| Many companies have taken lead in corporate | | | | and JI, in 2006 was worth 146.2 million dollars, three |
| governance, social and environmental responsibility. | | | | times that of 2005. The transactions during the first |
| Self-motivation of these companies is highly | | | | three months of 2007 crossed the total transactions |
| commendable. But the proportion of such companies | | | | of 2006. This clearly indicates that carbon trading is |
| is still very less. I always wonder as to how an | | | | here to stay. But like any other innovative |
| organisation can be motivated to invest in society | | | | approaches it had its starting problems. The European |
| and the environment. How can an organization | | | | Union has been too far generous in its allocation of |
| convince its stakeholders about its investments if | | | | allowances. As a result there was great volatility in |
| they do not make any economic sense? | | | | prices at EU ETS. Also, the allowances from Phase I |
| After the corporate greed and fall of organizations | | | | (Jan 05 to Dec 07) were not allowed to carry |
| such as Enron, World Com, Tyco and others, | | | | forward to Phase II (Jan 08 to Dec 10). These led to |
| companies have realized the importance of corporate | | | | a market slump. Taking Phase I as a learning |
| governance for long term survival. The importance of | | | | experience, the caps in Phase 2 of EU ETS are going |
| ethical behaviour has been realized by companies due | | | | to be tightened. Marketing continuity and banking of |
| to its benefits such as respect in society and increase | | | | carbon credits will also be brought in. |
| in brand recognition, which translates to increased | | | | Even though Carbon Trading is a step in the right |
| sales in the long run. We have many examples of | | | | direction, it cannot be considered the ultimate |
| products being recalled from the market by | | | | panacea to environmental problems. The enormity of |
| companies for even minor defects. These actions | | | | climate change will require a profound transformation |
| have improved the perceived value of the brand in | | | | in the way industries function for bringing about a |
| long standing. But still larger issues like society and | | | | cleaner environment. These include making public and |
| environment still fail to get an organization's attention | | | | private investments in research and development of |
| as there is no visible effect of these issues on its | | | | cleaner technologies and diffusion, economical and |
| bottom line or survival. In this regard, I consider | | | | fiscal policy changes to promote environment |
| carbon trading a path breaking measure which gives | | | | protection and the removal of distorting subsidies for |
| incentives to organizations to contribute towards | | | | high carbon fuels and technologies. In essence, |
| environmental protection. Recently, there has been | | | | devising a workable popular market mechanism does |
| much activity in 'Carbon Trading' with increase in | | | | not absolve the policy makers from their |
| trading volumes, opening up of new exchanges and | | | | responsibility to the environment and society. |
| the advent of new tradable, fungible instruments. In | | | | Carbon trading has influenced me in two major ways. |
| India, many Indian villages and Indian corporate | | | | Firstly, it symbolizes a remarkable, path breaking and |
| companies have jumped on the bandwagon and are | | | | innovative market-based approach to counter global |
| selling carbon credits. | | | | warming, a radical departure from traditional means |
| What is 'Carbon Trading'? For readers who are new | | | | like direct tax and regulation. It is a classic example of |
| to this term, the word 'carbon' in carbon trading | | | | human ingenuity. Based on the 2005 emissions data, |
| symbolizes carbon dioxide, the most widely produced | | | | CO2 emissions reduced by 50 - 200 Metric tones in |
| greenhouse gas. The emissions of other greenhouse | | | | 2005. In 2006 alone, 493 Metric tones of CO2 |
| gases can be recorded and counted in terms of | | | | emission were prevented or destroyed by the way |
| carbon dioxide equivalents. The genesis of the carbon | | | | of environmental projects under CDM/JI. With further |
| credits can be traced back to the Kyoto Protocol of | | | | refinement in policies, carbon trading is likely to |
| 1997, by which all countries were required to reduce | | | | become more potent in future. Such out of the box, |
| their greenhouse gas emissions by 5% (from 1990 | | | | paradigm changing solutions inspire me to break away |
| levels) by the end of 2012, or pay a price to those | | | | from traditional methods and look for new innovative |
| that do. Nations that have contributed most towards | | | | approaches to problems. Secondly, I am excited by |
| global warming have tended to benefit directly from | | | | the promise that Carbon Trading holds for developing |
| greater business profits and higher standards of living. | | | | countries. |
| On the other hand, the negative effects of global | | | | India, being a developing country, is a signatory of |
