Carbon trading report

SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE
VAIBHAV GODSE, MBA OIL AND GAS, 2009-2011

SUSTAINABILITY OF CARBON TRADING IN
A DEVELOPING ECONOMY- AN INDIAN
PERSPECTIVE

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SUSTAINABILITY OF CARBON TRADING IN A
DEVELOPING ECONOMY- AN INDIAN PERSPECTIVE

Dissertation submitted to College of Management & Economic Studies for the partial
fulfillment of the degree of

MBA (Oil and Gas Management)
Guided by:

Dr. Tarun Dhingra

Assistant Professor

College of Management & Economic Studies

University of Petroleum & Energy Studies

Dehradun – 248 006

Submitted by:

Vaibhav Godse
Enrollment No: R020209074

SAP ID: 500006887

College of Management and Economic Studies
University of Petroleum and Energy Studies,
Dehradun, Uttarakhand, India
April, 2011

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Certificate

This is to certify that dissertation report on “Sustainability of Carbon Trading in a
Developing Economy – An Indian perspective.” completed and submitted to UPES,
Dehradun by “Vaibhav Godse” in partial fulfillment of the requirements for the award of
degree of Masters of Business Administration (Oil and Gas Management), is a bonafide
work carried out by him under my supervision and guidance.

To the best of my knowledge and belief the work has been based on investigation made,
data collected and analyzed by him and this work has not been submitted anywhere else
for any other university or institution for award of any degree or diploma.

Dr. Tarun Dhingra

Assistant Professor

College of Management and Economics Studies

University of Petroleum and Energy Studies

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ACKNOWLEDGMENT

First of all, it is my profound privilege and pleasure to express the overwhelming sense of
gratitude and regards to project guide Dr. Tarun Dhingra for his expert guidance,
valuable suggestions and continuous encouragement throughout this project work.
Without his advice, guidance and blessings it would have been impossible to achieve the
objective.

Vaibhav Godse

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DECLARATION

I Vaibhav Godse hereby declares that the project work entitled “Sustainability of carbon
trading in a developing economy- An Indian perspective” is a bona fide work done by
me under the guidance and supervision of Dr. Tarun Dhingra. The work has not formed
part of any earlier studies or the award of degree/ diploma/ fellowship.

Place: Dehradun, Uttaranchal

Date: 25th April 2011 Signature of the Student.

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TABLE OF CONTENTS

PAGE
SI.NO. TOPIC
NO.

LIST OF TABLES

LIST OF GRAPHS

1 EXECUTIVE SUMMARY 10-12

INTRODUCTION
EMISSION OVERVIEW
2 13-19
CARBON TRADING- INTRODUCTION

3 LITERATURE REVIEW 20-22

RESEARCH METHODOLOGY
NEED FOR RESEARCH
PROBLEM STATEMENT
4 RESEARCH FLOW 23-31
ANALYTICAL MODELS
HYPOTHESIS
STATISTICAL TECHNIQUES

DATA ANALYSIS AND INTERPRETATION
PRICE COMPARISON
SCENARIO ANALYSIS
CO2 EMISSION PER CAPITA VS. GDP PER CAPITA
5 CO2 EMISSION PER CAPITA VS. ELECTRIC POWER CONSUMPTION PER 32-56
CAPITA
CO2 EMISSION PER CAPITA VS. FOSSIL FUEL CONSUMPTION
CAPTURING THE FUTURE SCENARIO
DEMAND SUPPLY CENTERS

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SECTORAL CDM PROJECTS IN INDIA AND OPPORTUNIES IN
6 57-67
OIL AND GAS SECTOR

7 MARKET RISKS 68-70

8 LIMITATIONS OF THE RESEARCH 71

9 CONCLUSION 72-75

10 REFERENCES 76-70

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LIST OF TABLES

SI NO. PARTICULARS PAGE
NO.
1 CORRELATION FOR PRICE 34

2 SCENARIO SUMMARY 35

3 CORRELATION FOR CO2 EMISSION VS. GDP 40,41

4 CORRELATION FOR CO2 EMISSION VS. POWER 44,45
CONSUMPTION
5 CORRELATION FOR CO2 EMISSION VS. FOSSIL FUEL 48,49
CONSUMPTION
6 FORECAST FOR TRANSACTION OF CARBON CREDITS 52

7 REGISTERED CDM PROJECTS IN OIL AND GAS INDUSTRY 65-67

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LIST OF GRAPHS

SI PARTICULARS PAGE
NO. NO.
1 GHG EMISSION ESTIMATE FOR INDIA 15

2 SCATTER PLOT BETWEEN CER PRICE VS. CRUDE OIL AND 33
NATURAL GAS
3 PRICE COMPARISON BETWEEN ENERGY COMMODITIES 36

4 SCATTER PLOT BETWEEN CO2 EMISSION VS. GDP 38,39

5 SCATTER PLOT BETWEEN CO2 EMISSION VS. ELECTRIC 42
POWER CONSUMPTION

6 SCATTER PLOT BETWEEN CO2 EMISSION VS. FOSSIL FUEL 46,47
ENERGY CONSUMPTION

7 FORECASTED VOLUME OF CER TRANSACTED VOLUME 51
AND PRICE
8 PERCENTAGE SHARE OF BUYER COUNTRIES 53

9 PERCENTAGE SHARE OF SELLER COUNTRIES 55

10 PERCENTAGE SHARE OF CDM PROJECTS IN VARIOUS 56
SECTORS

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EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

Carbon is a fundamental element of the earth, the fossil fuel discovery by man has
unleashed the energy of carbon which has proved bone and bane for the mankind. In the
recent years there has been a rise in one problem that is global warming and much is
talked about the same, but very little is done to curb it. Carbon trading is one of the steps
towards mitigating the effects of global warming and moving towards green economy by
developed and developing economies. Greenhouse gas (GHG) emissions are invisible
and odorless. Although the impacts of climate variability and the ability to adapt vary
widely, the global warming impact of these gases on the atmosphere is equal irrespective
of where they are emitted. This indifference from an environmental perspective to where
the greenhouse gas is emitted — or reduced — is the key insight that lends itself well to a
global management system.

