Carbon Credits

A carbon credits is a generic term for any tradable certificate or permit to representing the right to emit
one tone of carbon dioxide or mass of another greenhouse gasses.
Greenhouse Gas
A major source of greenhouse gases are industrial emissions. Gases include carbon dioxide, nitrous oxide, methane and
hydrofluorocarbons. When these gases enter the atmosphere, they hold in reflected energy from the sun and emit that
radiation back down to Earth. This greenhouse effect can create climatic changes.
Carbon Credits
Each carbon credit equals a ton of carbon. Companies are allocated a certain number of credits that they may use over
a period of time. If their carbon emissions are below their allowance, then they may sell the remaining credits. If a
company exceeds their limit, they may purchase credits from other companies. This method of allocation and
buying/selling is called carbon trading.
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GWP (Global
Warming Potential)
1
21

Green House Gas

Carbon dioxide (CO2)

Methane (CH4)

298

Nitrous oxide (N2O)

9,200

Perfluorocarbons (PFCs)

11,700
22,800

Hydrofluorocarbons (HFCs)
Sulphur hexafluoride (SF6)

Emissions Trading
When companies use their credits in a trade, they are actually being charged to pollute or being paid not to
pollute. As a result of the emissions cap placed on each company, the effect of the trade is an overall reduction
in emissions. The cap-and-trade program has proven successful when the U.S. developed the Acid Rain Program.
Under that program acid rain levels have dropped by 40 percent.
Kyoto Protocol
The Kyoto Protocol is an emissions target agreement established in 1997. The international agreement calls for
37 countries to reduce their greenhouse gas emissions by 2012.
Under the program, each country is given an annual emissions quota.
If they have too many emissions, then they may purchase credits from another country in the program. The goal
of the program is to reduce emissions by 5.2 percent of the 1990 levels by 2012.
Benefits of Carbon Credits
Carbon credit trading can be advantageous to governments, consumers and industry. Carbon credits are
relatively cheap compared to the price they will be in the future when demand skyrockets.
Additionally, when companies use and buy/sell credits, they are reducing their emissions and energy
consumption, which is good for the environment and the company and consumer who are saving money on
energy

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Industrial companies with high carbon emissions buy carbon credits from companies with
low-emissions to offset the environmental impact of their business. A company is allowed
a certain amount of pollution emission before it is fined. With carbon credits, the limit is
effectively "raised" to prevent any punitive impact on business operations. Carbon credits
are currently only traded on the Chicago Climate Exchange.
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Step to Claim Carbon Credits

Instructions
Step 1
Check that your company is eligible to sell and exchange carbon credits on the climate exchange market. Eligible
industries usually include farming operations, logging businesses and companies that produce low amount of
atmospheric pollution. Email or call the Chicago Climate Exchange for eligibility requirements.
Step 2
Register with the Chicago Climate Exchange in order to sell and exchange carbon credits in the exchange market. You
must contact the CCE by phone or email to begin the registration process. The CCE works like the New York Stock
Exchange or other stock markets in that you must register your business and pay an annual participation fee. The
participation fee, as of 2011, is $2,500 per year. Carbon credit registration costs 10 cents per ton.
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Step 3
Wait for the CCE to contact you with your login and password for the carbon credit exchange after your registration is
approved. You will use your account to list your available carbon credits and to sell the credits to other companies.
Step 4
Sell your carbon credits to companies in need of carbon emission relief. Like any stock, carbon credit prices are dictated
by the supply and demand in the market. In a down market, fewer companies may look to buy carbon credits, driving
down prices in the process. Read financial publications and monitor market conditions to decide the right time for
selling your credits.

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The introduction of Clean Development Mechanism (CDM) to Malaysia improves

the environment of the country. Besides achieving sustainable development, the
carbon credit earned through CDM enhances the financial state of the nation.
Both CDM and renewable energy contribute to the society by striving to reduce
carbon emission. Most of the CDM projects are related to renewable energy,
which recorded 69% out of total CDM projects

Additional information (carbon credit)