| warming are felt all over the world. The idea of the | | | | the Kyoto Protocol as a Non Annex I country. Only |
| protocol was to make developed countries pay for | | | | Annex I countries are required to limit and reduce |
| emissions and monetarily reward those countries | | | | emissions. It implies that there is no cap for India yet, |
| which followed good environmental behavior. | | | | and India can host environmental projects and sell |
| Developing countries start with clean technologies and | | | | carbon credits to Annex I countries for their |
| are rewarded by those which continue with the | | | | compliance. GFL & SRF are two Indian companies |
| polluting ones. This is popularly known as the 'Cap and | | | | which have sold carbon credits worth 87 million dollars |
| Trade' approach. | | | | and 37 million dollars respectively in 2006. This sale |
| The rules and mechanisms of the working of 'Cap | | | | has contributed to their profits handsomely and all |
| and Trade' approach were not worked out until the | | | | they did was to install an incinerator to destroy the |
| Marrakesh Accords in 2001. Three flexible | | | | pollutant HFC23 (their industry waste). Carbon trading |
| mechanisms were established to allow polluting | | | | makes an otherwise average business opportunity, |
| entities (covering sectors like power generation, | | | | significantly more lucrative. Many environmental |
| steel, glass, cement, ceramics and paper) to acquire | | | | projects considered not worth taking up by traditional |
| rights to pollute beyond their assigned limits/caps. | | | | business thought, are now being pursued, thanks to |
| These mechanisms are Clean Development | | | | carbon trading. India also receives funding for such |
| Mechanism (CDM), Joint Implementation (JI) and | | | | projects. The World Bank has recently earmarked 10 |
| Emissions trading. CDM and JI are environmental | | | | million dollars for the India Infrastructure Development |
| projects which reduce greenhouse gas emissions and | | | | Finance Company to fund 'clean' projects, which gives |
| hence generate carbon credits. These carbon credits | | | | an extra stimulus towards the development of |
| then can be bought by an entity whose pollution | | | | environmental projects, which otherwise would not |
| goes beyond the emissions cap. The polluting entities | | | | have been taken up in normal course. With India |
| are given specific Pollution Allowances (i.e. rights to | | | | developing at the rate of 8% annually, this is the |
| pollute, like the EUA - European Union Allowances). | | | | right time for infusion of clean technologies because a |
| These Allowances can be traded under Emissions | | | | developed India in the future will be based on clean |
| Trading. | | | | technologies, unlike countries today which are stuck |
| Any polluting entity exceeding the cap can take one | | | | with polluting technologies. |
| of three steps. | | | | The best part is the role of rural India in the |
| » The first option is payment of a tax at the end | | | | emerging Carbon Trading market. The first time was |
| of the compliance period, which is generally very high. | | | | in 2004, when a village in India name 'Powerguda' sold |
| » The second option is to buy Pollution Allowances | | | | carbon credits worth 645 dollars to the World Bank. |
| (like EUA) from an entity under Emissions Trading, | | | | These carbon credits came from CO2 saved by Bio |
| which has polluted less than its quota. | | | | Diesel (pioneered in India) which was extracted from |
| » And the third option to buy carbon credits from | | | | 4500 Pongamia trees. Bio diesel does not pollute the |
| CDM or JI projects. Carbon credits generated by | | | | air at all as compared to petrol. Since then many |
| CDM/JI and Pollution Allowances constitute the | | | | villages have started following this trend. In India 75% |
| carbon market of today. | | | | of the population lives in villages and it is indeed very |
| The major buyers of carbon credits have been | | | | heartening to note that carbon credit trading has |
| Europe and Japan. The Pollution Allowance based | | | | opened the door for the development of Indian |
| markets are the European Union Emissions Trading | | | | villages. |
| Scheme (EU ETS), New South Wales Greenhouse | | | | Carbon trading is here to stay and promises a clean |
| Gas Abatement Scheme, Chicago Climate Exchange | | | | and healthy environment for our progeny and |
| (CCX) and United Kingdom Emission Trading Scheme | | | | posterity. The example of the synergy created |
| (UK ETS). In 2006-07, the carbon market has grown | | | | between environmental goals and economic goals by |
| by leaps and bounds. Out of these, the EU ETS is | | | | carbon trading is worth emulating in other areas like |
| the largest carbon market by far and fully compliant | | | | social welfare, organization culture etc. The only |
| with the Kyoto Protocol. According to the World | | | | requirement is to devise a breakthrough mechanism |
| Bank, the carbon market grew to 30 billion dollars in | | | | to integrate seemingly opposite goals. |
| 2006. The market for carbon credits, including CDM | | | | |