle is emitting into the atmosphere. It’s this number
that determines how many carbon credits you need to buy to offset your carbon-
producing activity. Every carbon calculator is different. Ideally, you can find one such as
the Nature Conservancy’s Online Carbon Calculator, which accounts for home energy,
driving, flying, food, diet, recycling and waste.
Step2
Check with your utility company to see if they have a carbon offsetting program. You can
deduct any carbon credits you purchase through your electric company from the overall
carbon footprint you offset with an online carbon credit provider.
Step3
Decide on the types of projects that want your carbon credit purchase to support. Choose
from tree planting projects to recreate natural forests and prevent deforestation;
renewable energy projects, such as solar, wind, hydroelectric and biofuel; energy
conservation projects aimed at reducing the overall demand for energy and methane
projects, using the methane from farms, landfills and other industrial waste to create
energy.
Step4
Research carbon credit providers. Visit EcoBusinessLinks, a website that compares
carbon credit providers based on your non-profit status, carbon credit prices, the project
types that your investment will support, your ability to designate your investment to a
specific project and independent product certification, meaning that a third party has
determined that your investment will offset emissions.
Step5
Make yourself carbon neutral by purchasing your carbon credits from the carbon credit
provider of your choice.
Step6
Reduce your carbon footprint so that you can buy fewer carbon credits next time. Replace
all of your incandescent light bulbs with CFL’s. Join a carpool. Buy locally-grown
organic food. Install solar panels. Start your own compost pile in the backyard. Reduce.
Reuse. Recycle.

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Your Current Household Emissions


Enter your data Pounds of carbon
dioxide/year*
The Basics
How many people live
in your home?
How do you heat your
Natural Gas
house?
Electric Heat
Oil
Transportation
On average, how many
miles do you put on
your car(s)? Per Week Per
Year

231 miles/week is about


average in the United
States per vehicle.
What is the average gas
mileage for your car If you don’t know your 12,100 pounds is about
(miles per gallon)? car’s fuel economy, you average per vehicle over
can look it up at a year.
fueleconomy.gov.
Home Energy
What is your average
monthly gas bill? $105 is about average in 11,000 pounds is about
the United States for a average for a household
household of two people. of two people over a
year.

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Our calculations assume


that you pay
$13.83/thousand cubic
feet
What is your average
monthly electric bill? $100 is about average in 16,290 pounds is about
the United States for a average for a household
household of two people. of two people over a
year.
Our calculations assume
that you pay 10
cents/kWh. We estimate
your emissions based on
the national average mix
of fuels used to generate
electricity. Your actual
emissions may be higher
or lower depending on
your electricity provider's
power mix.
What is your average
monthly fuel oil bill? $130 is about average in 14,500 pounds is about
the United States for a average for a household
household of two people. of two people over a
year.
Our calculations assume
that you pay $2.37/gallon
Waste
Based on the number of Total Waste Emissions
people in your Before Recycling 2,020 pounds is about
household, the box at average for a household
right shows your of two people over a
estimated greenhouse year.
gas emissions from
waste. However, if you

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currently recycle
certain materials, your
waste emissions may be
lower.
Which of the following
products do you
currently recycle in
your household?
Do you recycle
Yes No
newspaper? Pounds of carbon
dioxide/year
Do you recycle glass?
Yes No
Pounds of carbon
dioxide/year
Do you recycle plastic?
Yes No
Pounds of carbon
dioxide/year
Do you recycle
Yes No
aluminum and steel Pounds of carbon
cans? dioxide/year
Total Waste Emissions
After Recycling Pounds of carbon
dioxide/year
Your Total Emissions
The calculator provides a
rough estimate of your 41,500 pounds is about
household's total average in the United
emissions States for a household of
two people over a year.
What You Can Do to Reduce Emissions

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On the Road
Amount of CO2
you can avoid per year
Are you in the market
for a new car? Buy a more miles per gallon pounds percent of
vehicle that gets more your total
miles per gallon than The Fuel Economy Web emissions
your current one. site can help you find
efficient vehicles.
Give your car a break.
Reduce the number of pounds percent of
miles you drive by this miles Per Week
your total
amount. Per Year emissions

When running errands,


combine trips. Using
mass transit, carpooling,
telecommuting, biking
and walking are also
good options.
At Home
Amount of CO2
you can avoid per year
Turn down your Dropping the heat at
heating thermostat by night can make a pounds percent of
difference. your total
degrees Fahrenheit
on winter nights. emissions

You'll get the same


Replace 75-watt
amount of light for less pounds percent of
incandescent light bulbs
energy and lower your total
with 25-watt ENERGY
monthly bills. By emissions
STAR lights. (Enter the
replacing the five most
number of bulbs you

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will replace.) frequently used lights in


your home with
ENERGY STAR
qualified lighting, you
can save about $60 each
year in energy costs.
Replace your old New refrigerators,
refrigerator with an especially ENERGY pounds percent of
ENERGY STAR model. STAR models, cost much your total
Will you take this less to operate than old emissions
action? ones.
Yes No
Replace old gas or oil New models are much
furnace or boiler with more efficient and pounds percent of
an ENERGY STAR cheaper to run. your total
model. Will you take emissions
this action?
Yes No
Turn up your air You'll save money as
conditioner thermostat well as reduce your pounds percent of
emissions. your total
by degrees
Fahrenheit in summer. emissions