The focus of this report is on the sustainability of carbon trading in a developing
economy and its growth. The research work is restricted to project based transactions
(CDM), that too taking the case of India only. This report consists of market scenario of
carbon trading in developing economies, future projections of project based transactions,
and various demand and supply centers. Further various economic indicators are used to
correlate with CO2 emission both for the World and India in order to determine the
influential factors in an economy which would indirectly or indirectly drive the carbon
markets. The economic indicators used for the same are Gross Domestic Product (GDP)
per capita, electric power consumption per capita, and fossil fuel consumption. The
relationships obtained between carbon dioxide emissions and above mentioned economic
indicators showed positive correlation and hence, increase in any one of the indicator
whether GDP, Power consumption or Fossil fuel consumption would result in increase in
carbon dioxide emissions. Since growth in economy and increase in energy consumption
has shown a related increase in CO2 emission. This means that, for any developing or
growing economy the hindrance in growth is the energy consumption, which would
further add to global warming. In order to strike a balance between the economic growth

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and green economy, Indian economy should move aggressively towards clean
development mechanism (CDM).

The most driving force for any commodity business is its market price and same is the
case with carbon trading. As the carbon markets have grown across the globe so as the
price per certified emission reduction (CER). The markets are growing complex with
addition of derivative trading and thus markets are becoming more and more price
sensitive and speculation driven. In this research study a price comparison between
carbon prices with other energy commodity such as crude oil and natural gas has been
done. The result showed the positive correlation between carbon credit price and crude
oil and natural gas. The variation in crude oil and natural gas would influence carbon
prices and thus carbon market would follow the same pattern as that of crude oil and
natural gas markets.

The sustainability of any business lies in its future growth or future scenario. A forecast
of project based transactions is calculated based on previous nine year data both in value
and volume traded. The forecast for next six years (2011 to 2016) showed a stable pattern
of the project based transactions. The market potential of the same in future would be
hovering between 5229.18 million US$ to 6478.61 million US$ and the volume of carbon
traded would be around 387.92 to 468.33 million tons for project based transactions.

For any trade to begin the two utmost entities required are seller and the buyer. The most
dominant demand and supply centers for the year 2001 to 2009 along with their
percentage share over the period is mentioned. India has been second largest seller of
carbon credits under project based transactions and holds an average of 16 percent share
over the period 2002 to 2009. Whereas, India’s the Asian counterpart China has the
largest share and Brazil being the third largest supplier of credits under the same
mechanism.

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INTRODUCTION

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BACKGROUND

EMISSION OVERVIEW

India is the world’s fourth largest economy and fifth largest greenhouse gas (GHG)
emitter, accounting for about 5% of global emissions. India’s emissions increased to 65%
between 1990 and 2005 and are projected to grow another 70% by 2020. By other
measures, India’s emissions are low compared to those of other major economies. India
accounts for only 2% of cumulative energy-related emissions since 1850. On a per capita
basis, India’s emissions are 70% below the world average and 93% below those of the
United States.

India remains home to the world’s largest number of poor people, with nearly 35% living
on less than a dollar a day. Its economy is growing rapidly, however, with GDP rising
about 8% a year over the past five years. As the economy has grown, emissions intensity
(GHGs per unit of GDP) has declined significantly. India’s GHG intensity is currently
20% lower than the world average (and 15% and 40% lower than the United States’ and
China’s, respectively). Factors contributing to the decline in energy intensity include
improved energy efficiency, increased use of renewable and nuclear power, expanded
public transport, and energy pricing reform. The government projects energy demand
growth of 5.2% a year for the next 25 years, driven by annual GDP growth rates of 8-
10%. The coal accounts for 39% of total primary energy demand, followed by biomass
and waste (29%), oil (25%) and natural gas (5%). The high proportion of biomass and
waste reflects the fact that some 500 million people have no access to electricity or other
modern energy services. Coal is projected to remain the primary energy source, with
demand growing nearly three-fold by 2030.

India is a party to both the UN Framework Convention on Climate Change and the Kyoto
Protocol. As a non-Annex I (developing) country, India has no binding emission limits

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under the Protocol. However, India is an active participant in the Clean Development
Mechanism (CDM) established by the Protocol. (The CDM grants marketable emission
credits for verified reductions in developing countries. Developed countries buying these
credits can apply them toward their Kyoto targets.) India has more than 500 registered
CDM projects, more than any other country, and about a third of all projects globally (In
terms of the overall volume of CDM reductions, China ranks first with 51% followed by
India at 14%). The largest project categories are biomass and wind power. Most projects
in India are undertaken on a unilateral basis— developed independently by local
stakeholders without the direct involvement of Annex I countries.

GHG Emission Estimates for India:

Source: IEA

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CARBON TRADING- AN INTRODUCTION

Carbon Credits Trading or Emission Trading refers to trading in Greenhouse gas
emission certificates within the legal framework. It is a market-based scheme for
environmental improvement that allows parties to buy and sell permits for emissions or
credits for reductions. Emissions trading allow established emission goals to be met in the
most cost-effective way by letting the market determine the lowest-cost pollution
abatement opportunities.
Under such schemes, the environmental regulator first determines the total acceptable
emissions and then divides this total into tradable units (often referred to as credits or
permits).
These units are then allocated to scheme participants with dual purpose while allowing
the flexibility to meet their emission targets according to their own strategy.

Participants who emit pollutants must obtain sufficient tradable units to
compensate for their emissions.

Participants who reduce emissions may have surplus units that they can sell to
others, who find emission reduction more expensive or difficult.

Carbon Transactions

These are defined as purchase and sale of contracts. These transactions can be grouped
into two main categories namely, Allowance based transactions and Project based
transactions. Greenhouse gas emissions are capped and then markets are used to allocate
the emissions among the group of regulated sources. The goal is to allow market
mechanisms to drive industrial and commercial processes in the direction of low
emissions or less carbon intensive approaches than those used when there is no cost to
emitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation

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projects generate credits, this approach can be used to finance carbon reduction
schemes between trading partners and around the world.

