@manaskishor2000@gmail.com
The concept of Carbon credit was
emerged from Kyoto protocol. The Kyoto Protocol operationalizes the United
Nations Framework Convention on Climate Change by committing industrialized
countries to limit and reduce greenhouse gases emissions in accordance with
agreed individual targets. The Kyoto Protocol was adopted on 11 December 1997, it
entered into force on 16 February 2005. Currently, there are 192 Parties to the
Kyoto Protocol. In Doha, Qatar, on 8 December 2012, the Doha Amendment to the
Kyoto Protocol was adopted for a second commitment period, starting in 2013 and
lasting until 2020.
India accepted Kyoto in August 2002 itself. This protocol clearly
states that developed countries have to reduce their GHG emission levels by at
least 5% against the baseline levels of 1990 in five years' time from 2008 to
2012.
What is Carbon Credit
A carbon credit is a tradable
permit or certificate that provides the holder of the credit the right to emit
one ton of carbon dioxide or an equivalent of another greenhouse gas. In other words
(as defined by Kyoto protocol), For one Metric tonne of carbon emitted by
burning of fossil fuels Companies are allocated a certain number of credits
that they may use over a period. In case they are burning less then the
allocated amount then they are surplus of the number allocated to them. These
surplus number can be used for trading off and can be sold as per convenience
in global market.
Here it is noted that the one
credit is equivalent to one tonne of Carbon dioxide emission reduced. I.e If a
company has reduced emission of 1 tonne of CO₂ then company can be rewarded
with 1 Carbon credit. This was the primary goal for Kyoto protocol where industrialised
countries agreed to reduce the emission of Greenhouse gases primarily CO₂ to a
certain extent.
Types of Carbon Credits
There are two types of the carbon
credits:
Voluntary emissions reduction (VER): A carbon offset
that is exchanged in the over-the-counter or voluntary market for credits. Voluntary
carbon offsetting schemes allow companies of every part of the world to
generate and to commercialize carbon credits, which are equivalent to an
emission reduction of one tone of CO2. As a result of this, companies highly
demonstrate their commitment to reduce greenhouse gas emissions related to the
global warming process. Voluntary emission trading schemes work in line with
the principles defined by UNFCCC in this way, companies are capable to offset
their emissions under an internationally recognized standard.
Certified emissions reduction (CER): Emission units (or Carbon
credits) created through a regulatory framework with the purpose of offsetting
a project’s emission. The main difference between the two is that there is a third-party
certifying body that regulates the CER as opposed to the VER.
The Kyoto Protocol reflects its
signatory countries’ commitment to reducing emissions. Greenhouse gas-emitting
companies are now subject to strict emissions quotas. If they exceed these
quotas, companies can offset their emissions through several flexible
mechanisms.
Trading of Carbon Credits
Carbon credits can be traded on
both private and public markets. Current rules of trading allow the international
transfer of carbon credits. The prices of carbon credits are primarily driven
by the levels of supply and demand in the markets. Due to the
differences in the supply and demand in different countries, the prices of the
carbon credits fluctuate.
India and China are likely to emerge as the biggest sellers and Europe
is going to be the biggest buyers of carbon credits. India is one of the
countries that have 'credits' for emitting less carbon and is therefore having
surplus credit to offer to countries that have a deficit
Reference:
Author: @manaskishor2000@gmail.com
