1. An Eco friendly business – Carbon Credits
Carbon credits
The concept of carbon credits came into force as part of an international
agreement, known as Kyoto protocol which conveys a word "Carbon neutral".
This word refers to balancing the amount of carbon dioxide you release with that
amount that you can set off. Carbon credits is a way to help entities reduce their
CO2 emission by offsetting them in more environmentally friendly way. It is
basically a monetary value given by an organisation that can be bought and
used to pay for carbon dioxide offsetting services that fund renewable energy
research, development and other environmental practice. Carbon transactions
are defined as purchase contracts / emission reductions purchase agreements
(ERPAs). The entities who want to reduce their carbon emission ratio in
environment can purchase carbon credits at prevailing market rate with other
environmental organisations. These organisations have been approved to sell
carbon credits and provide services to reduce CO2 emission. These services
help pay for renewable energy sources like wind, solar and geothermal energy,
bio fuels, energy efficiency technology, reforestation practices, low pollution
ambition mechanism, waste energy development and organic farming projects.
CO2 emission limits and trading rules are different country by country. Carbon
credit is one commodity and like other commodity international price of carbon
credit depends over demand and supply factors.
Benefits of carbon trading
Carbon credits trading is new international business gateway for developing
countries to earn foreign currency by eco friendly way. By setting of carbon
emission through carbon credits, we directly helping the environment and
reducing carbon footprint. Some of major benefits of carbon trading are:
Reduces CO2 emissions in environment, which helps to stabilise global
CO2 levels and reduce terrible effects of global warming.
Saves energy
New projects provide employment opportunities.
Insists research and development activities for low emission of CO2 in
environment.
Conserves natural resources, habitats and trends.
Concept of Clean Development Mechanism (CDM)
The word clean development mechanism was introduced in Kyoto Protocol. The
joint green house gases mitigation project was introduced under Article 12 of
Kyoto Protocol which enables Annex-I Countries are required to reduce GHG
emission by average 5.2% relative to 1990 levels. These emission reductions
must be achieved by 2008-12, this period called first commitment period. The
worlds 39 developed countries with emission reduction targets are called Annex-
I countries and whereas, those without targets are non Annex-I countries. The
clean development mechanism is a project based financing mechanism,
whereby eligible Annex-I parties may purchase carbon credits generated by
projects hosted in developing non Annex-I countries. Article 17 of Kyoto
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2. Protocol provide an opportunity to Annex-I parties to reduce CO2 emission with
help of non Annex-I parties where the project establishment cost are much low,
this enables parties to make use of lower cost opportunities to reduce emissions.
With help of carbon trading developing nations can enhance their social and
economical developments. CDM Mechanism introduced with two eminent goals:
To assist developing countries who host CDM project to achieve
sustainable developments.
To provide developed countries with flexibility for achieving their emission
reduction targets by allowing them to take credits from emission reducing
project undertaken in developing countries.
Certified Emission Reductions (CERs)
Certified Emission Reductions (CERs) are carbon credits generated by CDM
projects which have completed the registration process with CDM Executive
Board. Each CER are represents the abatement of one tonne of CO2 equivalent.
CER are issued by CDM Executive Board once estimated abatement volumes
have been validated independently, and a stringent verification process is in
place for ongoing monitoring.
CDM Executive Board (EB)
The main functions of EB are, assess request for registration, review and
approve new methodologies related to baseline and monitoring plan,
accreditation of operational entities, develop recommendations on small scale
methodologies and develop and maintain the CDM registry etc. The EB may
constitute panels or working groups for smooth operations. Currently EB having
five panels / working groups:
Clean Development Mechanism Registration and Issuance Team
Meth Panel
Afforestation and reforestation working group
Small scale working group
Accreditation Panel
Project Participant (PP)
Every CDM projects involves a standard set of key participants (PP). While the
range and types of stakeholders may vary from project to project. Governmental
bodies, local authorities like municipalities, financial institutions, public and
private companies, NGOs can develop and operate CDM projects. An investor is
an entity that purchases CERs from a CDM project. The role of PP are develop
the CDM project activity, implement/operate the CDM project and monitoring the
CDM project activity
Designated National Authority (DNA)
As per the terms of Kyoto Protocol parties participating in CDM should designate
a National Authority. The functions of DNS are validate CDM activities at the
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3. outset of the project, making publicly available CDM project design documents,
receiving public comments on the CDM documents, incorporating stakeholder
comments and verification and certification of CERs during the operation of the
project etc. Accordingly the Government of India constituted the National Clean
Development Mechanism Authority, the communication address of DNA India is:
Designated National Authority (DNA) - India
Member Secretary
The National Clean Development Mechanism (CDM) Authority
Ministry of Environment and Forests
115, Paryavaran Bhawan,
CGO Complex, Lodhi Road,
New Delhi, India
Procedure for submitting CDM Project Reports to the National CDM
Authority (Host Country Approval process)
Project participants/ promoters are required to submit one soft copy of Project
Concept Note (PCN) and Project Design Document (PDD) through online form
and twenty hard copies of PCN & PDD along with two CDs containing all
information to DNA. The project report should be properly bound and forwarded
through covering letter duly signed by project participants / promoter. The
National CDM Authority examines the documents and if there are any
preliminary queries the same are asked from project participants/ promoters.
