Emerging Trends in Carbon Markets and Environmental Protocols

Emerging Trends in Environmental
Management
• Unit-X

Syllabus
• Carbon Credits Markets, Kyoto Protocol,
Carbon Credits Business Process,
emerging opportunities, Ecological
Footprint, International Conventions on
Environment and Development.

Kyoto Protocol
• The Kyoto Protocol to the United Nations
Framework Convention on Climate Change
(UNFCCC) is an international treaty that sets
binding obligations on industrialized countries
to reduce emissions of greenhouse gases. The
UNFCCC is an environmental treaty with the
goal of preventing dangerous anthropogenic
(i.e., human-induced) interference of the
climate system

Kyoto Protocol
• There are 192 parties to the convention: 191
states (including all the UN members except
Andorra, Canada, South Sudan and the United
States) and the European Union. The United
States signed but did not ratify the Protocol
and *Canada withdrew from it in 2011. The
Protocol was adopted by Parties to the
UNFCCC in 1997, and entered into force in
2005

Kyoto Protocol
• As part of the Kyoto Protocol, many developed
countries have agreed to legally binding
limitations/reductions in their emissions of
greenhouse gases in two commitments periods.
The first commitment period applies to
emissions between 2008-2012, and the second
commitment period applies to emissions between
2013-2020. The protocol was amended in 2012 to
accommodate the second commitment period, but
this amendment has (as of January 2013) not
entered into legal force.

Objectives
• The main goal of the Kyoto Protocol is to
contain emissions of the main anthropogenic
(i.e., human-emitted) greenhouse gases
(GHGs) in ways that reflect underlying
national differences in GHG emissions,
wealth, and capacity to make the reductions.

Green House Gases
 Green house gases (GHGs) are gases that result in global
warming
6 GHGs are regulated under the Kyoto Protocol
 – Carbon dioxide (CO2)
 – Methane (CH4)
 – Nitrous oxide (N2O)
 – Hydrofluorcarbons (HFCs)
 – Perfluorcarbons (PFCs)
 – Sulphur Hexafluoride (SF6)

Green House Gases
 There are at least 25 other gases, CO and water
vapor that influence climate change
 Above mentioned six are the key ones, that can be
controlled by human intervention with relative ease.

Global Warming Potential (GWP)
Global warming potential (GWP) for the 6 GHGs are
summarized below
•GWP is the global warming impact that a GHG would have over a 10-year timeframe
•By definition, CO2 is used as the reference benchmark.

Details of the Agreement
• National emission targets specified in the Kyoto
Protocol exclude international aviation and shipping.
• Kyoto Parties can use land use, land use change,
and forestry (LULUCF) in meeting their targets.
LULUCF activities are also called "sink"
activities. Changes in sinks and land use can have an
effect on the climate.
• Forest management, cropland management,
grazing land management, and revegetation are all
eligible LULUCF activities under the Protocol.

Negotiations
• Article 4.2 of the UNFCCC commits
industrialized countries to "[take] the lead" in
reducing emissions. The initial aim was for
industrialized countries to stabilize their
emissions at 1990 levels by the year
2000.The failure of key industrialized
countries to move in this direction was a
principal reason why Kyoto moved to binding
commitments.

Emissions Cuts
• Views on the Kyoto Protocol Commentaries on
negotiations contains a list of the emissions cuts that
were proposed by UNFCCC Parties during
negotiations. Countries over-achieving in their first
period commitments can "bank" their unused
allowances for use in the subsequent period.

Financial Commitments
• The Protocol also reaffirms the principle that
developed countries have to pay billions of
dollars, and supply technology to other
countries for climate-related studies and
projects. The principle was originally agreed in
UNFCCC.

Mechanism of Compliance
• The protocol defines a mechanism of
"compliance" as a "monitoring compliance
with the commitments and penalties for non-
compliance.“ According to Grubb (2003), the
explicit consequences of non-compliance of
the treaty are weak compared to domestic law.

Enforcement
• If the enforcement branch determines that an
Annex I country is not in compliance with
its emissions limitation, then that country is
required to make up the difference during the
second commitment period plus an
additional 30%. In addition, that country will
be suspended from making transfers under
an emissions trading program.