Replace single-glazed This step can save you a


windows with bundle in cold or hot pounds percent of
ENERGY STAR climates. your total
windows. Will you take emissions
this action?
Yes No

Waste

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Based on your selection,


Yes No
you indicated that Pounds of percent of
you do not recycle the carbon your total
following dioxide/year emissions
material(s):newspaper,
glass, plastic,
aluminium and steel
cans. Are you willing to
start recycling these
material(s)?
Could you also recycle
Yes No
magazines? Pounds of percent of
carbon your total
dioxide/year emissions
Your Totals
If you took all the
actions listed above, pounds per year percent of your total
you would reduce your emissions
emissions by
Your new total annual
CO2 emissions would pounds per year
be

What are ratings?


Ratings have been successfully used in the financial services markets for over 50 years as designations
which give relative indications of a company’s or a government agency’s credit history – their likelihood of
default.

Why does the carbon market need ratings?


According to IDEA carbon, the carbon trading market could be as big as €1 trillion by 2020, with project-
based carbon offsets contributing at least €200 billion, but the market needs substantial improvements in
transparency and risk management in order to reach this level.

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Ratings are a tool for assessing the risk factors associated with the delivery of a financial instrument. The
recent news of delays in carbon project registration and credit delivery highlight the fact that the risks
inherent in project based carbon offsets have often been underestimated. While there has been awareness
of potential regulatory concerns, market-internal problems in development have been largely ignored. If we
ignore the HFC and N20 projects which account for 75% of CERs issued to date, CDM projects have a
credit issuance success of just over 70%.

If we are to attract the levels of finance necessary to make the carbon markets mainstream, we need to have
tools acceptable to financiers who show that the risks of investing in carbon offset projects have been
understood, articulated and minimized (or hedged against). By providing clarity and transparency in the
market, ratings can help attract further investment into the sector.

Project ratings will help to standardized carbon as a commodity and create a new asset class. Rated
projects will no longer be unique but comparable to other projects with the same rating.

Who will use the carbon ratings?


Ratings are important for both the buy-side and the sell-side. Buy side clients are within the compliance or
voluntary market and have an interest in both delivery and the social development benefits of the projects.
Sell-side clients include project developers looking to get the best price for their credits and investors looking
to invest in high quality projects.

What are the limitations of ratings?

While The Carbon Rating Agency identifies unsolicited (market initiated) ratings with adequate disclosure
under the ‘rating type’ section on the rating rationale, it should be recognized that such ratings are carried
out on a best-efforts basis and are dependent upon publicly available information. While The Carbon Rating
Agency invites the rated entity to participate in the rating process and provide it with relevant information, the
extent of such participation is completely at the discretion of the entity. In light of that, the level of information
available for analytical inferences is largely limited to public sources.

In some instances The Carbon Rating Agency may issue a market initiated rating that includes a formal
qualification to this rating.

How do carbon ratings work?


Like standard credit ratings, the new service will award scores ranging from AAA for the highest quality,
lowest risk projects, through to C and D for the highest risk projects which are least likely to meet their stated
goals.

Every project will be rated according to the likelihood of it delivering the stated number of offsets in the

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

stated time period, as well as by its economic and social development benefits. By rating a broad range of
project types across different sectors, we will be able to compare like with like.

Can market participants consider Ratings as recommendations?


No. Ratings are opinions and are designed to be additional inputs to the system. They are an information
enhancement rather than recommendations.

How can reliable ratings be developed in such a new and rapidly developing market?
The Carbon Ratings Agency combines the science of benchmarking with the art of collective judgment.
Other rating processes are based on a depth of past data from which correlations can be extrapolated in a
fairly predictable manner. This is not the case for the rating of CDM projects. While our model is loaded with
past performance data, we emphasize that the carbon market is still in a growth mode not only in terms of
volume but more importantly in terms of the regulatory system. Past experience is therefore not necessarily
a reliable predictor of the future. Our rating combines statistical benchmarking with the collective best
judgment of our ratings committee.

Does the Carbon Ratings Agency rate projects or carbon credits?


The Carbon Ratings Agency rates the offset asset, not the underlying project. While it is clear that a sound
underlying project is critical to the production of a mitigation asset, not all sound underlying projects will
produce mitigation assets. Our ratings focus on the likelihood of the project’s producing the intended volume
of certified emission reductions, and do not in any way represent an investment rating of the underlying
project.

Do ratings cover sustainable development?


Sustainable development is an important objective of emission reduction projects. The Carbon Rating
Agency assesses the sustainable development impact of projects in a separate analysis. However, to the
extent that sustainable development issues may affect carbon delivery they are factored into the main rating.
(For example, unaddressed environmental concerns may delay project implementation) The Carbon Ratings
Agency’s sustainable development rating covers four areas: water (blue), ecosystems (green), pollution
(brown) and social (red).

