CARBON TRADING AND INDIA'S ROAD MAP
---Dr.Debesh Bhowmik
INTERNATIONAL JOURNAL OF ENVIRONMENT,AGRICULTURE AND BIO-TECHNOLOGY
----VOL-2,ISSUE-1,JANUARY-FEBRUARY ,2017,118-126
-----www.ijeab.com
CARBON
TRADING AND INDIA’S ROAD MAP
Dr.Debesh
Bhowmik(Retired principal and Former Associate Editor-Arthabeekshan-the journal
of Bengal Economic Association)
Abstract
In this article, the
author describes the concept of carbon trading , its global market ,mechanism
of global trading, international organization, EUETS, relationship between REDD and carbon market in relation with
agreements of Paris convention. The 10 myths of REDD+ and carbon market are
additional features which can explore future research. The paper highlighted
India’s roadmap for carbon market potentiality in 2020.
Key
words – carbon trading, global carbon market, REDD, India’s road map
JEL-F18,O44,Q56
I.What is Carbon Trading
Carbon
trading is the buying and selling of a new, artificially-created commodity –
the right to emit carbon dioxide. Unlike trading in other commodities like
crude oil or bananas, carbon trading is not a voluntary exchange between
producers and those who want to consume or sell on the goods. Instead, it
results from action by governments to create this new commodity – the right to
emit carbon – and then to limit the availability of this right in order to
create scarcity and therefore a market for it.
Carbon
trading is one of a number of different approaches that have been developed and
adopted by governments as a means of controlling the amount of carbon dioxide
that is emitted into the atmosphere and reducing this amount over time. It is
based on the broader approach, purportedly to control the emission of
pollutants, known as ‘cap and trade’.
Cap and trade is often referred
to as a market-based mechanism and contrasted with a different set of tools
available to governments to influence behaviours, those which come under the
umbrella of direct regulation or standard setting. However, this contrasting of
market-based and non-market-based approach is sometimes unhelpful. It ignores
the fact that market mechanisms do not operate in a vacuum. Instead, they
always take place in a social and economic environment underpinned by various
government laws and regulations and often require these laws in order to be
effective. Carbon trading is a case in point. Carbon markets are directly
created by government regulation.
Perhaps
a more useful distinction for the purposes of this report is that between
direct and indirect mechanisms. Carbon trading can be classed as an indirect
tool as it is supposed to achieve its purpose of reducing emissions indirectly
by affecting the price of those emissions. This in turn affects the behaviour
of ‘actors’ in the market, i.e. those responsible for producing the emissions,
by creating an incentive for them to save money by reducing their emissions and
hence change their behaviour. In contrast, government regulation and standard
setting are direct interventions to change behaviour, not reliant on
intermediate mechanisms such as prices. Taxation is an indirect mechanism as it
aims to change behaviour through affecting the price of a good, service or
activity. However, it is arguably less indirect than trading as governments fix
the price with a tax whereas with trading the price is determined by the
market.
The carbon trade is an idea that came about in
response to the Kyoto Protocol. The Kyoto Protocol is an agreement under which
industrialized countries will reduce their greenhouse gas emissions between the
years 2008 to 2012 to levels that are 5.2% lower than those of 1990.
The idea behind carbon trading is quite similar to the
trading of securities or commodities in a market place. Carbon would be given
an economic value, allowing people, companies or nations to trade it. If a
nation bought carbon, it would be buying the rights to burn it, and a nation
selling carbon would be giving up its rights to burn it. The value of the
carbon would be based on the ability of the country owning the carbon to store
it or to prevent it from being released into the atmosphere. A market would be
created to facilitate the buying and selling of the rights to emit greenhouse
gases. The industrialized nations for which reducing emissions is a daunting
task could buy the emission rights from another nation whose industries do not
produce as much of these gases. The market for carbon is possible because the
goal of the Kyoto Protocol is to reduce emissions as a collective.
On
the one hand, the idea of carbon trade seems like a win-win situation:
greenhouse gas emissions may be reduced while some countries reap economic
benefit. On the other hand, critics of the idea suspect that some countries
will exploit the trading system and the consequences will be negative. While
the proposal of carbon trade does have its merits, debate over this type of
market is inevitable since it involves finding a compromise between profit,
equality and ecological concerns.