Kyoto Protocol
• Annex I Parties can achieve their targets by
allocating reduced annual allowances to major
operators within their borders, or by allowing these
operators to exceed their allocations by offsetting any
excess through a mechanism that is agreed by all the
parties to the UNFCCC, such as by buying
emission allowances from other operators
which have excess emissions credits

Issues & Drawbacks
 World’s largest GHG emitter, has not ratified the
Protocol Australia?
 Short horizon: First phase of the Protocol covers up to
2012– Extension?
 Country reduction targets defined, but division of that
by industry and sector within countries not yet
structured

Timeline
Milestones
1972 Stockholm Declaration
1988 Intergovernmental Panel on Climate Change
• 1992 The UN Conference on the Environment and
Development is held in Rio de Janeiro. It results in the
Framework Convention on Climate Change ("FCCC"
or "UNFCCC") among other agreements.
• 1995 Parties to the UNFCCC meet in Berlin (the 1st
Conference of Parties (COP) to the UNFCCC) to
outline specific targets on emissions.

Timeline
• 1997 In December the parties conclude the Kyoto
Protocol in Kyoto, Japan, in which they agree to the
broad outlines of emissions targets.
• 2002 Russia and Canada ratify the Kyoto Protocol to
the UNFCCC bringing the treaty into effect on 16
February 2005.
• 2011 Canada became the first signatory to announce
its withdrawal from the Kyoto Protocol.

“A carbon credit is a generic term for any
tradable certificate or permit representing the
right to emit one tone of carbon dioxide or the
mass of another greenhouse gas with a carbon
dioxide equivalent (CO2) to one ton 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.
What Is Carbon Credit?

Carbon Credit
• 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 (tCO2e)
equivalent to one tonne of carbon dioxide

Carbon Credit
• 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.

Example
 If a cement manufacturer reduces its CO2 emissions by
one ton by adapting some changes into its process or
by any other means; say just by planting some trees
around its plant, it is awarded ―one carbon credit‖. This
carbon credit can be sold to any industry, allowing it to
emit one extra ton of CO2 than its allowable limit.
 Nike has sold emission reduction credits equaling
100,000 tons to the utility company Entergy. Entergy
has also purchased carbon credits from DuPont and
Shell.

What does a ton of GHG look like?

Climate Changes
 According to the World Bank Economist Mr.
Stern, the effect of climate change could be worse
than the two World Wars.

Mechanism For Carbon Credit Trading
 The mechanisms assists the parties meet their
emission reduction targets.
 These mechanisms are:
– Joint Implementation (JI)
– Clean Development Mechanism (CDM)
– Emission trading (ET).

Clean Development Mechanism
(CDM)
• 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.

(CDM)

(CDM)
• 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.

(CDM)
• 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.

CDM Project Process
Outline
• An Industrialized country that wishes to get credits
from a CDM project must obtain the consent of the
developing country hosting the project that the
project will contribute to sustainable development.
Then, using methodologies approved by the CDM
Executive Board (EB), the applicant (the
industrialized country) must make the case that the
carbon project would not have happened anyway
(establishing additionality), and must establish a
baseline estimating the future emissions in absence of
the registered project.

CDM Project Process
• The case is then validated by a third party agency, called
a Designated Operational Entity (DOE), to ensure the
project results in real, measurable, and long-term
emission reductions. The EB then decides whether or not
to register (approve) the project. If a project is registered
and implemented, the EB issues credits, called Certified
Emission Reductions (CERs, commonly known as
carbon credits, where each unit is equivalent to the
reduction of one metric tonne of CO2e, e.g. CO2 or its
equivalent), to project participants based on the monitored
difference between the baseline and the actual emissions,
verified by the DOE.

CDM Project Process
Additionality
• To avoid giving credits to projects that
would have happened anyway ("free-riders"),
rules have been specified to ensure
additionality of the project, that is, to ensure
the project reduces emissions more than
would have occurred in the absence of the
project.

CDM Project Process
Baseline
• The calculated reduction depends on the
emissions that would have occurred without
the project minus the emissions of the
project. Accordingly, the CDM process
requires an established baseline or
comparative emission estimate.

CDM Project Process
Methodologies
• Any proposed CDM project has to use an approved
baseline and monitoring methodology to be
validated, approved and registered. Baseline
Methodology will set steps to determine the baseline
within certain applicability conditions whilst
monitoring methodology will set specific steps to
determine monitoring parameters, quality
assurance, equipment to be used, in order to obtain
data to calculate the emission reductions.