WHAT IS A CARBON CREDIT?
A Carbon Credit is created when the equivalent of one metric tonne of carbon dioxide is prevented from entering the
atmosphere. Internationally known as Certified Emission Reductions, Emission Reduction Units, or Verified Emission Reductions, each carbon
credit has a monetary value depending on the type and origin of the emission reduction produced.
WHAT ARE THEY WORTH?
Each carbon credit can be traded on the open market, with the current spot rates on the European Unions Emission Trading Scheme averaging
25 Euros per tonne during 2008, (EUA DEC 08). With the onset of the current global financial crisis and the reduction in the price of oil, the
emissions market has been affected. Please see the current spot rate as indicated by the graph to the right. As the economy begins to recover
and the price of oil rises, the value of carbon credits will also increase
WHO BUYS CARBON CREDITS?
Carbon credits are mostly purchased by governments & corporations who have a legal or moral duty to reduce their carbon footprint. A growing
number of individuals are also purchasing sufficient personal carbon credits to claim a carbon neutral lifestyle.
Although these organizations could implement change in their home country by sponsoring emission reduction projects locally, the economic
benefits of deploying an equivalent emissions reduction scheme in the developing world for a fraction of the cost is what drives the international
trade in carbon offsets.
WHAT IS CARBON OFFSETTING?
Carbon offsetting is the process by which a successful emissions reduction is produced in one geographical location and claimed by another.
For example, a hydro electricity generation plant established in South America with the financial assistance of the Japanese government
displaces the more polluting local oil & coal fired power stations, thereby creating a sizable carbon emissions reduction.
In return for providing the financial assistance, (without which the project would not have occurred), and allowing the international transfer of
technology to support the plant, the Japanese government may claim the carbon emission reduction for their home country, thereby offsetting
their national carbon reduction commitments.
In return, the developing nation develops sustainable resources, retains first world technology & benefits from a cleaner domestic environment.

HY DO SOME PEOPLE CONSIDER CARBON OFFSETTING FLAWED?

In recent years, the term carbon offsetting has become synonymous with unregulated voluntary
contributions made by individuals and corporations to operators claiming to invest the proceeds in
worthy carbon emission reduction schemes. With no transparent mechanism through which to
evaluate the effectiveness of a particular scheme, many investments have fallen fowl of the
opportunist seeking to profit from an emerging market without clear guidelines. This is where the
United Nations system of certifying carbon credits becomes indispensable.
UNFCCC: SETTING THE RECORD STRAIGHT
Only projects that carry the seal of approval from the United Nations Framework Convention on
Climate Change, (UNFCCC), can truly claim to have had their emissions reduction impact
verified. The two types of carbon credits created by UNFCCC approved projects are CERs and
ERUs. This is the legacy of the Kyoto Protocol.
Receiving UNFCCC approval for emissions reduction projects in order to yield carbon credits is a
complex procedure. At both national and international levels, approvals, validations & verifications
must be received. This system separates the opportunist voluntary carbon projects from the true
business of developing sustainability whilst reducing pollution in the developing world.

IS A CARBON CREDIT ALWAYS CARBON DIOXIDE?

Carbon credits are not always made up of purely carbon dioxide; there are six Greenhouse Gasses,
(GHGs), classified by the UNFCCC as directly responsible for accelerating Global Warming.
Carbon Dioxide, (CO2), is used as the base to measure all the other GHGs. The term tonnes of
carbon dioxide equivalent, or t-CO2e, is used to represent the impact of a particular atmospheric
pollutant, based on the equivalent tonnes of CO2 the emission would represent. Below, the six
gasses are shown with the tones of CO2 equivalent they represent.

THE KYOTO PROTOCOL: A HISTORY

As a response to the climate change threat, following the evidence of human impact on climate, the United Nations Framework
Convention on Climate Change (UNFCCC) was established in 1992.
Governments realised that stronger commitments were needed to mitigate climate change. Following years of negotiations, the Kyoto
Protocol entered into force on February 16, 2005. It established legal commitments for participating countries to reduce their
emissions, or suffer financial penalties.
The Kyoto Protocol requires the signatory countries to reduce, or limit their emissions relative to their base year. Each country has
been given a target related to the base year (normally 1990), and the combined effect of this should reduce these countries
greenhouse gas emissions by 5% per year in the period 20082012.
The Kyoto Protocol has three separate market-based mechanisms that help countries achieve targets. A Clean Development
Mechanism (CDM) project is a co-operation between a company in a country with reduction commitments and a company in a
developing country without commitments. The idea is that the company in the sponsoring country should support implementation of
project activities that cost-effectively reduce emissions of a company in the host country and also give sustainable development
benefits.
The reductions must be additional to any that would have occurred without the project taking place. Certified emission reductions
(CERs) generated can be used to meet reduction commitments or they can be traded on the open market as a futures commodity.
emerging carbon market: whats it worth?
Lawmakers, such as the previous Secretary of State for the Environment, Rt Hon. David Miliband MP, passed legislation to cut 60% of
CO2 emissions in the United Kingdom by the year 2050.
If all industrialized countries took on emission-reduction commitments of 60-80%, purchased half of their reductions in the
developing world, with each credit valued at $10, the global market would be worth $100bn per year... [United Nations]
Last Updated ( Sunday, 08 November 2009 22:15 )
EUA Spot Prices: 30 day

What is the Kyoto Protocol?

