Windfall profits from carbon trading

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Opportunities - Energy & Environment
Written by Vimarsh Bajpai
Saturday, 01 December 2007 00:00
Page 1 of 2
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Projects aimed at reducing pollution and mitigating climate change are no longer mere
investments for a good cause. They have become revenue generators, thanks to the Kyoto
Protocol, an agreement by world governments to limit dangerous emissions
SRF, a refrigerant producer, took up a project in 2005 to reduce the emission of HFC-23, a
greenhouse gas (GHG) generated as a byproduct at its factory in Bhiwadi, Rajasthan.
This effort reduced the emission of 3.8 million tons of GHG every year. Good show, right? But
what happened next is more of interest to us. The company traded this reduction at Euro 10 a ton
of emission saved or per CER (Carbon Emission Reduction) units, earning $53.2 million a year!
At the other end of the spectrum, Karnataka-based NGO SKG Sangha has set up biogas and
vermi-compost plants for 10,000 rural families in the state. This reduces carbon dioxide (CO2)
emissions substantially. The NGO sells these emission savings as Voluntary Emission Reduction
(VER) units directly to international buyers and not through regulatory mechanisms, thus raising
money for its programs.Welcome to the world of carbon trading, where otherwise non-
remunerative projects aimed at reducing pollution, specifically carbon dioxide and other
greenhouse gases, become money-spinners. Both SRF and SKG Sangha are among the hundreds
of beneficiaries of the carbon trading business that Frost and Sullivan estimates to be worth $52
billion this year, and to touch $100 billion by 2010. Developing countries such as India are
tapping the benefits of this market both through the highly regulated Clean Development
Mechanism (CDM) or a more informal voluntary market.
The era of debate whether climate change is for real or not has drawn to an end and the fight to
save environment has achieved a critical mass. This year’s Nobel Peace Prize, jointly shared by
climate change activist and former US Vice President Al Gore and the Intergovernmental Panel
on Climate Change (IPCC), has only underscored the need to contain global warming, which if
left unchecked, could cause the biggest catastrophe mankind has ever witnessed.
Carbon Trading in a Nutshell
This is a unique trading system agreed upon by more than 170 countries in a bid to save our
environment from further degradation. It is based on the premise that those who continue to
pollute the environment should pay for their sins to those who make efforts to save it.
If you undertake a project to reduce pollution levels, you become eligible for selling the amount of
greenhouse gas emissions saved as carbon credits. One credit equals to one ton of CO2 emission
saved. Carbon credits are traded in the international market.
Credits earned through the Clean Development Mechanism are called Carbon Emission Reduction
(CER) units. The process requires approval of the host country and registration with the UN
Executive Board. The CDM is time consuming and expensive compared to another process which
generates Voluntary Emission Reduction (VER) units. VERs are tradable at climate exchanges like
the Chicago Climate Exchange or sold directly to end buyers. VERs have a much lower market
value than CERs.
Payments in the carbon market are made in the form of cash, equity, debt, convertible debt or
warrants. Some parties pay in-kind, providing technologies to curb emissions.

Opportunity: Reducing Emissions

“The Clean Development Mechanism is a voluntary activity to reduce green house gas emissions
and everyone is eligible whether it is a big corporate, an NGO or an individual. You become
eligible if the project meets the CDM eligibility criteria,” says CDM expert Dhirendra Kumar,
Group Coordinator, Winrock International. Bharti Gupta Ramola, Executive Director at
PricewaterhouseCoopers feels that “early success in the CDM market has brought such projects
within the investment decision-making process in a large number of medium and large
corporations.”
While for Indian companies, carbon trade has opened up a new revenue stream, for NGOs, this
has become a means for making grass-root level projects self-sustaining in the long run. “We
want money to implement programs for poor rural women, and carbon trade has helped bring in
funds," says D Vidya Sagar, President, SKG Sangha.
DARE/carbon market
2005 2006

Volume Value Volume Value

(MtCO2e)* ($million) (MtCO2e) ($million)

Allowances Market

EU-ETS 321 7,908 1,101 24,357

New South Wales 6 59 20 225
Chicago Climate
1 3 10 38
Exchange
UK-ETS 0 1 NA NA
Sub Total 328 7,971 1,131 24,620
Project-based Transactions
Primary CDM 341 2,417 450 4,813
Secondary CDM 10 221 25 444
Joint
11 68 16 141
Implementation
Other Compliance 20 187 17 79
Sub Total 382 2,893 508 5,477
TOTAL 710 10,864 1,639 30,097
Source: World Bank's State and Trends of Carbon Market 2007 * Metric ton of CO2 equivalent
The Kyoto Protocol
At the heart of the carbon trading market lies the Kyoto Protocol. On December 1, 1997 more
than 160 nations met in Kyoto, Japan, to negotiate limitations on emission of greenhouse gases
for developed nations, as part of the multi-nation treaty – the United Nations Framework
Convention on Climate Change (UNFCCC). The outcome of the discussions was the Kyoto
Protocol, which came into force on February 16, 2005. The Protocol, ratified by more than 170
countries, is a legally-binding agreement under which industrialized countries have agreed to
reduce their collective GHG emissions to a level that is 5.2% below their 1990 emission levels in
the commitment period 2008-12. However, the US is yet to ratify the Protocol.
The Different Markets
The carbon market is based on three mechanisms under the Kyoto Protocol: Emissions Trading,
Joint Implementation and Clean Development Mechanism. These mechanisms are aimed at
rewarding those who reduce emissions or remove carbon from the atmosphere at the cost of those
who add GHG. While Emissions Trading and Joint Implementation are of concern to developed
countries, Clean Development Mechanism is of particular interest to developing countries such as
India.
Emissions trading or the allowance market is a trading system wherein developed countries or
transition economies purchase carbon credits from other developed countries or transition
economies to meet their GHG reduction targets. This has led to the development of the European
Union Emission Trading Scheme (EU ETS), which is the largest sub-set of the carbon market.
According to the World Bank’s State and Trends of the Carbon Market 2007 report, under the EU
ETS, 1,101 tons of carbon dioxide equivalent was traded in 2006 with the allowance market
valued at $24,357 million.
Joint Implementation (JI) involves project-based transactions wherein an emitter in a developed
country buys carbon credits by implementing a GHG reduction project in another developed
country. In 2006, this market was valued at $141 million.

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written by Josephine E. Berioso, July 22, 2010
Please provide me information on how our local government in our our town can start carbon
trading. We want to maintain our vast forest but needs funds to do so.
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C- Trading
written by Arunabh Mishra, March 26, 2010
Article is a valueable insight the carbon trading business, which has taken the green world by
storm. Its exciting to learn about the Indian Inc. profiting and managing this.

-Arunabh
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written by piyush kkumar sahu, December 13, 2009
hello Mr.Satish Kumar,
It was really good to read your article on carbon trading business in India.
Now i'm little more curious about this.Could you please tell me how can one become carbon
trading counsultant in India & qualification for that?
Thanks and regards
piyush
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carbon trading
written by satish kumar, April 04, 2009
how to start carbon trading business in india.need more information about green consultant .

Thank And Regard

SATISH KUMAR
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