There are also many companies that sell carbon credits to commercial and individual
customers who are interested in lowering their carbon footprint on a voluntary basis.
These carbon off setters purchase the credits from an investment fund or a carbon
development company that has aggregated the credits from individual projects
There are three basic types of emissions trading programmes these are as follows: ‘cap
and trade’, ‘baseline and credit’ and ‘offset’.

Source: Carbon Credits Trading-Young and Emerging Market by Tata Consultancy
Services

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Carbon Trading Market in India:

There is a new financial sector called carbon market waiting to take India by storm.
Carbon is now a financial commodity, according to Karan Capoor, senior financial
specialist, World Bank. Carbon is now priced and business managers take the carbon
price into consideration along with other factors while making business decisions. India
corners almost 16 per cent share of this market. India is a party to the United Nations
framework on Convention on Climate Change. It acceded to Kyoto Protocol in August
2002 and one of the objectives of acceding was to fulfiII pre-requisites for
implementation of Clean Development Mechanism (CDM) projects, in accordance with
the national sustainable priorities, where a developed country would take up greenhouse
gas reduction project activities in developing countries and where the cost of greenhouse
gas reduction projects are much lower. The Indian carbon market has the potential to
supply 30-50 per cent of the global market by 2012.

Future of India's Climate Change Policy:

After the Copenhagen summit on climate change in 2009, India has come up along with
China with many initiatives which both countries are working upon. Although both the
countries have not accepted any reduction targets but voluntarily set targets for carbon
emission reduction. India has proposed 25 percent decline in its carbon dioxide emission
by 2030 while China has proposed 40 percent reduction in its carbon intensity by 2020.

Presently, a variety of approaches are being implemented to reduce carbon emissions.
These range from efforts by individuals and firms to reduce their climate footprints to
initiatives at city, state, regional and global levels. Among these are the commitments of
governments to reduce emissions through the 1992 United Nations Framework
Convention on Climate Change (UNFCCC) and its 1997 Kyoto Protocol.

Under the Kyoto Protocol, emission caps were set for each Annex-I countries, amounting
in total to an average reduction of 5.2% below the aggregate emission level in 1990. Each

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country has a predetermined target of emission reduction as compared to 1990 level. No
emission cap is imposed on Non – Annex I countries. However, to encourage the
participation of Non-Annex I in emission reduction process a mechanism known as Clean
Development Mechanism (CDM) has been provided. The carbon markets are a prominent
part of the response to climate change and have an opportunity to demonstrate that they
can be a credible and central tool for future climate mitigation. The outcome was the
Kyoto Protocol, in which the developed nations agreed to limit their greenhouse gas
emissions, relative to the levels emitted in 1990 or pay a price to those that do. At this
point comes the carbon trading.

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LITERATURE REVIEW

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LITERATURE REVIEW

The world community faces a major test of its resolve in tackling the realities of climate
change. While the Kyoto Protocol has provided a valuable platform for policy and
international cooperation, it has failed in its aim to apply downward pressure on
emissions. In fact, with emissions increasing, the world requires a fundamental
technology revolution in energy production, distribution and usage. Till date many
research papers, journals, articles etc. have been published regarding the carbon trading
mechanism, some of these papers highlighted the benefits and some highlighted the loop
holes in the mechanism. The research works done earlier mainly focuses on financial
risk, political play, involved in carbon trading the flaws related in registering the CDM
projects, the issues and delays associated with the same. Some articles even highlighted
the policy issues and political intervention of developed nations. Studies were also based
on describing whether carbon trading could be replaced by any other mechanism or not.
Almost all the studies were more or the sort of qualitative rather than quantitative.

Carbon Trading- How it works and why it fails- Discusses on the issue how the polluting
companies are awarded and has caused social and environmental injustice.

Carbon market and financial risks- This paper highlights how the trading schemes with
different rules would instead encourage a “race to the bottom,” with capital migrating
towards those with the weakest environmental protections and the loosest caps. It will
only enrich "Wall Street" banks while posing new systemic financial risks.

Carbon productivity challenge- Curbing climate change and sustaining economic growth-
Discusses concept of carbon productivity- amount of GDP produced per unit of carbon
equivalent emitted. Increasing carbon productivity can tackle the challenge of mitigating
climate change and maintaining economic growth

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Speculating on carbon, the next toxic asset- Developed countries claiming for the
creation of carbon derivatives, the market would enable big financial institutions to drive
carbon prices up and down, confusing and distorting the market, just as Wall Street
speculators did with food and energy prices in 2007 and 2008.

India’s climate change policy and carbon trading market- This report focuses on India’s
participation in carbon trading. India can gain in terms of transfer of technology and
enjoy foreign investments in its clean development mechanisms (CDM) projects.

Carbon credit trading- Young and emerging market- Describes about carbon trading
mechanism, how it is an administrative approach used mainly to control pollution by
providing economic incentives for achieving reduction in emissions. This market based
instrument encourages the transition to a more sustainable economy.

The clean development mechanism- user guide- Discuses CDM mechanisms and various
issues related to it such as the -common but differentiated responsibilities, whether CDM
shifts the economic burden of emission reductions from those who are responsible –
industrialized countries – to the developing countries.

Carbon 2010- Return of sovereign- The increased complexities is certainly making a
global climate deal more difficult, Carbon trading is a part of an international strategic
game between major countries and involve issues of trade, energy and outright power
politics. There is a general dissatisfaction among the nations about Copenhagen outcome.

The fool’s gold of carbon trading- Clearly describes that carbon trading does not solve
the emission problem, policies driven by politicians. The emerging carbon markets
capable of making a significant dent in the world’s surging carbon emissions.

