What is CER and how is it traded?

CER

Carbon credit (Also called Certified Emission Reduction, CER) has been the buzzword for quite some time now. My close friend Sh Anil Kumar, CME/BD has done some work on this. I am borrowing key issues from his article. 

Global warming, green house gases, carbon credit, certified emission reduction, Kyoto protocol, CDM, carbon foot printing etc. need to be touched in order to understand CERs. CERs basically have to be obtained from United nations Agency i.e. United Nations framework Convention on Climate change(UNFCCC).

Clean Development Mechanism (CDM) is one of the methods approved by Kyoto Protocol to earn and trade Carbon Credits.

The concept of Carbon Credit came into existence as a result of increasing awareness of the need of controlling emission.

The emission of Green House Gases (GHGs) has been rising alarmingly.  These gases are Carbon dioxide, Methane, Nitrous oxide, Sulphur, Hexa flouride HFCs (Hydro Flouro Carbon) and PFCs.  Increase in concentration of these gases in the atmosphere has become a cause of global warming and its associated fallout on earth  is going to be disastrous. Obviously there is a need of reducing GHGs emissions.The Kyoto Protocol is an international agreement among 170 countries. It  has created a mechanism under which countries that have been emitting more GHGs gases have been asked to reduce  and bring these down to the level of emission prevailing in  early 1990’s.  

A company has three ways to reduce emissions:

(i)              It can reduce GHG by adopting new technology

(ii)             It can improve upon the  existing technology

(iii)            It can tie up with companies of other countries and help them setup new technologies that are eco friendly and thereby helping developing countries or its companies by means of Carbon Credits.

    India being a developing country has an advantage.  Any company, factory or establishment in India can get linked to United Nation Framework Convention on climate change (UNFCCC) and know the standard level of carbon emission allowed for its activity as per standard fixed by UNFCCC. The difference of carbon emission with the standard is the carbon credit accruable to the company. This is called Carbon Credit or Certified Emission Reduction credits (CERs).

1 tonne of CO₂ equals 1 CER. Presently the rate of 1 CER varies between 12-15  Euros.

Trading of CERs

        This is done under CDM (Clean Development Mechanism) which has been the outcome of KYOTO protocol.

        A developed country can 'sponsor' a greenhouse gas reduction project in a developing country where the cost of greenhouse gas reduction project activities is usually much lower, but the atmospheric effect is globally equivalent. The developed country would be given credits for meeting its emission reduction targets, while the developing country would receive the capital investment for using clean technology or beneficial land use.

 Under the CDM the deal for Carbon Credit can be entered into with any company from the developed nations.  In this mechanism a portion of total earning of carbon credit of the company can be transferred to the company of developed nations.

The other two methods decided by The Protocol are:

(i)              Joint implementation (JI) - A developed country with relatively high costs of domestic greenhouse reduction would set up a project in another developed country.

(ii)             Emission trading (IET) - Countries can trade in the international carbon credit market to cover their shortfall in allowances. Countries with surplus credits can sell them to countries with capped emission commitments under the Kyoto Protocol.

Trading of CER (Certified Emission Reduction)credits

  Emission reduction projects in developing countries help them to earn CER credit by reducing Green House Gas Emission. These can be sold privately or in the international market.  Climate Exchanges have been established to provide a spot market for the CERs.

 These Climate Exchanges are:

(i)              Chicago Climate Change

(ii)             European Climate Change

(iii)            Nord Pool

(iv)           Power next

(v)            European energy exchange

In India multi commodity exchange (MCX) has entered into an alliance with the Chicago Climate Change for trading of CERs in India.

what is Natural Gas?

           Natural gas is mainly methane  which burns to produce heat. The calorific value by mass (per kg) of natural gas is better than most of the conventional fuels being used, such as petrol, diesel, LPG, kerosene, etc. However, in gaseous form natural gas has a very low energy density, which makes it difficult to store or transport. So it is either stored in compressed (CNG) form, which leads to a volume reduction of around 200 times, or in liquid form (LNG) at about -162^oC, which gives about 600 times volume reduction. Natural gas is transported to the consumer points either through gas pipeline networks, or in LNG form though specially designed ships and cryogenic road tankers. However, setting up of a LNG production plant is a very costly proposition. As a thumb rule, gas transport over land up to 4000 kms, and undersea up to 2000 kms is considered economical through pipelines, and beyond these distances shipment of LNG is a better option.

Ethanol can be blended with diesel

Those who are interested in alternate fuel related news will be excited to learn that Ethanol has been successfully blended with diesel in Karnataka. And this is being done since 2006.
Ofcourse an additive is needed to help matters. It is called Solubliser.

LNG - the fuel of future.

Liquefied Natural Gas (LNG) is the fuel of the future. Natural gas is a fossil fuel, like petroleum and coal, the  major sources of energy of the world today. Coal, petroleum and gas contribute almost equally to more than 90% energy needs of the world. Coal being a big pollutant of environment, has always been a less preferred choice of energy. Petroleum reserves of the world are expected to last for  about next 40-45 years. On the other hand, natural gas is a cleaner and cheaper fuel, having much more proven reserves than petroleum, and is known to  last much longer.

With the extraction of shale gas getting more economical with the advent of new technology, the future of this fuel is very rosy. The present reserves of natural gas are of more than 100 years and are expected to further increase with new finds. Thus, world-wide efforts are on to substitute petroleum and other fuels with gas based applications and in the time to come the major consumption of diesel/petrol of today will get substituted by gas. 

Annual diesel consumption by Indian Railway

2500 million lits of diesel  per annum is a huge amount of fuel.  This is what Indian railways end up using every year. Long ago trials have been successfully conducted by IR owned research establishment,  demonstrating that up to 20% of this quantity – 500 million lits – can be substituted by  bio-diesel. 


Tractive effort will remain practically unchanged. Maintenance  cost of the fleet will come down with this substitution as lubricity of bio diesel is more than fossil diesel. Carbon and other gases emitted to atmosphere will be significantly reduced.

This 20% works out to be approx  1.5 million lts per day. From reliable sources it is learnt that the amount of seeds which go uncollected in our forests is sufficient to produce this much of oil. It would be nice if some NGO comes forward to organise various linkages to channelize the seeds to those who want this valuable raw material.

Indian Railways in the year 2051.

Railways all over the world have been  leading  the technological evolution with a view to provide a cost effective mode of transportation of population as well as goods over long distances. Indian Railways are no different from others.
Today we are not able to meet with the demand most of the time. Public gets frustrated when they do not get reservations. Railways lose some of them to road for ever.Survival in such a situation is real challenge. Technology is the only answer.
Coming to specifics, fuel is the second costliest input which need to be focused upon. It is worth mentioning that Indian Railways deploy about 5000 diesel locomotives and  consume about 2500 million lits of Diesel every year  to manage the show. We need to find better and cost effective fuels in order to meet the challenges of a growing economy.
The year 2051 would see us running much more number of trains over long distances, with higher speeds. Tracks will have to be dedicated for speeds like 250 kmph. At the same time there would be passenger trains running at 100 kmph.
It can safely be predicted that present forms of traction will remain in vogue, though with better features to achieve higher economy in fuel consumption and also to reduce carbon emission.