CDM Project Process
• Those approved methodologies are all coded:
• AM - Approved Methodology
• ACM - Approved Consolidated Methodology
• AMS - Approved Methodology for Small Scale Projects
• ARAM - Afforestation and Reforestation Approved
Methodologies
• All baseline methodologies approved by Executive Board
are publicly available along with relevant guidance on the
UNFCCC CDM website.

The parties involved:
 Must participate voluntarily;
 Must establish national CDM authority;
 Must have ratified the Kyoto Protocol;
Clean Development Mechanism (CDM)

National Clean Development Mechanism
(CDM) Authority
• The Seventh Conference of Parties (COP-7) to the
UNFCCC decided that Parties participating in CDM
should designate a National Authority for the CDM
and as per the CDM project cycle, a project
proposal should include a written approval of
voluntary participation from the Designated
National Authority of each country and
confirmation that the project activity assists the host
country in achieving sustainable development.

(CDM) Authority

(CDM) Authority
• Accordingly the Central Government
constituted the National Clean Development
Mechanism (CDM) Authority for the
purpose of protecting and improving the
quality of environment in terms of the Kyoto
Protocol;
• The composition of the "National Clean
Development Mechanism (CDM)
Authority"

(CDM) Authority
• The National Clean Development
Mechanism (CDM) Authority receives
projects for evaluation and approval as per the
guidelines and general criteria laid down in the
relevant rules and modalities pertaining to
CDM in addition to the guidelines issued by
the Clean Development Mechanism
Executive Board.

(CDM) Authority
• The evaluation process of CDM projects
includes an assessment of the probability of
eventual successful implementation of CDM
projects and evaluation of extent to which
projects meet the sustainable development
objectives, as it would seek to prioritize
projects in accordance with national priorities.

(CDM) Authority
• The National Clean Development
Mechanism (CDM) Authority can
recommend certain additional requirements to
ensure that the project proposals meet the
national sustainable development priorities and
comply with the legal framework so as to
ensure that the projects are compatible with the
local priorities and stakeholders have been
duly consulted.

Ecological Footprint
• The Ecological Footprint is a measure of
human demand on the Earth's Ecosystems. It
is a standardized measure of demand for
natural capital that may be contrasted with the
planet's ecological capacity to regenerate.

• It represents the amount of biologically
productive land and sea area necessary to
supply the resources a human population
consumes, and to assimilate associated waste.
Using this assessment, it is possible to
estimate how much of the Earth (or how
many planet Earths) it would take to support
humanity if everybody followed a given
lifestyle.

• Ecological footprint analysis compares human
demands on nature with the biosphere's ability to
regenerate resources and provide services. It does
this by assessing the biologically productive land
and marine area required to produce the
resources a population consumes and absorb the
corresponding waste, using prevailing technology.

• Footprint values at the end of a survey are categorized for
Carbon, Food, Housing, and Goods and Services as
well as the total footprint number of Earths needed to
sustain the world's population at that level of
consumption.
• This approach can also be applied to an activity such
as the manufacturing of a product or driving of a car.
This resource accounting is similar to life cycle analysis
wherein the consumption of energy, biomass (food,
fiber), building material, water and other resources
are converted into a normalized measure of land area
called global hectares (gha).

• Per Capita Ecological Footprint (EF), or ecological
footprint analysis (EFA), is a means of comparing
consumption and lifestyles, and checking this against
nature's ability to provide for this consumption. The
footprint can also be a useful tool to educate people
about carrying capacity and over-consumption, with
the aim of altering personal behavior. Ecological
footprints may be used to argue that many current
lifestyles are not sustainable. Such a global comparison
also clearly shows the inequalities of resource use on this
planet at the beginning of the twenty-first century.