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RESEARCH
METHODOLOGY

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NEED FOR RESEARCH

Carbon credits and carbon markets are a component of national and international attempts
to mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon credit
is equal to one ton of carbon dioxide, or in some markets, carbon dioxide equivalent
gases.
There is a lot of skepticism associated with carbon emissions both in developed and
developing economies, which directly impacts its growth in future. Whether this new
trading mechanism will continue or crash. Carbon trading sustainability depends on
various economic, regulatory and marketing factors, whether the CDM mechanism
approach for India and developing economies will be continued or any other mechanism
such as carbon tax would be adopted. The main purpose of carbon trading is to reduce the
green house gas emission by adopting cleaner methods either through transfer of
technology or by using renewable sources of energy across various industries. This
method of GHG abatement should be effective in the sense of turning the high carbon
emission into low carbon emission economy. Since sustainability of this business lie in its
ultimate goal of reducing GHG emission, now to check whether any economy is heading
towards lowering its emission without affecting overall economic growth is an issue.
There is a lot of demand for carbon credits from Europe, Japan, and Canada which would
benefit the development of CDM projects in India. But at the same time the increase in
demand and supply are directly linked to carbon productivity (ratio of GDP to emissions),
carbon intensity, price per certified emission reduction, power consumption, fossil fuel
consumption, U.S participation (U.S withdrawal weakened the market for CDM, since
U.S constitute for about 40% of the total Kyoto market for emission reduction),
regulatory policies, developing of trading instruments and issuance of CERs (duration
and quantity). The entire study is focused on the sustainability of carbon trading in India
and developing economies, its market indicators, demand and supply centers, future
transactions, price variation based on other energy commodities and forecasting the
future project based transactions.

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PROBLEM STATEMENT

Sustainability of Carbon Trading in a developing economy- An Indian perspective.

To study the carbon trading mechanism in India and to investigate the sustainability of
carbon trading in a developing economy.

Understanding the perspective of carbon trading in terms of Indian industry,
whether it is sustainable or not.

Economic factors which are related to carbon trading mechanism.

To study the market trends and forecasting the future project based transactions.

Price comparison with energy commodities (crude oil and natural gas price).

Market potential in India, scope in oil and gas industry, trading mechanisms and

risk involved.

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SUSTAINABILITY OF CARBON TRADING IN A DEVELOPING ECONOMY AN INDIAN PERSPECTIVE
ECONOMY-

RESEARCH FLOW

At first exploratory research work was conducted through secondary data, which
involved collecting the data from articles, journals, white papers, news updates,
presentations, reports, government publications and statistical sites. This was followed by
and
conclusive research design, which involved formulation and testing of hypothesis. Within
conclusive, causal research was carried out for finding the cause and effect of various
economic indicators, price of energy commodities, time (years) on carbon trading. The
following flow diagram provides the insight of area covered in order to justify the
objective and for collecting the secondary data.

Research work flow

Market share in project
Factors related to carbon based transactions of
Forecasting trading-Quantitative Factors Sectoral CDM
various participating
countries

CO 2emission traded Vs GDP Demand and supply centers-
Time series forecasting gowth rate (World and India) Indicating the percentage Indicating various sectoral
technique- moving avaerage
CO2 emission/capita vs share of buyers and sellers projects involved in CDM
and exponential smoothening
gdp/capita over 8-9 years period

CO2 emission/capita vs
Future project based
electric energy consumption CDM projects in Indian Oil
transactions in value and
/capita and gas industry
volume

Future Price of CER and its CO2 emission/capita vs
trend. Fossil fuel energy
consumption( % of total)

Price comparison of carbon
credit with crude oil and
natural gas

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ANALYTICAL MODELS

Price of certified emission reduction vs. crude oil and natural gas price:

A comparison between carbon price and energy commodities like crude oil and natural
gas is being done in order determine whether any relation exists or not. Both correlation
and regression analysis is done in order to understand the trend of carbon prices.

A scenario analysis is done for determining the price of carbon credits depending upon
the price variation of crude oil and natural gas. The current values are the prices of crude
oil, natural gas and CER price during October 2010. A total of four scenarios were being
taken in order to know the price of carbon credits under various circumstances.

Carbon dioxide emission vs. Gross domestic product (GDP): Carbon productivity

Carbon productivity refers to level of gross domestic product (GDP) output per unit of
CO2 emitted. Improvements in emissions productivity and reductions in energy
consumption can serve as complementary indicators of progress to emissions reductions.
This is particularly true for ﬁrms that are experiencing rapid growth, when emissions
reductions are simply not compatible with the organization’s mission. Ultimate goal of
carbon trading is to move the industrial world towards low carbon economy by bringing
about technological changes. To measure whether an economy is moving towards green
economy or not could be measure by the level of GHG emission in relation with growth
of an economy.

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Carbon dioxide emission vs. Electric power consumption:

The primary factors that alter CO2 emissions from electricity generation from year to year
are the growth in demand for electricity, the type of fuels or energy sources used for
generation, and the thermal efficiencies of the power plants. The fuel or energy source
used to generate electricity is the most significant factor affecting the year-to-year
changes in CO2 emissions. CDM projects can play an important role in India for ruling
out the challenges of providing sufficient power up to the remote areas and reducing the
CO2 emissions can be taken up by replacing coal and fossil fuels by renewable energy
source.

Carbon dioxide emission vs. Fossil fuel consumption:

The percentage of fossil fuel consumption in total energy basket for world and India has
been related with CO2 emission level for the period 1997 to 2007. The fossil fuels
involved are coal, crude oil and natural gas. The correlation and regression analysis
provide the information that CO2 emission for the world and India is due to the fossil fuel
consumption and as the years advanced the fossil fuel consumption has increased. In
order to reduce the emission the country needs to increase the efficient use of energy and
by using effective technology in various refinery processes, chemical industries,
manufacturing industries etc. so that the release of flue gases and GHG emissions would
reduce significantly even if the fossil fuel consumption increases.

Ultimate goal of carbon trading is to move the industrial world towards low carbon
economy by bringing about technological changes. To measure whether an economy is
moving towards green economy or not could be measure by the level of GHG emission in
relation with growth of an economy, electric power consumption and fossil fuel
consumption. Since sustainability of carbon trading dependents on whether, this new
concept of trading is able to mitigate the effect GHG emission or not, to check the same a

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relationship between CO2 emission with GDP, electric power consumption and fossil fuel
consumption is drawn.

Time series forecasting technique:

The strength of any business lies in its future trend, how the business will grow whether
have an upward trend or downward or reach maturity or remain constant.

