Carbon trading mechanism

In brief about Carbon trading

1. PRESENTED BY – BAITAE071 CARBON TRADING MECHANISM

2. CONTENT HISTORY OF CARBON TRADING HIGHLIGHTS OF KYOTO PROTOCOL CONCEPTS AND MECHANISM INVOLVED IN CARBON TRADING CARBON- CREDIT MARKET COMPANIES INVOLVED IN CARBON TRADING WHATS WRONG WITH CARBON TRADING ? EXAMPLES OF CARBON TRADING MERITS AND DEMERITS OF CARBON TRADING ALTERNATIVES FOR CARBON TRADING CASE STUDY BUDGET –CARBON TRADING

3. A HISTORY OF CARBON TRADING:

4. CARBON TRADING TRADE –BUYING AND SELLING Overall , carbon trading is buying and selling of carbon terms of carbon credits, to put down the emission of CO2. How humans have come up with this very complicated, unverifiable and lenient solution to climate change, that is not only designed to create billions of profit for corporations (who by the way are the main culprits of climate change), but is also designed to lure us away from the seeking real solutions for our dying planet.

5. A  carbon 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  (tCO 2 e) equivalent to one tonne of carbon dioxide

6. MECHANISM 1. Emissions trading (or cap and trade)- between two countries with binding obligations 2 . Trading in project-based credits (carbon offset – carbon credit)- J I joint Implementation (between two country with obligations) CDM clean development mechanism (between a country with and one without obligations) + hybrid trading systems (if in some difficulties in equivalences, mixing in economics)

7. What are carbon offsets?  Carbon trading runs in parallel with a system of carbon offsets. Instead of cutting emissions themselves, companies, and sometimes international financial institutions, governments and individuals, finance “emissions-saving projects” outside the capped area to generate carbon credits which can also be traded within the carbon market. The UN’s Clean Development Mechanism (CDM) is the largest such scheme with almost 1,800 registered projects in developing countries by September 2009, and over 2,600 further projects awaiting approval. Based on current prices, the credits generated by approved schemes will be worth around $35 billion by 2012.

8. What is this carbon-credit market anyways? How does it solve climate change? It has become a universal truth that our climate is changing because of global warming. And so, representatives of governments have come together to create a solution to this problem. The United Nations created the Kyoto Protocol which requires all member states to reduce their carbon emissions and find ways to mitigate the worsening effects of climate change.

9. But for developed countries whose industries are dependent on fossil fuels, they cannot immediately lower their emissions. And so the protocol designed a carbon trading mechanism popularly known as “Cap and Trade” scheme. This means, Carbon emission will be regulated and limited to a certain volume of allowable emission. For example, major polluters like the United States which releases more than the allowed 350 parts per million of CO2, would have to cut about 80% of their yearly emissions. 

10. To ensure that countries abide or stay under the cap , certain amount of permits to pollute at a certain period of time, the UN will decrease releasing these permits to reach the goal of lowering CO2 in the atmosphere. The fewer permits, the higher their prices are in the market. Countries and corporations that cannot do their commitment can instead buy carbon credits from countries or corporations with surplus carbon credits derived from Clean Development Mechanisms (CDM). Thus the demand for renewable energy projects boomed especially in ‘developing countries’ with rich natural resources and high energy potential such as the Philippines. In other words, rich countries pay poorer ones to cut greenhouse gas emissions on their behalf.

11. what’s wrong with cap and trade? There are fundamental theoretical flaws in the whole cap and trade scheme the scheme was never set up to directly tackle the key task of a rapid transition away from fossil fuel extraction, over-production and over-consumption. It seeks instead to quantifying existing pollution as a means to create a new tradeable commodity . Within this framework, traders invariably opt for the cheapest available credits at the time , but what is cheap in the short-term is not the same as what is environmentally effective or socially just.

12. Some of the key problems with the cap and trade approach are : The “trade” component does not reduce any emissions. The “cap” has too many holes and sometimes caps nothing . Offsets loosen the cap .

13. What examples have there been of Cap and Trade schemes? There have been a number of Cap and Trade markets – The EU ETS, the United States Acid Rain Program, The Los Angeles Region Clean Air Markets (RECLAIM), The Chicago Emissions Reduction Market System (ERMS) The Regional Greenhouse Gas Initiative. The EU ETS, established in January 2005, is the largest cap and trade scheme in operation worldwide and is the best for illustrating how carbon trading has failed in practice.

14. Isn’t carbon trading better than nothing? No. As carbon trading helps to avoid change and even increases emissions while exacerbating local conflicts, it is not a question of alternatives to carbon trading but rather of taking measures that actually tackle climate change.

15. What are the alternatives to carbon trading? Recognition of existing climate solutions.  Leave fossil fuels in the ground. Rediscovering environmental protection.   New revenues: tax and/or end currency and fuel speculation. Renewable energy should be supported but not uncritically Public energy research.   Re-estimating energy demand.   Transition Towns movement Changing economic calculations.   Challenging the “growth” fetish.

16. Union finance minister Arum Jailed has proposed to cut the tax on gains from carbon trading to 10% from 30% in a move expected to make investments into energy efficiency and clean energy more rewarding New Delhi:  The fine print of Union budget 2017-18 has served incentives for the energy sector such as lowering the tax burden on carbon trading gains and making it more attractive for foreign oil firms to store crude oil in India’s strategic reserves. The incentives seek to support energy security and climate change goals of the country after having decisively departed from petroleum subsidies. The minister also extended the income tax exemption to foreign companies storing crude oil in India’s strategic reserves to any gains from sale of such oil even after expiry of the company’s contract with the Indian government. At the moment, this benefit is limited only during the contract period. The Clean Development Mechanism (CDM) set up under the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC) allows investors in emission-reducing projects to generate tradable credits corresponding to the volume of emission reduction achieved. These credits can be sold to industrialized countries. So far, the income tax department has been treating the income on transfer of carbon credits as business income, subject to a 30% tax. Jaitley has proposed that it shall be a concessional 10% and applicable surcharge and cess. This amendment will take effect from the 2017-18 financial year.

17. The move to incentivize clean energy projects comes parallelly with gradual increase in taxes on petroleum products and the cess on coal, making India one of the leaders in climate change action. Since June 2014, when international oil prices started declining, India has increased excise duty on branded petrol from Rs15.5 a litre to Rs22.7 a litre as of December 2016 and on branded diesel from Rs5.8 a litre to Rs19.7 a litre, pointed out the Economic Survey2016-17. “In contrast, the governments of most advanced countries have simply passed on the benefits to consumers, setting back the cause of curbing climate change. As a result, India now outperforms all the countries except those in Europe in terms of tax on petroleum and diesel,” the survey pointed out. Ashish Khanna , chief executive officer of Tata Power Solar Systems Ltd, said the budget demonstrated the government’s commitment to being a front runner in renewable sources of energy. In line with the government’s stated objective of phasing out corporate tax exemptions in order to be able to moderate the corporate tax rate from 30% to 25%, Jaitley did not extend the income tax incentive for power projects under section 80 IA after it expires on 31 March 2017. Those who complete power projects before this deadline will, however, be able to claim full deduction of income from the project while calculating the company’s taxable income for 10 years.