CARBON CREDIT
Introduction:
Acarbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent (tCO2e) equivalent to one tonne of carbon dioxide.
Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon credit is equal to one metric tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.
The goal is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon intensive approaches than those used when there is no cost to emitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation projects generate credits, this approach 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. These carbon offsetters purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. Buyers and sellers can also use an exchange platform to trade, such as the Carbon Trade Exchange, which is like a stock exchange for carbon credits. The quality of the credits is based in part on the validation process and sophistication of the fund or development company that acted as the sponsor to the carbon project. This is reflected in their price; voluntary units typically have less value than the units sold through the rigorously validated Clean Development Mechanism.
The burning of fossil fuels is a major source of 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(HFCs), etc., all of which 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. The IPCC (Intergovernmental Panel on Climate Change) has observed that:
Policies that provide a real or implicit price of carbon could create incentives for producers and consumers to significantly invest in low-GHG products, technologies and processes. Such policies could include economic instruments, government funding and regulation,
while noting that a tradable permit system is one of the policy instruments that has been shown to be environmentally effective in the industrial sector, as long as there are reasonable levels of predictability over the initial allocation mechanism and long-term price.
The mechanism was formalized in the Kyoto Protocol, an international agreement between more than 170 countries, and the market mechanisms were agreed through the subsequent Marrakesh Accords. The mechanism adopted was similar to the successful US Acid Rain Program to reduce some industrial pollutants.
How it works:
Under the Kyoto Protocol, the 'caps' or quotas for Greenhouse gases for the developed Annex 1 countries are known asAssigned Amounts and are listed in Annex B. The quantity of the initial assigned amount is denominated in individual units, called Assigned amount units (AAUs), each of which represents an allowance to emit one metric tonne of carbon dioxide equivalent, and these are entered into the country's national registry.
In turn, these countries set quotas on the emissions of installations run by local business and other organizations, generically termed 'operators'. Countries manage this through their national registries, which are required to be validated and monitored for compliance by the UNFCCC. Each operator has an allowance of credits, where each unit gives the owner the right to emit one metric tonne of carbon dioxide or other equivalent greenhouse gas. Operators that have not used up their quotas can sell their unused allowances as carbon credits, while businesses that are about to exceed their quotas can buy the extra allowances as credits, privately or on the open market. As demand for energy grows over time, the total emissions must still stay within the cap, but it allows industry some flexibility and predictability in its planning to accommodate this.
By permitting allowances to be bought and sold, an operator can seek out the most cost-effective way of reducing its emissions, either by investing in 'cleaner' machinery and practices or by purchasing emissions from another operator who already has excess 'capacity'.
Since 2005, the Kyoto mechanism has been adopted for CO2 trading by all the countries within the European Union under its European Trading Scheme (EU ETS) with the European Commission as its validating authority. From 2008, EU participants must link with the other developed countries who ratified Annex I of the protocol, and trade the six most significant anthropogenic greenhouse gases. In the United States, which has not ratified Kyoto, and Australia, whose ratification came into force in March 2008, similar schemes are being considered.
Kyoto's 'Flexible mechanisms'
A tradable credit can be an emissions allowance or an assigned amount unit which was originally allocated or auctioned by the national administrators of a Kyoto-compliant cap-and-trade scheme, or it can be an offset of emissions. Such offsetting and mitigating activities can occur in any developing country which has ratified the Kyoto Protocol, and has a national agreement in place to validate its carbon project through one of the UNFCCC's approved mechanisms. Once approved, these units are termed Certified Emission Reductions, or CERs. The Protocol allows these projects to be constructed and credited in advance of the Kyoto trading period.
The Kyoto Protocol provides for three mechanisms that enable countries or operators in developed countries to acquire greenhouse gas reduction credits.
- Under Joint Implementation (JI) a developed country with relatively high costs of domestic greenhouse reduction would set up a project in another developed country.
- Under the Clean Development Mechanism (CDM) a developed country can 'sponsor' a greenhouse gas reduction project in a developing country where the cost of greenhouse gas reduction project activities is usually much lower, but the atmospheric effect is globally equivalent. The developed country would be given credits for meeting its emission reduction targets, while the developing country would receive the capital investment and clean technology or beneficial change in land use.
- Under International Emissions Trading (IET) countries can trade in the international carbon credit market to cover their shortfall in Assigned amount units. Countries with surplus units can sell them to countries that are exceeding their emission targets under Annex B of the Kyoto Protocol.
These carbon projects can be created by a national government or by an operator within the country. In reality, most of the transactions are not performed by national governments directly, but by operators who have been set quotas by their country.
Clean Development Mechanism:
The Clean Development Mechanism (CDM) is one of the flexibility mechanisms defined in the Kyoto Protocol (IPCC, 2007) that provides for emissions reduction projects which generate Certified Emission Reduction units which may be traded in emissions trading schemes.
The CDM is defined in Article 12 of the Protocol, and is intended to meet two objectives: (1) to assist parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the United Nations Framework Convention on Climate Change (UNFCCC), which is to prevent dangerous climate change; and (2) to assist parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments (greenhouse gas (GHG) emission caps). "Annex I" parties are those countries that are listed in Annex I of the treaty, and are the industrialized countries. Non-Annex I parties are developing countries.
The CDM addresses the second objective by allowing the Annex I countries to meet part of their emission reduction commitments under the Kyoto Protocol by buying Certified Emission Reduction units from CDM emission reduction projects in developing countries (Carbon Trust, 2009, p. 14).[2] The projects and the issue of CERs is subject to approval to ensure that these emission reductions are real and "additional." The CDM is supervised by the CDM Executive Board (CDM EB) and is under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC).
