2020 – Posted in: RSTV – Tags: carbon footprint, CARBON TRADING, climate change, emission trading, Environment, global warming, Greenhouse gas, kyoto protocol, Paris Agreement

CARBON TRADING & CLIMATE CHANGE

Introduction

India has been at the forefront of an intense battle to protect the environment by reducing its carbon footprint. To this end, it has invested heavily in low-carbon technologies, has successfully switched to renewable energy, and has intensified its efforts to protect forests. During this process, it obtained hundreds of millions of carbon credits or emission reduction certificates, also called CERs.

According to the current Kyoto Protocol climate agreement, carbon credits are used in the market- based carbon trading system. In December, the United Nations Conference on Climate Change or COP 25 was held in Madrid. COP 25 should have finalized the rules for a new global carbon market under the Paris Agreement. For India, one of the goals and objectives of the Madrid conference was to win the right to sell their earned carbon credits with such effort.

What is carbon trading?

It is a market-based system aimed at reducing the greenhouse gases that contribute to global warming, in particular the carbon dioxide emitted by the combustion of fossil fuels.

The process involves buying and selling permits and credits to emit carbon dioxide, using the cap- and-trade mechanism to achieve emission reductions.

What does Cap and Trade mean?

It is also called Emission Trading. The system works by setting a general limit or limit on the amount of allowable emissions from significant sources of carbon, including the energy industry, the automotive industry and air travel.

Kyoto Protocol and carbon trading

The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change (UNFCCC), which commits its Parties to setting binding international emission reduction targets.
The Kyoto protocol allows countries with emission units to sell this excess capacity to countries that exceed their targets.
Parties with commitments under the Kyoto Protocol (Annex B parts) have agreed to limit or reduce emissions.
These objectives are expressed in authorized emission levels, or allocated quantities, during the 2008-2012 commitment periods.
Authorized emissions are divided into units of assigned quantity (AAU).
A new product is created in the form of emission reductions or eliminations.
Since carbon dioxide is the main greenhouse gas, people are just talking about trading with carbon. Carbon is now tracked and traded like any other product. This is called the “carbon market”.

Paris Agreement

The 2016 Paris Agreement is a historic international agreement that brings together nearly 200 countries to establish a common goal of reducing global greenhouse gas emissions in an effort to fight climate change.
The pact aims to keep the global temperature increase below 2 degrees Celsius from pre- industrial levels and to try to further limit the temperature increase to 1.5 degrees Celsius.
To this end, each country has committed to implementing specific action plans that will limit its greenhouse gas emissions.
The Accord calls on rich and developed countries to provide financial and technological support to the developing world in their quest to fight and adapt to climate change.

Carbon markets under the Paris agreement

The provisions concerning the creation of a new carbon market are described in Article 6 of the Paris Agreement.
Article 6.2 authorizes bilateral agreements for the transfer of emission reductions.
Article 6.4 talks about a larger carbon market in which anyone can buy and sell reductions.
Article 6.8 establishes that "non-trade approaches" are available for countries to achieve their objectives.

When will Paris Agreement come into force?

Thirty days after the date on which at least 55 Parties to the Convention representing at least 55% of total global greenhouse gas emissions have deposited their instruments of ratification, acceptance, approval or accession to the Depositary.
The threshold for entry into force of the Paris Agreement was reached on October 5, 2016.
The Paris Agreement will enter into force on November 4, 2016.

Greenhouse gas emissions are a new product

Parties with commitments under the Kyoto Protocol (Annex B parts) have agreed to limit or reduce emissions. These objectives are expressed in authorized emission levels, or allocated quantities, during the 2008-2012 commitment period. Authorized emissions are divided into units of assigned quantity (AAU).

Emissions trading allow countries with remaining emission units, authorized but not “used”, to sell this excess capacity to countries who are above your goals.

As a result, a new product has been created in the form of emission reductions or eliminations. Since carbon dioxide is the main greenhouse gas, people are just talking about trading with carbon.

Carbon is now tracked and traded like any other product. This is called the “carbon market”.

Benefits of emissions trading

Emissions trading achieve the environmental goal of reducing emissions at the lowest cost.
Emissions trading encourage innovation and identifies lower cost solutions to make businesses more sustainable.
Cap and trade have proven to be an effective policy option.
Emissions trading can respond better to economic fluctuations than other political tools.
The limit and the trade are designed to generate an environmental result: the limit must be respected or there are sanctions such as fines. Allowing trade within this limit is the most effective way to minimize costs, which is good for businesses and good for households.

Disadvantages

It is very difficult to create a market for something of no intrinsic value such as carbon dioxide. It must promote scarcity and strictly limit the right of delivery so that it can be marketed.
In the world’s largest carbon trading system, the EU ETS, political interference has created an excess of permits.
These were often given away for free, which led to a collapse in prices and not to actual emission reductions. Another problem is that compensatory permits, obtained by paying for pollution reduction in the poorest countries, can also be traded.

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