The 1992 Earth Summit in Rio de Janeiro, Brazil created international bodies on climate change and biodiversity.
Within a neoliberal economic system that coupled economic growth with sustainability, these entities became
the UN Framework Convention on Climate Change (UNFCCC) and the UN Convention on Biological Diversity (CBD)
which officially began in 1994. The UNFCCC adopted the Kyoto Protocol at the third Conference of the Parties
(COP) in 1997, which entered into force in February 2005. The Kyoto Protocol set the target of reducing emissions
by a minimum of 5.2 percent below 1990 greenhouse gas levels within a five-year timeframe (2008-2012).
Emissions trading, the main mechanism adopted for achieving this target, was introduced by the US in response
to heavy corporate lobbying during negotiations in the 1990s but later the Bush administration pulled out of the
agreement. The US has since never ratified the Kyoto Protocol. Emissions trading was set up with a combination
of cap and trade and offset schemes. The arrangement partitions the atmosphere and institutes the privitisation
of emissions through buying and selling of permits to pollute just as any other international commodity.
What are rights to pollute and how can they be traded?
Due to historical responsibilities of emissions from Northern countries recognized in the common but
differentiated responsibilities principle of the UNFCCC, under the Kyoto Protocol the polluters are industrialised
countries (Annex I, referring to a list of 37 such countries under the UNFCCC) that have agreed to targets for
reducing their greenhouse gas emissions in a pre-defined timeframe, called a commitment period. Countries
from the Global South do not have a reduction target in this first commitment of the Kyoto Protocol although
are encouraged to take on voluntary mitigation actions.
Under the cap and trade mechanism, polluters are given a number of emissions permits called Assigned Amount
Units (AAUs). The volume of permits is equivalent to their 1990 levels of emissions plus/minus their reduction
commitment. These permits are measured in tons of carbon dioxide equivalent gas (tCO2e). Carbon dioxide
(CO2) is one of the main greenhouse gases, although the Protocol covers six gases in total (CO2, CH4, N2O, HFCs,
PFCs and SF6). The AAUs are permits to pollute up to the overall limits set by the commitment agreed in Kyoto.

Under the cap and trade mechanism, polluters are given a number of emissions permits called Assigned Amount
Units (AAUs). The volume of permits is equivalent to their 1990 levels of emissions plus/minus their reduction
commitment. These permits are measured in tons of carbon dioxide equivalent gas (tCO2e). Carbon dioxide (CO2)
is one of the main greenhouse gases, although the Protocol covers six gases in total (CO2, CH4, N2O, HFCs, PFCs and
SF6). The AAUs are permits to pollute up to the overall limits set by the commitment agreed in Kyoto.
There are several ways in which the industrialised countries can use these permits:
1. If a polluting country has a surplus of permits it can sell them to another polluting country or keep them for a
future commitment period.
2. If a polluting country uses up all of its allowances, but pollutes more, it must buy permits from another polluting
country that has not used up its full allowance.
3. The country (or companies within that country) can invest in emissions-saving projects in other countries
mostly in the South and in this way produce extra permits that can then be sold, banked, or used to make up the
deficit in its original allowance.
The first two options above occur in countries which can redistribute their targets among themselves (industrialised
countries), either through direct re-allocations (called burden sharing) or by means of cap and tradecarbon
markets. The largest such scheme is the European Union Emissions Trading Scheme (EU ETS), which covers almost
half of the greenhouse gas emissions in 30 of the 37 Annex I countries.

The third option above is referred to as offsetting. For industrialised countries with targets that cannot be met, they can buy
offset credits to compensate their pollution by investing in emission-saving projects. Projects that are implemented in the
global South (countries with no reduction targets) can be registered under the Clean Development Mechanism (CDM).
Projects which take place in countries with reduction targets come under Joint Implementation (JI), these are mostly
implemented in Eastern Europe.
These offset credits or permits, which are treated as equivalent to and can be exchanged with AAUs, include: Emission
Reduction Units (ERUs) generated from the Joint Implementation mechanism; Certified Emission Reductions (CERs)
generated from the Clean Development Mechanism; and Removal Units (RMUs) generated from land use, land use change
and forestry offset activities. The latter apply special rules since they cannot be transferred to the next commitment period
and are not accepted under the EU Emissions Trading Scheme. Countries could then use RMUs for their own compliance
and hand out other types of credits in exchange.
CDM and JI projects can take a variety of forms: hydroelectric dams; basic upgrading to polluting factories (mostly
concerning potent greenhouse gases other than CO2); methane capture from landfills; renewable energy projects such as
solar or wind power; enhancement to existing energy generation; biomass and agrofuel projects; carbon sequestration from
monoculture tree plantations and so on.
The amount of credits earned by each project is calculated as the difference between the level of emissions without the
project and the level of emissions with the implementation of the project. However, all offset projects require the proof of
additionality, which is to say that all projects must ensure real, measurable and verifiable emission reductions that
areadditional to what would have occurred without the project. With countless without-project scenarios, a corporate
polluter can design huge estimates of the emissions that would have been produced without the companys offset project.
The bigger the hypothetical emissions, the bigger the reductions that can be claimed and the larger the volume of credits
that can be sold. Because it is impossible to verify how many emissions would have been generated without the project, the
amount of credits generated through additionality is largely exaggerated.

Internet Power Point Presentation

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