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CARBON CREDITING

SUSTAINABLE BUILDING DESIGN


AND

Scope :
To study about the carbon crediting system for sustainability.

Objective :
To study the implementation of carbon crediting support the sutainable building design.

CONTENTS

What is CARBON CREDIT? Background How buying carbon credits can reduce emissions ? Carbon calculations and trading Credits versus taxes Additionality and its importance Carbon credit in India

What is CARBON CREDIT?


Carbon Credit can be defined as a certificate showing that a government or company has paid to have a certain amount of carbon dioxide removed from the environment.

Carbon credits are a key component of national and international emissions trading schemes that have been implemented to mitigate global warming. They provide a way to reduce greenhouse effect emissions on an industrial scale by capping total annual emissions and letting the market assign a monetary value to any shortfall through trading. Credits 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.

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 etc, all of which have not yet been completely proven to 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.

Carbon Trading

Some companies are able to reduce their emissions to the point that they accumulate surplus credits. Others exceed their allotted credits for various reasons, such as increased carbon emissions because of faulty equipment.

Companies with excess carbon credits can sell them to firms that have exceeded their allotment.
The price of carbon credits is set through international exchanges.

How buying carbon credits can reduce emissions ?

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. By way of example, consider a business that owns a factory putting out 100,000 tonnes of greenhouse gas emissions in a year.

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. 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.

How buying carbon credits can reduce emissions ?

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 lowemission 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.
It is the whole process of buying carbon credit.

CARBON CALCULATIONS

Carbon credits, or carbon calculations, were first implemented after the Kyoto Protocol on climate change took effect in 2005. They are a way of quantifying carbon emissions so that countries can calculate how much pollution they generate. One carbon credit equals 1 ton of emitted carbon dioxide or other greenhouse gases. Caps on emissions are set through negotiations between nations. Those that exceed their carbon credits can buy credits from countries that stay below their emissions cap. The money generated by trading carbon credits helps develop renewable energy programs.

KYOTO PROTOCOL

On Wednesday 16th February 2005, some 8 yeers after the worlds nations came together in Kyoto in japan in 1997 to discuss global warming, the Kyoto protocol finally came into force. The very phrase kyoto protocol has become synonymous with the idea of saving the planet from global meltdown, and yet in the truth quite what we should be expecting to happen next remains something of a mystery. The Kyoto protocol aims to tackle global warming by setting target levels for nations to reduce greenhouse gas emissions worldwide. These targets vary between countries and regions, but globally the initial target is to reduce greenhouse gas emissions to 5.2 percent below 1990 levels(base levels) during the commitment period i.e 2008-2012.

KYOTO PROTOCOL

More than 170 nations have ratified the Kyoto Protocol, although the list did not include the U.S. as of 2010.

The protocol sets limits on pollution for each of the signatories.


The carbon credit was introduced as a mechanism for countries to internally manage their own resources by allocating a specific number of carbon credits to the countries' industries. The goal is to encourage companies to reduce the amount of greenhouse gases they generate. Companies that exceed the caps are fined.

THE KYOTO MECHANISM


The protocol broke new grounds with three innovative mechanisms

Joint Implementation (JI), The Clean Development Mechanism (CDM) and International Emission Trading/Carbon Trading, which have been designed to boos the cost effectiveness of climate change mitigation by opening ways for parties to cut emission or enhance sinks, more cheaply abroad than at home.

Policy Implementation

The amount of carbon dioxide emitted by each industry is tracked by government agencies that specialize in environmental issues. In some cases, a government will create a subagency whose sole purpose is tracking emissions data from various companies. The companies are audited on a regular basis for accurate reporting and compliance with pollution standards.

CREDITS VERSUS TAXES


By treating emissions as a market (commodity) it becomes easier for business to understand and manage their activities, while economists and traders can attempt to predict future pricing using well understood market theories. Thus the main advantages of a tradable carbon credit over a carbon tax are:

the price is more likely to be perceived as fair by those paying it, as the cost of carbon is set by the market, and not by politicians. Investors in credits have more control over their own costs. the flexible mechanisms of the Kyoto Protocol ensure that all investment goes into genuine sustainable carbon reduction schemes, through its internationally-agreed validation process.

Additionality and Its Importance

It is also important for any carbon credit (offset) to prove a concept called Additionality. Additionality is a term used by Kyoto's Clean Development Mechanism(CDM) to describe the fact that a carbon dioxide reduction project (carbon project) would not have occurred had it not been for concern for the mitigation of climate change. More succinctly, a project that has proven Additionality is a beyondbusiness-as-usual project. The Kyoto Protocol, an international agreement between more than 170 countries, The mechanism adopted was similar to the successful US Acid Rain Program to reduce some industrial pollutants. 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.

Additionality and Its Importance

Under these programs, tradable 'offset credits' are issued for project-based GHG reductions that occur at sources not covered by the program. The idea is to achieve a zero net increase in GHG emissions, because each tone of increased emissions is 'offset' by projectbased 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."

CARBON CREDIT IN INDIA

INDIA, being a developing country, is exempted from the requirement of the adherence to the Protocol. However, it can sell the carbon credit \s to the developed countries. Companies investing in windmills, Bio-Diesel, CoGeneration, Bio-Gas are the ones that will generate Carbon Credits for selling to the developed nations. The Protocol is designed to not only undo the climatic illeffects of the industrialization but also to identify the economic beneficiaries of the same and make them more accountable in damage control, deserves high applause; all the more so, for its flexible approach and concern in letting the business and economies continue while doing the damage control.

THE END

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