CARBON CREDITS TABLE OF CONTENTS: Definition Climate Changes Mechanism & Its Types Green House Gases Global Warming Potential Issues & Drawbacks Carbon Sequestration Market Overview Carbon Credit & Pakistan WHAT IS CARBON CREDIT? “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 tone 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. 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. Other companies dealing in carbon credits include Expedia, Whole Foods, and Haynes International, Inc, etc CLIMATE CHANGES: According to the World Bank Economist Mr. Stern, the effect of climate change could be worse than the two World Wars. Cont… Currently there are six exchanges trading in carbon allowances: – Chicago Climate Exchange – European Climate Exchange – NASDAQ OMX Commodities Europe – Power Next – Commodity Exchange Bratislava – European Energy Exchange 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): Under CDM, an annex 1 country takes a green house gas reduction project activity in a non-annex 1 country. The developed country gets credits for meeting its emission reduction targets, while the developing country receives the capital and clean technology to implement the project. Cont… The parties involved: Must participate voluntarily; Must establish national CDM authority; Must have ratified the Kyoto Protocol; GLOBAL CLIMATE CHANGE SCENARIO: To combat these changes globally, Kyoto Protocol was ratified by 170 countries. The Kyoto Protocol envisages reduction of Green House Gases by 5.2% in the period 2008-12. 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) Cont… There are at least 25 other gases, including chloroform, 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. What does a ton of GHG look like? 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. 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 structure Carbon Sequestration: Carbon sequestration can be defined as the capture and secure storage of carbon Carbon credits encompass two ideas: 1. Prevention/reduction of carbon emissions produced by human activities from reaching the atmosphere by capturing and diverting them to secure storage 2. Removal of carbon from the atmosphere by various means and securely storing it. Carbon Credit & Pakistan: Vast potential for carbon credit. Member of Kyoto Protocol, Pakistan is eligible to benefit from the projects under Clean Development Mechanism (CDM) and exploring carbon credit potential in different industries. The ministry has identified tremendous potential of CDM in sugar industry. Cont… “Carbon Credit Opportunities in the Power Sector of Pakistan” “Carbon Trading Workshop”, Pak Arab Fertilizers: High Profit of Pak Arab Fertilizers was contributed by the “Clean Development Mechanism (CDM)” project, which was achieved through sale of carbon credits in the international markets. By means of the CDM project–the first and only such project in the country-the company has not only increased its income but also earned valuable foreign exchange for the country. The company has managed to sell carbon credits in Japan and the European Union.