The CDM allows industrialized countries to buy CERS and to invest in emission reductions where it is cheapest globally (Grubb, 2003, p. 159). Between 2001, which was the first year CDM projects could be registered and 7 September 2012, the CDM issued 1 billion Certified Emission Reduction units. As of 1 September 2012, 63% of all CERS had been issued for projects based on destroying either HFC-23 (42%) or N2O (21%). Carbon capture and storage (CCS) was included in the CDM carbon offsetting scheme in December 2011.
The purpose of the CDM is to promote clean development in developing countries, i.e., the "non-Annex I" countries (countries that aren't listed in Annex I of the Framework Convention). The CDM is one of the Protocol's "project-based" mechanisms, in that the CDM is designed to promote projects that reduce emissions. The CDM is based on the idea of emission reduction "production" These reductions are "produced" and then subtracted against a hypothetical "baseline" of emissions. The emissions baseline are the emissions that are predicted to occur in the absence of a particular CDM project. CDM projects are "credited" against this baseline, in the sense that developing countries gain credit for producing these emission cuts. The economic basis for including developing countries in efforts to reduce emissions is that emission cuts are thought to be less expensive in developing countries than developed countries. Thus, it is widely thought that there is greater potential for developing countries to reduce their emissions than developed countries.
The CDM gained momentum in 2005 after the entry into force of the Kyoto Protocol. Before the Protocol entered into force, investors considered this a key risk factor. The initial years of operation yielded fewer CDM credits than supporters had hoped for, as Parties did not provide sufficient funding to the EB.
Carbon Footprint:
A carbon footprint has historically been defined as "the total sets of greenhouse gas (GHG) emissions caused by an organization, event, product or person."
However, calculating the total carbon footprint is impossible due to the large amount of data required and the fact that carbon dioxide can be produced by natural occurrences. It is for this reason that Wright, Kemp, and Williams, writing in the journal Carbon Management, have suggested a more practicable definition:
"A measure of the total amount of carbon dioxide (CO2) and methane (CH4) emissions of a defined population, system or activity, considering all relevant sources, sinks and storage within the spatial and temporal boundary of the population, system or activity of interest. Calculated as carbon dioxide equivalent (CO2e) using the relevant 100-year global warming potential (GWP100).”
Greenhouse gases can be emitted through transport, land clearance, and the production and consumption of food, fuels, manufactured goods, materials, wood, roads, buildings, and services. For simplicity of reporting, it is often expressed in terms of the amount of carbon dioxide, or its equivalent of other GHGs, emitted.
Most of the carbon footprint emissions for the average U.S. household come from "indirect" sources, i.e. fuel burned to produce goods far away from the final consumer. These are distinguished from emissions which come from burning fuel directly in one's car or stove, commonly referred to as "direct" sources of the consumer's carbon footprint.
The concept name of the carbon footprint originates from ecological footprint, discussion, which was developed by Rees and Wackernagel in the 1990s which estimates the number of "earths" that would theoretically be required if everyone on the planet consumed resources at the same level as the person calculating their ecological footprint. However, carbon footprints are much more specific than ecological footprints since they measure direct emissions of gasses that cause climate change into the atmosphere.
Measuring Carbon Footprints
An individual's, nation's, or organisation's carbon footprint can be measured by undertaking a GHG emissions assessment or other calculative activities denoted as carbon accounting. Once the size of a carbon footprint is known, a strategy can be devised to reduce it, e.g. by technological developments, better process and product management, changed Green Public or Private Procurement (GPP), carbon capture, consumption strategies, and others. Several free online carbon footprint calculators exist, with at least one supported by publicly available peer-reviewed data and calculations from the University of California, Berkeley's CoolClimate Network research consortium.
The mitigation of carbon footprints through the development of alternative projects, such as solar or wind energy or reforestation, represents one way of reducing a carbon footprint and is often known as Carbon offsetting.
The main influences on carbon footprints include population, economic output, and energy and carbon intensity of the economy. These factors are the main targets of individuals and businesses in order to decrease carbon footprints. Scholars suggest the most effective way to decrease a carbon footprint is to either decrease the amount of energy needed for production or to decrease the dependence on carbon emitting fuels.
Ways to reduce carbon footprint
The most common way to reduce the carbon footprint of humans is to Reduce, Reuse, Recycle. In manufacturing this can be done by recycling the packing materials, by selling the obsolete inventory of one industry to the industry who is looking to buy unused items at lesser price to become competitive. Nothing should be disposed off into the soil, all the ferrous materials which are prone to degrade or oxidize with time should be sold as early as possible at reduced price.
This can also be done by using reusable items such as thermoses for daily coffee or plastic containers for water and other cold beverages rather than disposable ones. If that option isn't available, it is best to properly recycle the disposable items after use. When one household recycles at least half of their household waste, they can save 1.2 tons of carbon dioxide annually.
Another easy option is to drive less. By walking or biking to the destination rather than driving, not only is a person going to save money on gas, but they will be burning less fuel and releasing fewer emissions in to the atmosphere. However, if walking is not an option, one can look into carpooling or mass transportation options in their area.
Yet another option for reducing the carbon footprint of humans is to use less air conditioning and heating in the home. By adding insulation to the walls and attic of one's home, and installing weather stripping or caulking around doors and windows one can lower their heating costs more than 25 percent. This helps because it reduces the amount of energy needed to heat and cool the house. One can also turn down the heat while they are sleeping at night or away during the day, and keep temperatures moderate at all times. Setting the thermostat just 2 degrees lower in winter and higher in summer could save about 1 ton of carbon dioxide each year