The carbon market is one of the most effective policies
for tackling climate change. It inspires operational excellence and incentivizes
business investments in low-carbon technologies. Not only is the market expected
to save over 2 billion tones of CO2 emissions by the end of 2012,
but the development of the current global carbon market, now worth over US$140
billion, has catapulted climate change to the forefront of business decisions. But
while it exhibits real environmental and economic impact, and helps achieve
climate change goals, it remains vulnerable to external factors.
The Harnessing
demand for Indian projects post-2012 are :
1.
Supporting
projects through domestic emission trading scheme –
2.
Supporting projects through NCEF and CSR
funds of large companies
3.
Developing standardized baselines
4.
Developing sustainable development impact
reporting
5.Evaluating and
highlighting the benefits of CDM projects focusing on sustainable development Impacts
6. Constituting
a high level Multi Stakeholder Advisory Group for Climate Change issues
like Loss and Damage,
Equity, Sustainable Development, Gender etc
7. Developing NAMAs
8. Developing
the capacity for national emission reduction reporting and develop credible
and robust reporting
frameworks for corporate carbon reporting–
But there are several
causes of delays of maturing projects which are as follows:
[i]
One
of the major reasons for delays in registration of CDM projects is on account
of lack of acceptable guidelines for setting benchmark, lack of institutional
capacity, frequent revisions to CDM EB guidelines and lengthy validation cycle
[ii]
The
delay in registration of CDM projects was due to the increase in CDM projects from
India and limited increase in the number of DOEs
[iii]
The
cement and energy efficiency project-types have higher rejection rate than hydro
and wind project-types
[iv]Projects in reforestation, EE household,
EE in SME, off-grid solar and agriculture project-types face MRV, organizational
and financial barriers.
[v]
HFC
23, N2O and landfill gas(where these is no energy generation) projects risk closure
post the withdrawal of market support and fall in CER prices
[vi]
Goa,
Bihar, Jharkhand, Kerala, Jammu & Kashmir, Haryana and North Eastern states
have very limited development of CDM projects
The promotion
and development of the emission reduction projects will require a combination
of the following measures:
[i]
Demand-side
measures: Given the weak demand for CERs and the uncertain time frame for new
market mechanisms, all attempts should be made to revive demand in the existing
regulatory framework, particularly for projects registered post 2012.
[ii]
Improving
sustainable development impacts: Improving the sustainable development impacts
as well as
improving communication on the outcomes / impacts of CDM project activities is
required for stimulating demand of quality CDM projects and addressing
international concerns.
[iii]
Efficiency
of registration: Once there is a revival of demand, measures should be
undertaken
to remove the
barriers in CDM project registration while also improving sustainable development
impacts.
[iv]
Future
regulatory mechanisms: Recognizing that CDM is likely to be transitory in
nature
and new market mechanisms
are likely to be more prominent particularly in the post 2020
carbon markets,
measures should be undertaken to develop synergies between CDM, NAMAs
and other market
mechanisms.
[v]
Supply
side measures: Once there is regulatory certainty and robust demand, supply
side
measures should
be undertaken that encourage larger participation of industry in emerging
global carbon / CDM
market.
Therefore, the
recommendations below are targeted towards:
A. Harnessing
demand for Indian projects post 2012;
B. Achieving
better sustainable development for CDM projects;
C. Developing
synergies between CDM, NAMAs and other market mechanisms; and
D. Encouraging larger
participation of industry in carbon market.
IX.Concluding Remarks
The
international carbon market currently faces considerable uncertainties
regarding its future architecture. There are a number of options for further
development,including a global trading approach building on Kyoto, formal
linkages of domestic ETS leading to a global CO2 market, and indirect linkages
through credits if domestic ETS remain otherwise unconnected. Also, a mixed
approach is conceivable. Regions should share a common understanding on the
overall
climate policy
goal (e.g., the 2°C target) as well as a burden-sharing rule translating into
ETS caps. These two fundamental issues will crucially determine the level of
ambition of an ETS as expressed in (a) the emission cap, which in combination
with amount and costs of available abatement options of a region crucially
determines the allowance price level; and (b) ETS design features also exerting
influence on the allowance price level and environmental outcome. For a player
with ambitious environmental targets it should be preferable to announce that
it will link only under the condition that another system displays a similar
level of ambition, thus using the
efficiency and
potential reputational benefits from linking as a bargaining chip. Linking to
less ambitious regions would undermine the credibility of such announcements.
Harmonization of trading systems should start as early as possible in order to
enable the option of linking ETS post-2012. For this purpose, ICAP could be a
nucleus for such an international clearinghouse.
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