CARBON – “The next big money machine”
The single greatest challenge facing the world today is the urgent need to reduce the emissions of greenhouse gasses into the atmosphere which cause global warming. Without any immediate action, we are risking a dangerous change in the global environment.
Remedy – The Kyoto protocol.
The Kyoto Protocol treaty was adopted on 11th of December 1997 at the city of Kyoto, Japan and came into force February 16th, 2005.It is a legally binding agreement under which industrialized countries will reduce their collective emissions of greenhouse gases by 5.2% compared to the year 1990.
The Kyoto Protocol now covers 181 countries globally but only 60% of countries in terms of global greenhouse gas emissions. Although the United States (which is responsible for about 25 percent of total global warming pollution) and Australia (which is the 17th largest total greenhouse polluter) were involved in the discussion of the Kyoto protocol, neither country has ratified the protocol. The first commitment period of the Kyoto protocol ends in 2012.
To meet the emission reduction requirement UNFCCC has identified two general categories:
1. Developed countries, referred to as Annex I countries (who have accepted greenhouse gas emission reduction obligations and must submit an annual greenhouse gas inventory),
2. Developing countries referred to as Non-Annex I countries (who have no greenhouse gas emission reduction obligations but may participate in the Clean Development Mechanism) CDM.
The CDM allows emission-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. These CERs can be traded and sold, and used by industrialized countries to a meet a part of their emission reduction targets under the Kyoto Protocol.
With the cost of complying with Kyoto getting expensive for many Annex I countries, especially those countries already home to efficient, low greenhouse gas emitting industries, and high prevailing environmental standards. Kyoto therefore allows these countries to purchase (cheaper) carbon credits on the world market instead of reducing greenhouse gas emissions domestically, and this creates an oppurtunity for countries like India, China to mint money by selling the carbon credits (CER)
THE GROWTH OF THE CARBON MARKET
The carbon market is the most visible result of early regulatory efforts to mitigate climate change.Regulation constraining carbon emissions has spawned an emerging carbon market that was valued at US$64 billion (€47 billion) in 2007. Carbon contracts from clean energy projects (energy efficiency and renewable energy) accounted for nearly two-thirds of the transacted volume in the project-based market, appropriately reflecting the CDM’s mission of supporting emission reductions and sustainable development. Its biggest success so far has been to send market signals for the price of mitigating carbon emissions. This, in turn, has stimulated innovation and carbon abatement worldwide, as motivated individuals, communities, companies and governments have cooperated to reduce emissions.
Prices of CERS were in the range of €8-13 in 2007 and early 2008. The generally higher prices reflected the intense competition and activity in the global market to encourage projects that reduce global emissions. Prices in the higher end of that range typically were registered projects, projects that were being developed by experienced and established sponsors (low credit risk and performance risk) which touched €16-17.
Estimates show that CER supply could eventually reach 2.2 billion by 2012. With prospects such as mandatory emissions reduction and ever increasing prices of CERS, no doubt CARBON is the next big money machine.
INDIA- A Hotspot for cheap carbon credits (CERS)
The India National CDM Authority (NCA) works closely with industry associations to promote India Inc. as a destination for carbon purchases.It states that it does not plan to levy a tax on CERs at the moment. The NCA does not limit issuance of letters of approval to Indian companies or majority-Indian companies and also does not get involved or influence CER price discussions or negotiations which are strictly between buyer and seller.
WILL IT STILL REMAIN MONEY MACHINE POST 2012?
The Kyoto Protocol does not end in 2012. Negotiations have commenced on continuing the Protocol from the ‘first commitment period’ (2008-2012) into the ‘second commitment period’ (post-2012). UNFCCC is building upon an effective framework, broadning the scope of the Kyoto Protocol with widest possible participation. The European Union is determined to continue playing a leading role in international climate protection.Further negotiations took place in Bali in December. The meeting produced a ‘Bali Mandate’
‘Bali Mandate’: a comprehensive negotiating agenda and timetable for a single, effective global agreement that builds on the strengths of the Kyoto Protocol and takes it further
OUTCOME OF THE BALI MEETING
“Commitment types for Non-Annex I countries
According to the principle of common but differentiated responsibility, Annex I countries first aimed voluntarily to reduce emissions with the UNFCCC and later adopted binding absolute emission targets with the Kyoto Protocol. Similarly, Non-Annex I countries could move into commitments in a staged fashion, delayed compared to Annex I countries and differentiated among them according to their responsibility. Due to the urgent need of global reductions to stay within the 2°C limit, this movement would have to happen very soon.
An overview and brief assessment of several types of commitments (emission reduction actions) that could be applied to Non-Annex I countries in the future. The group of Non-Annex I countries is very diverse, not all countries would necessarily take on the same type of target at the same time.
A small number of non-Annex I countries have reached the development or emission level of some Annex I countries and hence could at one point move into Annex I and assume similar target as Annex I. Those countries would carry certain responsibility and would have to participate in the reduction effort.
Some other countries have clearly lower development and emission levels compared to Annex I, but are due to their size important for the urgent global emission reduction effort. For these countries types of commitments have to be found that that are to the advantage of those countries in meeting their development goals and that are not perceived as capping their economic growth.”
Source: http://assets.panda.org/downloads/ecofyspost2012targets20sept05.pdf
India presents the great dilemma for post-2012 negotiations. Should it be classified as developing or industrialised country then it will have to meet the emissions norms, which means lesser or no excess carbon credits that can be sold.Then…
Can India generate excess carbon credits to create an attractive market? Will India still be a hot spot for cheap carbon credits?
Answers, suggestions, comments, doubts, opinions, discussions are welcome.
