Carbon Credit Trading Mechanism and Indian Scenario

A carbon credit is a financial instrument that represents a tonne of CO2 or CO2e (carbon dioxide equivalent gases) removed or reduced from the atmosphere from an emission reduction project.

• Carbon credits are measured in units of certified emission reductions (CERs).
• Each CER is equivalent to one ton of carbon dioxide reduction.
• Such a credit can be sold in the international market at a prevailing market rate.

The CDM allows emission-reduction projects in developing countries to earn certified emission reduction (CER) credits.

The purpose of Clean Development Mechanism (CDM) is reduce to emissions and also contribute to sustainable development in developing countries.

Clean Development Project Process

India 90,898,274

China 309,129,616

CER – Source of Generation:

Industries like:

• Manufacturing,
• Energy (renewable & non-renewable sources),
• Metal production,
• Mining and mineral production,
• Chemicals,
• Afforestation & reforestation,
• Transport and
• Agriculture

Price Determinants of Carbon :

• Policy and regulatory Issues;
• Market fundamentals; and
• Technical Analysis.

INDIAN SCENARIO

• India is a Party to the United Nations Framework Convention on Climate Change (UNFCCC)
• The Seventh Conference of Parties (COP-7) to the UNFCCC decided that Parties participating in CDM should designate a National Authority for the CDM.
• Accordingly the Central Government constituted the National Clean Development Mechanism (CDM) Authority

INDIAN SCENARIO- FAVORING POINTS

1. India - high potential of carbon credits
2. Wide spectrum of projects with different sizes
3. Vast technical human resource
4. Dynamic, transparent & speedy processing by Indian DNA (NCDMA) for host country approval
5. MoU Signed between MoP and GIZ (Oct 2006)- Indo German Energy program (IGEN)

– Baseline CO2 Emissions from Power Sector already in place- first CDM country

– Improvement in EE

– CDM in Power Sector

Carbon Trading in India

Multi Commodity Exchange of India Ltd. ( MCX) entered into a strategic alliance with CCX in September 2005 to initiate carbon trading in India.The tie-up would provide immense scope and opportunity for domestic suppliers to realize better prices for their carbon credits.India being a major supplier of carbon credits, the tie-up between the two exchanges is expected to ensure better price discovery of carbon credits.

CDM MARKET IN INDIA

• Fastest growing financial market – rose 80% in 2007 to reach nearly $ 60 billion - expected to be $ 1 trillion by 2009–10.
• 2007 carbon market shows China’s share at 61% and India at 12%. In terms of total CERs issued of 166 million, India has 43 million or 26%.
• In 2008, China’s share at 23% and India at 30% in terms of no of projects and 36% and 25% in terms of no of CER’s issued respectively. (13.10.08)
• An Indian firm, J.S.W Steel won the largest single CER of 5.4 million in 2 projects.