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HYPOTHESIS

Null hypothesis: Price variation of crude oil and natural gas does not have significant
effect on variation in carbon credit price.

Alternate hypothesis: Carbon credit price is not entirely dependent on crude oil and
natural gas prices.

Null hypothesis: GDP per capita of an economy does not have significant effect on CO2
emission of that particular economy.

Alternate hypothesis: CO2 emission per capita is not entirely dependent on GDP per
capita of an economy.

Null hypothesis: Electric power consumption per capita does not have significant effect
on CO2 emission per capita.

Alternate hypothesis: CO2 emission per capita is not entirely dependent on electric
power consumption per capita.

Null hypothesis: Fossil fuel consumption does not have significant effect on CO2
emission per capita.

Alternate hypothesis: CO2 emission per capita is not entirely dependent on fossil fuel
consumption.

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STATISTICAL TECHNIQUES

Time series forecasting technique is to be used for analyzing the future scenario of carbon
trading markets.

Correlation and regression tools are to be used for analyzing the statistical data.
Bars and pie charts showing the carbon market trends.

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DATA ANALYSIS

AND

INTERPRETATION

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PRICE COMPARISON

A comparison between carbon price and energy commodities like crude oil and natural
gas is being done in order determine whether any relation exists or not. Both correlation
and regression analysis is done in order to understand the trend of carbon prices.
The correlation between CER prices and crude oil price was 0.66 and whereas between
CER prices and natural gas price came out to be 0.78. The result relates that carbon credit
price has positive correlation between crude oil and natural gas price. Therefore when
crude price increases, 66% of times CER price also increases, similarly when natural gas
price increases, 78% of times CER price also increases.

120
9
WTO crude spot price ($/barrel)

Natural gas price ($/ 000cubic

100 8
7
80 6
5
feet)

60
4
40 3
2
20
1
0 0
0 10 20 0 10 20
CER spot price ($/CER) CER spot price ($/CER)

Plot between crude oil and carbon Plot between natural gas and
carbon price carbon price

The regression analysis was done where CER price was dependent variable and
independent variables were crude oil and natural gas prices. The coefficient of
determinant thus obtained was 0.723, which means 72.3% variation in CER prices can be
explained by crude oil and natural gas prices.

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Correlation result:

CER Spot price WTO world spot Natural Gas($/000 cubic
in $ price($/barrel) feet)
CER Spot price in $ 1

WTO world spot 0.660056034 1
price($/barrel)
Natural Gas($/000 cubic 0.78660666 0.477316492 1
feet)

Regression result:
The regression line is Y (CER price) = 2.914+ 0.0404 Crude price+ 0.958 LNG
price.
R2 is 0.723 which shows that 72.3% variation in average CER price is explained
by crude oil and natural gas prices.
Standard error of slope coefficients of crude oil price and natural gas price are
0.013 and 0.191 respectively.
For 24 degrees of freedom, t-value at 5% significance level is 2.064. Thus for 95
out of 100 cases the value for coefficient of crude oil price will lie between
0.0127 to 0.068. Also, for 95 out of 100 times the value for coefficient of natural
gas price will lie between 0.56 to 1.35.
The value of t-statistics at 5% significant level for intercept, two independent
variables, crude oil and natural gas are 3.15, 3.01 and 5.00 respectively.
The F- statistics is 31.42, which is greater than the critical value, thus the overall
model is highly significant.
Regression result:
(CER price) Y = 2.914+ 0.0404 Crude price+ 0.958 LNG price
Se = (0.92) (0.013) (0.191)
T = (3.15) (3.018) (5.0)
R2 = 0.723, adjusted R2 = 0.70, F = 31.42, d.f = 24
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SCENARIO ANALYSIS: For Carbon credit price

A scenario analysis is done for determining the price of carbon credits depending upon
the price variation of crude oil and natural gas. The current values are the prices of crude
oil, natural gas and CER price during October 2010. A total of four scenarios were being
taken in order to know the price of carbon credits under various circumstances.

Scenario Summary
Current Values(oct- Scenario A Scenario B Scenario C Scenario D
2010):
Changing Cells:
Crude_price 79.35 39 114 39 114
LNG_price 3.5 2.5 8.21 8.21 2.5
Result Cells:
CER_price 9.48049 6.89185 15.394885 12.364885 9.92185
Notes: Current Values column represents values of changing cells at
time scenario Summary Report was created.

The Scenario A relates to determining the CER price at lowest level of crude oil
and natural gas price during the period August 2008 to October 2010.
The Scenario B relates to determining the CER price at highest level of crude oil
and natural gas price during the period August 2008 to October 2010.
The Scenario C relates to determining the CER price at lowest level of crude oil
and highest level of natural gas price during the period August 2008 to October
2010.
The Scenario D relates to determining the CER price at highest level of crude oil
and lowest level of natural gas price during the period August 2008 to October
2010.
Overall price of CER according to these four scenarios varied between 6.89
US$/tCO2 to 15.39 US$/tCO2.

35

ECONOMY-

WTO world spot price($/barrel)
CER Spot price in $
Liquified Natural Gas($/000 cubic feet)
120 16

14
100
12
80
10

60 8

6
40
4
20
2

0 0
nov

nov

nov
june

june
Jan-09

aug

Jan-10

aug
april

april
oct

oct

oct
sep

may

sep

may

sep
july

july
Aug-08

dec

dec

dec
feb
march

feb
march

Price comparison between energy commodities

The above graph shows the comparison between price of carbon with crude oil and
natural gas.
It is seen that carbon prices almost follow the similar pattern as that of crude oil and
natural gas. The world markets were hit by recession in late 2007, there by affecting the
crude oil prices which raised to about 100 $/barrel in 2008, similarly carbon prices
moved up to 15 $/tCO2e. However in early 2009 the prices fell dramatically as the
fell
consumption of energy commodities were lowered due to declining industrial demand,
the carbon prices were also decreased because of decrease in demand of certified
emission reduction (CER) by developed economies. Thus prices of carbo credits are
carbon
volatile in nature and depend upon their demand and supply. CERs as all other
commodity are subject to economic shocks that will ultimately affect their price. There
are instruments available in market which provides desirable level of protec
protection against
36


market risks, but at the same time these instruments make this business sensitive and
speculation driven. The average price of CERs ranged between US$ 9 to US$ 11 during
2008-2010. Further in future if the carbon prices are high to moderate and gas prices are
moderate to low this would help Indian power generation units to shift from coal based to
gas based, thereby reducing the GHG emission in air and moving towards low carbon
economy. Moreover in Indian energy basket coal and oil has 52% and 32% share
respectively, hence there is an ample opportunities for CO2 reduction through so-called fuel
switching.

