isramart : CARBON CREDIT and CLEAN DEVELOPMENT MECHANISM (CDM)

Isramart news:
The issues of Climate and Global Warming have today become the greatest challenge to the human strive for its continued and dignified existence. Together, they impact every aspect of life on earth and constitute a threat like never before in human history. Therefore in our humble attempt to create public awareness that will result in public action, the Morung for Indigenous Affairs and JustPeace in partnership with LEAD, is introducing the weekly Climate Change Corner, which will be published every Saturday. Hope you will find it useful.

Carbon finance is the term used for Carbon Credit to help finance GHG (Green House Gas) reduction projects. This came into being during the formation of Kyoto Protocol (KP) “to stabilize the GHG concentration in the atmosphere at a level that would prevent dangerous anthropogenic (man made) interference with the climate system”. Kyoto Protocol covers six greenhouse gases that are: carbon dioxide (CO2) with Greenhouse Warming Potential-1(GWP-1), methane (CH4) (GWP-21), nitrous oxide (N2O) (GWP-310), hydrofluorocarbons (HFCs) (GWP-1000s), perfluorocarbons (PFCs), (GWP-1000s) and sulphur hexafluoride (SF6) (GWP-239000). The overall emission reduction target for Annexure I Parties such as US: 34%; Russia:16%; Japan: 8% ; EU: 23%; and other Annexure 1 Parties 19% as a group should be at least 5 percent below 1990 levels, to be achieved by the commitment period of 2008 to 2012.

Key feature of the Kyoto Protocol* are its flexibility as to the location of emission reductions. Emission Trading (ET) allows parties to make use of lower cost opportunities to reduce emission. Offsetting emission is the process where one organization purchases carbon credit to neutralize its global warming impact. The mechanism has a legal basis in the Kyoto Protocol. It is run by an Executive Board (EB) answerable to KP Parties. EB back-stopped by UNFCCC secretariat with support for:- registration and issuance and accreditation of third-party validators.

* The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC or FCCC), an international environmental treaty with the goal of achieving “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” The Kyoto Protocol establishes legally binding commitment for the reduction of four greenhouse gases (carbon dioxide, methane, nitrous oxide, sulphur hexafluoride), and two groups of gases (hydrofluorocarbons and perfluorocarbons) produced by “annex I” (industrialized) nations, as well as general commitments for all member countries. As of January 2009, 183 parties have ratified the protocol, which was initially adopted for use on 11 December 1997 in Kyoto, Japan and which entered into force on 16 February 2005.

Carbon transactions are purchase contracts, whereby one party pays another party in exchange for a given quantity of GHG emission reductions, either in the form of allowances or “credits” that the buyer can use to meet its compliance objectives vis-à-vis greenhouse gas mitigation.

Payment for emission reductions can be made through cash, equity, debt, or in-kind contributions such as providing technologies to abate GHG emissions. This rationale in trading of Carbon Credits is that the impact of CO2 emissions and/or reductions is insensitive to location/country. Cost and opportunities to reduce CO2 also vary between companies, sectors, and countries. Therefore this market instruments enable meeting GHG targets cost-effectively taking advantage of differences in marginal abatement costs across different emission sources.
This trading is done between parties which pay the other for the quantity of GHG emission reduction component known as the Clean Development Mechanism (CDM), the project for which the eligibility and activities should be approved by the Governments of the participating parties. Interest should be host country driven, and may involve private or public entity. Environmental integrity is a must, with economic efficiency for cost effectiveness and equity to all parties.

Implementation of such projects should result in social, environmental, economic and technological well-being - the four pillars of sustainable development. It is the prerogative of the host Party to confirm whether a CDM project activity assists it in achieving sustainable development.

In the market the sellers are big Public Sector Units (PSUs) like the National Thermal Power Corporation (NTPC), Indian Oil Company (IOC), Railways; in the private sectors are like the Reliance and the Tatas. The Buyers//Brokers are the Climatecare, ClimateNeutral, World Bank, UNDP-MDG carbon facility, Asian Development Bank (ADB), JBIC, GTZ-IS, which are traded in the compliance (under KP) and the voluntary markets like the Asia Carbon, Chicago Climate Exchange, Multi Commodity Exchange in different countries and regions. In India, state regulates the CDM as in the state of Karnataka which no longer levy a tax of 70%, where as Gujarat is collecting 25%. On the other hand, Uttar Pradesh allows the coverage of Project Design Document (PDD) preparation costs through tariffs if CDM registration is not achieved. It is to be noted that a CDM project cycle transaction would cost about rupees 40.00 lakhs to 100.00 lakhs from baseline study till verification. There it is advisable to bundle similar CDM projects to share the transaction cost OR have projects that would benefit to the tune more than specified. Governments and its undertakings are not eligible for CDM.

Maybe the people of Nagaland can take advantage of the Prime Minister’s NAPCC (National Action Plan for Climate Change, 2008) where a huge afforestation programme is there for 6 million hectare; energy efficiency - solar, wind and hydro-power; waste recycle and management; and sustainable habitat. Are you listening, again!!!