Carbon trading
It is a name given to the exchange of emission permits. This exchange of emissions may take place within the economy or may take the form of international transactions. Emission permit is known alternatively as carbon credit. Carbon credits are certificate awarded to the countries that are successful in reducing the emissions that caused global Warming. Carbon credits are measured units of certified emission reduction and each CER is equivalent to 1 metric ton of CO₂.
Methods/ Types of carbon trading
· Emission trading / Cap and Trade – when a country is able to reduce its emissions by more than the specified amount it can exchange some of its credit to another country who fails to reduce its emission level as per assigned amount. This kind of exchange of emission allowance is called emission trading.
· Offset trading – In this a country can invest in carbon projects abroad to earn carbon credit and thereby meet its reduction commitment. Offset trading is thus nothing but investment abroad in Carbon-project. According to Kyoto protocol if such a joint venture is between developed countries it is called joint implementation, while if it is taken along with any developing and poor country it is called clean development mechanism (CDM) .
Reducing GHG Emissions: Kyoto Mechanisms-
The UN’s Kyoto protocol established binding greenhouse gas emissions reduction targets for 37 industrialized countries and the European community. To help achieve these targets the protocol introduced three “flexible mechanisms”- international emissions trading (IET), joint implementation (JI), and the clean development Mechanism (CDM).
To date the CDM has arguably been the most successful of the three flexible mechanisms. It has two main goals: one, to assist countries without emissions targets (ie developing countries) in achieving sustainable development. Two, help those countries with emission reduction targets under Kyoto (ie developed countries) in achieving compliance by allowing them to purchase offsets created by CDM projects.
A broad range of projects are eligible for CDM accreditation, with the notable exceptions of nuclear power and avoided deforestation projects. They vary from hydropower and wind energy projects, to fuel switching and industrial efficiency improvements. Crucially, to qualify for accreditation the project developers must prove ‘additionality, defined as emissions reductions that are additional to what would have otherwise occurred. This is calculated by using an approved methodology to subtract the estimate emissions of a given project from a hypothetical “business –as –usual ‘emissions baseline.
Once registered, projects are then issued Certified Emissions Reductions (CER), with each to a reduction of one tone of carbon dioxide equivalent. These CERs, or offsets, can be bought and used by developed countries to meet their Kyoto commitments. Companies can also purchase CERs to contribute towards their own emission reduction targets under mandatory emissions trading schemes (such as the EU Emissions trading Scheme, ETS) or voluntary schemes.
There are currently over 3000 registered projects delivering an average of 500 million CERs per year. The overwhelming demand for CERs comes from the Emissions Trading Scheme (ETS), the world’s largest functioning compliance carbon market.
CDM projects are not without their controversies however. Questions surround the sustainable development credentials of certain projects, particularly in the case of industrial gas projects. HFC-23 projects, for example, seem to create perverse incentives to continue to produce the ozone depleting gas HCFC-22 in order to destroy the waste gas by-product HFc-23.
Concerns have also been raised regarding the conduced of project owners, with certain CDM projects implicated in land rights issues and human rights abuses. Meanwhile, the geographical distribution of CDM projects, over 80% of which originate in china and India, calls, into question the ability of the CDM to drive broad engagement with sustainable development across developing countries. What’s more, critics would suggest a more fundamental flaw in the CDM is that it is impossible to prove the ‘additionally’ of a project in comparison to a hypothetical baseline.
In the course of CDM implementation, numerous complaints have been aired over such things as uneven distribution of benefits, difficult and lengthy registration process, high transaction costs, and inaccessibility to certain sectors. The more serious problems however, are persistent issues that strike at the heart of the CDM and question its effectiveness as an instrument for climate justice and equity. Among these issues are:
· Trading in greenhouse gases turns them into a commodity , giving “owners” undue rights to pollute.
· Carbon trading allows companies and countries to claim to be reducing emissions, even as they continue to burn fossil fuels, destroy forests and pollute communities
· Many companies are getting millions of dollars in CERs for projects they would have done anyway the CDM incentive. This violates the “additionality” rule and means that these projects, rather than reducing overall emissions are actually increasing them.
· CERs are awarded for reductions against a hypothetical baseline derived from future emission projections. This is extremely vulnerable to manipulation.
· The system rewards many projects for merely avoiding a part of the emissions that would have occurred under a business-as-usual scenario, but offers no incentive for choosing the best policy option.
Counter to this are the positive achievements of the CDM. It is expected to generate as much as 1 billion tones of emissions reductions up to 2012, with projects in 81 countries driving investment in a market worth $19.8 billion in 2010. The CDM has created a system where emission reduction opportunities are actively sought out, and an institutional framework that stimulates secure and focused global investment in sustainable development projects.
In addition, the UN estimates that around 44% of all projects currently in the pipeline involve some form of technology transfer, with a significant proportion of this occurring in biomass energy and wind projects, methane avoidance projects, energy efficiency projects and landfill gas projects. The CDM can therefore be said to have made a considerable contribution to the development and transfer of knowledge and technology in developing countries, and positively impacted on local communities through the creation of jobs and infrastructure.
Ball Action Plan –COP- 13
The 13th annual COP of UNFCC was held in Bali (Indonesia) in December 2007. Over 190 countries that are party to this UN treaty on climate change approved an action plan or a road map for two years of talk to adopt a new international convention by the end of 2009 to succeed 1997 Kyoto Protocol.
Bali meet was to discuss what will happen after 2012 and what the countries are expected to do after the first phase of the Kyoto Protocol ends in 2012. According to Kyoto Protocol, only the rich countries that are responsible for 75% of the total pollution are expected to cut their carbon emissions. But these countries demanded that after 2012, even developing countries like China and India whose emission levels are going up with their economic growth, also undertake some kind of emission cuts. This means a complete overhaul of the existing U treaty.
Ball action Plan of UNFCCC endorsed a mitigation programme called REDD+ (Reducing Emissions from Deforestation and Degraded lands Plus) in developing countries to tackle GHG emission from deforestation and land degradation. India has proposed for REDD+ which includes conservation, afforestation and sustainable development.
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