About the Carbon Ratings Agency :


The Carbon Ratings Agency is a wholly owned subsidiary of IDEA carbon. Its mission is to
improve the functioning and efficiency of the carbon markets. The Carbon Ratings Agency’s
ratings and opinions are unencumbered and independent - it does not trade, buy, sell or originate
carbon credits.
The Carbon Ratings Agency will launch the world’s first independent carbon credit ratings
service at the London Stock Exchange, 9.30am Wednesday June 25th. The Carbon Ratings
Agency is the dedicated ratings subsidiary of IDEA carbon, which has spent two years investing
in the development of the carbon ratings process.

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

The service will provide detailed credit ratings for carbon offset assets in the CDM, JI and
voluntary markets. Each asset studied will be given a rating based on a detailed analysis of the
underlying project, leading to an assessment of the likelihood of it delivering its stated emissions
reductions in the stated time period. The Carbon Ratings Agency also considers the economic and
social development benefits that the project does, or does not bring.
The Carbon Ratings Agency will provide ratings to market participants both on a mandated basis
(where project owners or investors commission the agency to rate their carbon assets) and through
the Agency’s Market Initiated Ratings Service, which will give subscribers access to a
representative range of carbon asset ratings on an ongoing basis.
Independent credit ratings are well established instruments for enhancing the transparency and
efficiency of financial markets. Like standard credit ratings, the new service will award scores
ranging from AAA for the highest quality, lowest risk offset assets, through to C and D for the
highest risk assets which are least likely to meet their stated goals.
As trading deepens and the carbon market grows, a growing number of companies will enter the
project based market. They will look for quality projects, which do not expose them to undue
performance risk. Like financial investors in other markets, they will expect a clear, transparent
and unbiased declaration of those risks.
The Carbon Ratings Agency aims to provide this service. It has already produced market-
initiated ratings for a representative sample of 25 CDM projects across a range of technologies
and geographies.
Summaries of this initial set of ratings have been compiled in a report that will be made available
at the launch. The report reveals that the carbon markets face a complicated set of risks, with very
few of the projects achieving AA ratings and a significant proportion liable to under-perform
compared to volumes projected at the project design stage. Each rating provides a detailed
analysis of a wide range of risks to project performance.
Projects that have already started to issue UN certified credits are delivering 96 per cent of the
credits expected at project design stage. However, these figures are dominated by a small number
of large projects dealing with industrial gases: to date 20 large projects together account for more
than 100 million credits, 75% of all credits issued. The rest of the portfolio of projects currently
issuing credits – more than 300 projects – has an average issuance success of just above 70%.
Renewable energy and energy efficiency projects have been found to be the best performers,
while coal mine methane projects have the highest standard deviation in delivery performance,
although performance can vary widely within and between countries.
The new ratings service is designed to enable market participants to manage their risk by
differentiating between projects that are more or less likely to deliver the number of credits
projected by the project developer.
The carbon market has faced several well documented regulatory risks such as constraints in the
CDM registration process and long term uncertainty about the international policy framework
after 2012. However, CDM projects are, at their core, development projects and face many of the
same issues including weak counterparts, low administrative capacity, local funding shortfalls and
a complex business environment. The Carbon Ratings Agency is the first company to provide an
independent, in-depth and comparable assessment of both regulatory risk and these less well
understood market-internal risks. The Agency’s management team and ratings committee

Project Survey Report on Carbon Credit


THE INTERNATIONAL INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD

includes ratings experts, financial market professionals, UN climate change negotiators and
former senior managers from development agencies such as the World Bank, a combination
which ensures that the broad range of risks facing carbon projects are taken into account by the
ratings process.
Improved transparency and better risk management – including ratings – are an integral part of
the process that will turn carbon into a new asset class. At present, each emission reduction
project is unique and has its own idiosyncratic risk profile that market players currently struggle
to assess. Carbon ratings will help to standardize carbon as a commodity and create a new asset
class. Rated assets will no longer be unique but comparable to other offset assets with the same
rating.
Welcoming the launch of the service, Lord Stern, Vice Chairman of IDEA global Group, said:
“The carbon markets are showing their potential to reduce global emissions and should form a
key plank for any future global climate agreement. If we are to attract the levels of finance
necessary to make this a mainstream market and have a strong impact on emissions reduction,
risks must be clearly understood, articulated and managed. A detailed ratings system is a vital tool
to bring greater clarity, transparency and certainty to the market.”
Ian Johnson, Chair of IDEA carbon and former Vice President for Sustainable Development at
the World Bank, also speaking at the launch, said: “Our analysis shows that the concern of many
investors is justified – carbon projects are risky and until recently these risks have been
underestimated. But, the analysis also highlights the enormous potential in this market. Well
designed projects are delivering genuine emissions reductions at an increasing scale.
Project based mechanisms are likely to remain a key tool in combating climate change and have
an important contribution to make.

Project Survey Report on Carbon Credit