37


CO2 EMISSION/ CAPITA AND GROSS DOMESTIC PRODUCT/
CAPITA: CARBON PRODUCTIVITY

For World:

4.8
4.7
CO2 emission (metric

4.6
tonnes/capita)

4.5
4.4
4.3
4.2
4.1
4
3.9
0 5000 10000
GDP per capita

Scatter plot between CO2 emission and GDP for World.

A relationship between CO2 emission and GDP is determined; the scatter plot shows a
significant relation between the two quantities. The correlation between the quantities for
the world and India is 0.966 and 0.979 respectively. The correlation between CO2
emission and GDP per capita is highly positive that is both the parameters are positively
correlated. The above result indicates that, 1% increase in GDP per capita will lead to
0.96% increase in CO2 emission for world and 0.97% increase in CO2 emission for India.

The only difference in the world and Indian data is the steepness of slope of the two
scatter plots for the period 1997 to 2007. For the world, the small increase in GDP for
shorter period would lead to higher increase in carbon emission. Further, comparing the
percentage growth in CO2 emission and GDP during the period 1997 – 2007 for world is
10.9% and 63.27% respectively and for India it is 30% and 157.27% respectively. This

38


clearly shows that in order to have sustainable growth the entire world has to move
towards green technologies in order to strike a balance between growth and emission.
As for India, the correlation is 0.97, but the slope in less inclined since this is due to the
fact that during 2000 to 2007 India has moved significantly towards mitigating the carbon
emission by adopting and implementing clean development mechanism (CDM) across
various sectors. Further it can be inferred that Indian industrial growth could be high due
to increasing non manufacturing or service industries like information technology (IT),
which obviously does not involve any GHG emissions.

For India:
1.6
1.4
CO2 emission metric

1.2
tonnes/capita

1
0.8
0.6
0.4
0.2
0
0 500 1000 1500
GDP/capita

Scatter plot between CO2 emission and GDP for India

In terms of CO2/GDP, India has continuously improved the efficiency of its economy and
reduced the CO2 emissions per unit of GDP by 21% between 1990 and 2008. India aims
to further reduce emissions intensity of GDP by 20-25% by 2020 compared with the 2005
level.

39


For world:
Correlation result:

GDP per capita (in CO2 emission(metric tons/ capita)
US$)
GDP per capita (in US$) 1
CO2 emission(metric tons/ capita) 0.96685797 1

Regression result:

The regression line is Y (CO2 emission) = 3.121+ 0.0001 GDP.
R2 is 0.93 which shows that 93% variation in CO2 emission is explained by GDP.
out of 100 cases the value for coefficient of GDP will lie between 0.00015 to
0.0002.
The values of t-statistics at 5% significant level for intercept, independent
variable, GDP are 30.33 and 11.36 respectively.
The F- statistics is 129, which is greater than the critical value, thus the overall
Regression result:
(CO2 emission) Y = 3.121+ 0.0001 GDP
Se = (0.102) (0.0000166)
T-stat = (30.33) (11.36)
R2 = 0.934, adjusted R2 = 0.927, F = 129, d.f =9

40


For India:
Correlation result:

GDP/capita (US$) CO2 emission metric tons/ capita
GDP/capita (US$) 1
CO2 emission metric tons/ capita 0.979495695 1

Regression result:

The regression line is Y (CO2 emission) = 0.945+ 0.00048 GDP.
R2 is 0.959 which shows that 95.9% variation in CO2 emission is explained by
GDP.
out of 100 cases the value for coefficient of GDP will lie between 0.00041 to
0.00056.
variable, GDP are 44.4 and 14.58 respectively.
Regression result:
(CO2 emission) Y = 0.945+ 0.00048 GDP
Se = (0.021) (0.000033)
T-stat = (44.4) (14.58)
R2 = 0.959, adjusted R2 = 0.957, F = 212, d.f =9

41


CO2 EMISSION PER CAPITA AND POWER CONSUMPTION

For World:
4.7
4.6
CO2 emission (metric

4.5
tonnes/capita)

4.4
4.3
4.2
4.1
4
3.9
0 500 1000 1500 2000 2500 3000
Electric power consumption ( kwh/capita)

Scatter plot between CO2 emission and electric power consumption for World.

For India:
1.6
CO2 emission in metric tonnes/

1.4
1.2
1
capita

0.8
0.6
0.4
0.2
0
0 100 200 300 400 500 600
Electric power consumption in Kwh/ capita

Scatter plot between CO2 emission and electric power consumption for India.

The correlation between CO2 emission and power consumption for world is 0.93 and for
India it is 0.97. The scatter plot clearly shows that there is a high positive correlation
between the two quantities. Both the plots for India and world clearly shows that as the
42


consumption of electricity is increasing year on year the emission is also increasing, this
reflects that still most of the power generating units in the world are fossil fuel fed,
specially coal fed.
The primary factors that alter CO2 emissions from electricity generation from year to
year are the growth in demand for electricity, the type of fuels or energy sources used for
generation, and the thermal efficiencies of the power plants.

