CARBON CREDIT

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
1.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,hydro fluorocarbons 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..
2.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 along side raw materials and other liabilities or as sets.
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. 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 low-emission
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 hole process of buying carbon credit.
3.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 trade able carbon credit over a carbon tax are:
2.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.
2.the flexible mechanisms of the Kyoto Protocol ensure that all
investment goes into genuine sustainable carbon reduction
schemes, through its internationally-agreed validation process.
4.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 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 beyond-
business-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.
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 project-
based 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."
5. Carbon credit in India
At last count in March 2006, India had 310 ‘eco-friendly’ projects
awaiting approval by the UN. Once cleared, these projects can fetch about Rs
29,000 crore in the next seven years. India’s carbon credit market is growing, as
many players (industries) are adopting the Clean Development Mechanism
(CDM), said S K Panigrahi, Director(Environment and Forest), Planning
Commission.
Elaborating on ‘global emission trading’ Panigrahi added, “For
instance, US accounts for 30 per cent of global emissions, while India makes for
three per cent. Now, India can transfer part of its allowed emissions to developed
countries. For this, India must first adopt CDM and accrue carbon credits. One
carbon credit or Certified Emission Reductions (CERs) is equivalent to one tonne
of emission reduced.”
State Minister for Environment and Forest C Chennigappa, “India has
an emerging CDM market and Karnataka is one of the three states to
have registered projects with the host country endorsements.”
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