Implications
• . . . the average world citizen has an eco-
footprint of about 2.7 global average
hectares while there are only 2.1 global
hectare of bio-productive land and water
per capita on earth. This means that
humanity has already overshot global
biocapacity by 30% and now lives un-
sustainably by depleting stocks of "natural
capital"

Rotterdam
Convention (1998)
and Stockholm
Convention (2001)
on
toxic chemicals
“Pilot Project
Chemical Safety”
Convention on
Biological Diversity
1992
UN Framework
Convention on
Climate Change
(UNFCCC) 1992
Kyoto Protocol
1997
Montreal Protocol
1987
Phase out of Ozone
Depleting
Substances
UN Convention
to
Combat
Desertification
(UNCCD) 1994
“Implementing the
Biodiversity Convention”
“Climate Protection
Programme”
“PROKLIMA”
Protecting the
Ozone Layer
“Combating
Desertification”
Public and
Private Partners
and Networks in
Developing,
Transitional and
Industrialised
countries
Environmental Conventions
“Implementing the
Biodiversity Convention”
“Climate Protection
Programme”
“Combating
Desertification”

Montreal Protocol
• The Montreal Protocol on Substances that Deplete the
Ozone Layer (a protocol to the Vienna Convention for the
Protection of the Ozone Layer) is an
international treaty designed to protect the ozone layer by
phasing out the production of numerous substances that are
responsible for ozone depletion. The treaty was opened for
signature on September 16th, 1987, and entered into force on
January 1st, 1989, followed by a first meeting in Helsinki,
May 1989. Since then, it has undergone seven revisions, in
1990 (London), 1991 (Nairobi), 1992 (Copenhagen), 1993
(Bangkok), 1995 (Vienna), 1997 (Montreal), and 1999
(Beijing). If the international agreement is adhered to, the
ozone layer is expected to recover by 2050.

Montreal Protocol
• Due to its widespread adoption and implementation it
has been hailed as an example of exceptional
international co-operation, with Kofi
Annan quoted as saying that "perhaps the single
most successful international agreement to date
has been the Montreal Protocol‖. The two ozone
treaties have been ratified by 197 parties, which
includes 196 states and the European Union, making
them the first universally ratified treaties in United
Nations history.

Convention on Biological
Diversity

Convention on Biological Diversity
• The Convention on Biological
Diversity (CBD), known informally as
the Biodiversity Convention, is a multilateral
treaty. The Convention has three main goals:
• conservation of biological diversity
(or biodiversity);
• sustainable use of its components; and
• fair and equitable sharing of benefits arising
from genetic resources

Convention on Biological
Diversity
• In other words, its objective is to develop
national strategies for the conservation and
sustainable use of biological diversity. It is
often seen as the key document
regarding sustainable development.
• The Convention was opened for signature at
the Earth Summit in Rio de Janeiro on 5 June
1992 and entered into force on 29 December
1993.

United Nations Convention to
Combat Desertification

United Nations Convention to Combat
Desertification
• The United Nations Convention to Combat
Desertification in Those Countries Experiencing
Serious Drought and/or Desertification,
Particularly in Africa (UNCCD) is a Convention to
combat desertification and mitigate the effects of
drought through national action programs that
incorporate long-term strategies supported by
international cooperation and partnership
arrangements.

• The Convention, the only convention
stemming from a direct recommendation of the
Rio Conference's Agenda 21, was adopted in
Paris, France on 17 June 1994 and entered into
force in December 1996. It is the first and
only internationally legally binding
framework set up to address the problem of
desertification.

• The Convention is based on the principles of
participation, partnership and
decentralization—the backbone of Good
Governance and Sustainable Development.
It has 196 parties, making it truly global in
reach. In 2013, *Canada became the first
country to announce its intention to withdraw
from the convention

Stockholm Convention (2001)
• Stockholm Convention on Persistent
Organic Pollutants is an
international environmental treaty, signed
in 2001 and effective from May 2004, that
aims to eliminate or restrict the production
and use of persistent organic
pollutants (POPs).

Stockholm Convention (2001)
• Key elements of the Convention include the
requirement that developed countries provide new
and additional financial resources and measures
to eliminate production and use of intentionally
produced POPs, eliminate unintentionally produced
POPs where feasible, and manage and dispose of
POPs wastes in an environmentally sound
manner. Precaution is exercised throughout the
Stockholm Convention, with specific references in
the preamble, the objective, and the provision on
identifying new POPs.

References
Environmental Management
Bala Krishnamoorthy- PHI publication
Wikipedia- The online free Encyclopedia

Emerging Trends in Carbon Markets and Environmental Protocols

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