43


For world:
Correlation result:

Electric power CO2 emission(metric tons/
consumption(Kwh/capita) capita)
Electric power 1
consumption(Kwh/capita)
CO2 emission(metric tons/ 0.931383645 1
capita)

Regression result:

The regression line is Y (CO2 emission) = 1.57+ 0.00108 electric power
consumption.
R2 is 0.86 which shows that 86% variation in CO2 emission is explained by
electric power consumption.
out of 100 cases the value for coefficient of power consumption will lie between
0.00076 to 0.00139.
variable, power consumption are 4.48 and 7.67 respectively.
Regression result:
(CO2 emission) Y = 1.57+ 0.00108 electric power consumption
Se = (0.352) (0.00014)
T-stat = (4.48) (7.67)
R2 = 0.86, adjusted R2 = 0.85, F = 58.9, d.f =9

44


For India:
Correlation result:

Electric power CO2 emission metric tons/
consumption(Kwh/Capita) capita
Electric power 1
consumption(Kwh/Capita)
CO2 emission (metric tons/ 0.979673946 1
capita)

Regression result:

The regression line is Y (CO2 emission) = 0.349+ 0.002 electric power
consumption.
R2 is 0.959 which shows that 95.9% variation in CO2 emission is explained by
electric power consumption.
out of 100 cases the value for coefficient of power consumption will lie between
0.0017 to 0.0023.
variable, power consumption are 5.71 and 14.65 respectively.
Regression result:
(CO2 emission) Y = 0.349+ 0.002 electric power consumption
Se = (0.061) (0.00013)
T-stat = (5.71) (14.65)
R2 = 0.959, adjusted R2 = 0.955, F = 214, d.f =9

45


CO2 EMISSION PER CAPITA AND FOSSIL FUEL CONSUMPTION

For world:

4.7
CO2 emission (metric tonnes/capita)

4.6
4.5
4.4
4.3
4.2
4.1
4
3.9
79.5 80 80.5 81 81.5
Fossil fuel energy consumption (% of total)

Scatter plot between CO2 emission and fossil fuel energy consumption for World.

The correlation between CO2 emission and fossil fuel consumption is 0.95. The sign of
coefficient of correlation is positive which shows that both the variables will move in
same direction. The value indicated that when Fossil fuel consumption increases, 95% of
time the CO2 emission also increases.

46


For India:

1.6
CO2 emission (metric tonnes/ capita)

1.4
1.2
1
0.8
0.6
0.4
0.2
0
62 64 66 68 70 72
Fossil Fuel Energy Consumption in %

Scatter plot between CO2 emission and fossil fuel energy consumption for India.

The correlation between CO2 emission and fossil fuel consumption is 0.95. The sign of
coefficient of correlation is positive which shows that both the variables will move in
same direction. The value indicated that when Fossil fuel consumption increases, 95% of
time the CO2 emission also increases.

47


For world:
Correlation result:

fossil fuel energy CO2 emission(metric tons/
consumption(% of total) capita)
fossil fuel energy 1
consumption(% of total)
CO2 emission(metric tons/ 0.952589756 1
capita)

Regression result:

The regression line is Y (CO2 emission) = -30.34+ 0.43 fossil fuel consumption.
R2 is 0.90 which shows that 90% variation in CO2 emission is explained by fossil
fuel consumption.
out of 100 cases the value for coefficient of fossil fuel consumption will lie
between 0.32 to 0.53.
The values of t-statistics at 5% significant level for intercept and fossil fuel
consumption are -8.2 and 9.3 respectively.
Regression result:
(CO2 emission) Y = -30.34+ 0.43 fossil fuel consumption
Se = (3.68) (0.04)
T-stat = (-8.2) (9.3)
R2 = 0.90, adjusted R2 = 0.89, F = 88, d.f =9

48


For India:
Correlation result:

Fossil fuel energy CO2 emission (metric tons/
consumption(% of total) capita)
Fossil fuel energy 1
consumption(% of total)
CO2 emission (metric tons/ 0.953175508 1
capita)

Regression result:

The regression line is Y (CO2 emission) = -1.95+ 0.048 fossil fuel consumption.
R2 is 0.90 which shows that 90% variation in CO2 emission is explained by fossil
fuel consumption.
out of 100 cases the value for coefficient of fossil fuel consumption will lie
between 0.036 to 0.059.
The values of t-statistics at 5% significant level for intercept and fossil fuel
consumption are -5.7 and 9.4 respectively.
Regression result:
(CO2 emission) Y = -1.95 + 0.048 fossil fuel consumption
Se = (0.33) (0.005)
T-stat = (-5.7) (9.4)
R2 = 0.90, adjusted R2 = 0.89, F = 89.4, d.f =9

49


CAPTURING THE FUTURE SCENARIO

The strength of any business lies in its future trend, how the business will grow whether
have an upward trend or downward or reach maturity or remain constant. The project
based market has shown a tremendous rise from mere 13 million tons of CO2e transacted
in 2001 to approx. 283 million tons of CO2e transacted in 2009. The future projections of
project based transactions from 2010 to 2016 shows a stable and constant trade in
volume. The volume of CO2e transacted would be hovering around 406 to 468 million
tones to CO2e and the value would be around US$ 5500 million to US$ 6470 million of
project based transaction during the year 2011 and 2016. The growth potential in the
future based on CDM projects depends on the demand for CER’s from Annex 1
countries.
The graphs shows a steeping growth during 2004 to 2007, during this period the demand
for CER in developed nations were very high in order to meet their emission
commitments, also markets were new and were developing rapidly across various
continents. The market for project-based emission reductions weakened considerably in
the second half of 2008 under the weight of the financial downturn and due to the
lingering questions about the rules of post-2012 eligibility.
During the year 2008 to 2009 the fall in CER transaction continued due to recession. The
CDM markets started regaining during 2009 and 2010, and thus in future there seems a
steady and constant growth.

50

ECONOMY-

Graph showing the past and forecasted volume of CO2e transacted in million tons
howing
for years 2001 to 2016

700
Volume of CO2e Transacted in Million

600

500

400
tones

300
Volume in
200 Million Tones
CO2e(Y) traded
100

0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Year

Source: World Bank

18
Annaul avg price in US$/tCO2e

16
14
12
10 Annaul average
8 price in
US$/tCO2e (Y)
6
4
2
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Year

Source: BlueNext Exchange
Graph showing the past and forecasted annual average price in US$ per tones CO2e
transacted for years 2001 to 2016.

