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.