Than project proposals are put up for consideration by the National CDM
Authority. Project participants/ promoters and his consultants are given about 10
to 15 days previous notice to come the authority meeting and give brief power
point presentation regarding their CDM project proposal. During the power point
presentation members of authority may demand more clarification or information
about project proposal. Once the members of authority are satisfied, the Host
Country Approval is issued by the Member Secretary of the National CDM
Authority.
Designated Operational Entity (DOE)
Designated Operational Entity (DOE) is an independent organization accredited
by Executive Board to validate proposed CDM project, verify the resulting
emission reductions, and certify those emission reductions as CERs. A DOE
could be a private company such as auditing and accounting firm, consulting
company, and law firm. The functions of DOE are:
Validate proposed CDM project activities;
Verifies emission reduction of a registered CMD project;
Submit an annual activity report to the EB etc.
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4. Where is CDM Applicable
Renewable Energy Wind Power
Solar Energy
Biomass Power
Hydro Power
Energy Efficiency measures Boilers
related to Pumps
Turbines
Installation of variable speed drives
Efficient cooling system
Back pressure turbines etc.
Waste Management Capturing of landfill methane emission to
generate power.
Utilization of waste and waste water
emission for generation of energy for
captive use power generation.
Transportation IC Engine at Micro level
Fuel switch from gasoline and diesel to
natural gas.
Model shift from air to train, road to train at
micro level
Replacement of shipment of certain raw
materials through road to pipelines.
Fuel Switching Fossil fuel to green fuel
Forestry Afforestation project
Power Sector New technologies that are efficient
reduction in technical transmission and
distribution losses.
CDM Project Cycle
CDM Project Cycle divided in to two parts, pre project implementation which is
one time project and post project implementation process which is on going
process until the validity of project.
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5. PRE PROJECT IMPLEMENTATION CYCLE
One time process
⇓ Authority
⇒ Step -1
Project Idea Note (PIN)Preparation
The first general information about
Project
Participant
the project (PP)
⇒ Step -2
Project Design
Preparation
Document (PDD) Project
Participant
(PP)
PDD containing following information
General description of project activity
Baseline methodology
Crediting period
Monitoring methodology and plan
Calculation of GHG emission
reductions by sources
Environmental impacts
Stakeholders comments
⇒ Step -3
Host Country Approval Designated
National
Authority
(DNA)
⇒ Step -4
Project Validation Designated
National
Project developer hires a Designated Authority
Operational Entity (DOE) for Project (DNA)
Validation
Required documents for validation
Project Design Document PDD.
Summary of comments by local
stakeholders and how comments
were collected.
Documentation on the environmental
impact assessment of the project.
DNA’s Letter of Approval.
⇒ Step -5
Project Registration Executive
Board (EB)
The formal acceptance of the EB of a
validated project as a CDM activity.
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6. POST PROJECT IMPLEMENTATION CYCLE
Continues process
Authority
⇒ Step -6
Project Monitoring Designated
National
Monitoring Plan(MP) must be Authority
developed according to an approved (DOE)
methodology by EB or new
methodology. If MP is based on a
new methodology, the methodology
must be approved by EB.
Project monitoring plan is part of the
PDD.
Monitoring involves collection &
archiving of all relevant data during
the crediting period.
⇒ Step -7
Project Verification and Certification
Conducted by a DOE based on a
Designated
National
Monitoring Report. Authority
Verification is a periodic review of ex (DOE)
post measurement of GHG emissions
reductions in the project in the verified
period.
DOE will conduct on-site inspections.
Make publically available the
verification report.
Issue a certification report which
constitutes a request for issuance to
the EB of CERs equal to verified
reductions.
⇒ Step -8
Issuance of Carbon Credits Executive
Board (EB)
PP must choose a crediting period for the
project from one of the following alternative
approaches
A maximum of seven years which
may be renewed at most two times
(maximum of 21 years); or
A maximum of ten years with no
option for renewal
CDM Projects to date
According to sources as on 31st March 2009, 1431 projects have been registered
which reduce greenhouse gas emissions by an estimated 220 million ton CO2
equivalent per year. There are about 4,000 projects yet to be certified which
would reduce CO2 emission by over 2.5 billion tons until the end of 2012.
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7. Key Players of Carbon Credits
Bank of America
The European Union Emission Trading Scheme (EU ETS)
BP
The Chicago Climate Exchange (CCX)
The Multi-Commodity Exchange of India (MCX)
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