51


As far as price of certified emission reduction is considered a similar pattern is seen as
that of volume transacted. The projected average price of CER would be around 13 to 14
US$/tCO2e in the upcoming years 2011 to 2016. The primary CER prices in 2008 were
an average of 16% higher at US$16, the value of transactions decreased by 12% from
2007 levels to US$6.5 billion. The 2008 average price reflects higher prices paid prior to
the financial meltdown, compared to much lower prices in the handful of transactions in
the remainder of 2008.

Table showing the volume and value of CO2e transacted in past and projected for
the future.

Year Volume in Million Annual average Value Transacted
Tones CO2e(Y) price in in US$ million
traded US$/tCO2e (Y)
2001 13 3.8 49.4
2002 29 4 116
2003 55 4.8 264
2004 65 3.2 208
2005 382 7 2674
2006 611 10 6110
2007 636 13 8268
2008 486 16 7776
2009 283 12.5 3537.5
2010 468.333333 13.83333333 6478.611105
2011 412.4444444 14.11111111 5820.049382
2012 387.9259259 13.48148148 5229.816186
2013 422.9012346 13.80864198 5839.691741
2014 407.7572016 13.80041152 5627.217182
2015 406.1947874 13.69684499 5563.587039
2016 412.2844079 13.76863283 5676.592634

Source: State and trend of Carbon markets- World Bank
Note: The transactions include both CDM and JI

52


DEMAND AND SUPPLY CENTERS

BUYERS
Buyers are governments, public-private partnerships like the Prototype Carbon Fund
(PCF), and increasingly private companies, especially from Japan. Private sector acting
alone now represents more than 40% of all the volume of emission reductions purchased
in developing countries. The demand will vary based on the rate of corporate growth,
actual output, efficiency measures undertaken as well as weather patterns and fuel prices.

100%
90% PCF
Australia & New Zealand
80%
Canada
70%
USA
60%
Other & UNSP
50% Italy
40% Other Europe
30% Japan
20% Netherlands
Europe-Baltic
10%
Spain
0%
U.K
2002 2003 2004 2005 2006 2007 2008 2009

Source: Carbon Finance
Graph showing the percentage share of major buyer countries of carbon credits
(includes CDM & JI)

The major buyers of carbon credits through CDM and JI for the years 2002 to 2009 were
United Kingdom (U.K), Spain, Europe Baltic, Netherlands, Japan, Italy, U.S.A, Canada,
Australia and New Zealand. Among these the consistent buyers were U.K, Spain, Japan,
Netherlands and other European countries.

53


The major buyer countries which had more than 10% market share over the period 2002
to 2009 were U.K, Japan, Europe Baltic and Netherlands. For the years 2009, 2008, 2007,
and 2006 the U.K showed aggressive buying of carbon credits with market share
averaging to 46%. Also for the years 2002 to 2009 Japan had an averaging buying share
of 23%.

In 2002 Carbon Market report showed Netherland, Japan, PCF and Canada had strong
buying pattern with more than 10% share each. Japan completely dominated the market
for project-based transactions in 2005 with buying share of 46%. Buyers from Japan
continued to be dominant by originating large trading houses. Almost all Japanese
contracts signed were with the private sector.
Within Europe, Italy (11%) and Spain (5%) sharply increased their purchasing in 2004,
while the share of the Netherlands ─ one of the earliest buyers in the market and the
biggest European buyer in 2004 ─ declined and the same trend was followed in 2005
with share of 8% in both the consecutive years. Within Europe, buyers from the Baltic
Sea Group (including Finland, Sweden, Norway, Germany, Denmark and Iceland) also
made significant purchases. The private sector clearly emerged in 2005 as the dominant
buyers in the project-based market with over 80% of the volume transacted. Towards the
end of 2005 and in early 2006, nearly all European project-based transactions had a
private buyer.
In 2007, buyers continued to show strong interest in the CDM and JI, and this was
supported by higher flows of capital into the carbon market. While transacted volumes
grew slightly to 636 MtCO2e for finalized primary project-based transactions. The
dynamics of the project-based market changed in early 2008 and the total transaction was
dropped to 485MtCO2e, as buyers became more cautious in response to a combination of
mounting delivery and issuance challenges, higher perceived credit risks amid the
generally bearish sentiment in the financial markets, as well as continuing uncertainty
about the role of and demand for CDM and JI in the post-2012 climate regime(s).

54


SELLERS

100%
90%
Australia & Newzealand
80%
USA & Canada
70% OECD
60% Rest of Latin America
50% Brazil
40% Others
30% Africa

20% Rest of Asia

10% India
China
0%
2003 2004 2005 2006 2007 2008 2009

Source: Carbon Finance
Graph showing the percentage share of major seller countries of carbon credits
(includes CDM & JI)
In early years (mostly 1996 to 2000), the majority of project-based transactions took
place in industrialized countries, i.e., both buyers and sellers were located in
industrialized countries. A majority of reductions came from projects in Latin America
but, in 2003, Asia joined the list of major sellers specially India with share of around
50%. In particular, about 10 agreements for project activities were signed in India and
only one project in China, which has become a major player from 2005.
In 2006, China dominated the CDM market on the supply side with a 61% market share
of volumes transacted, down slightly from 71% in 2005. Next was India at 12%,
recovering from 3% in 2005. Asia as a whole led with an 80% market share. Latin
America – an early pioneer of the market – accounted for 10% of CDM transactions
overall with Brazil alone at 4%. The share of Africa remained constant, at about 3%.

55


China had with an 84% market share in 2008, in the primary CDM market. Over the
period 2003-08, China accounted for 66% of all contracted CDM supply in the market.
With 4% and 3% market share each, India and Brazil rank second and third, respectively,
on the list of sellers in terms of volumes transacted. On a cumulative basis, Brazil
accounted for about 8% of primary CERs contracted cumulatively over 2002-2008. India,
on the other hand, accounts for 9% of CERs contracted cumulatively over 2002-2008.
The total value of the primary CDM market in 2009 fell to US$2.7 billion, 59% less than
the US$6.5 billion transacted in 2008. Africa and Central Asia doubled their market
shares in 2009 to 7% (15 million tons) and 5% (10 million tons), respectively. China
remained the most viable large-scale seller, maintaining its overall dominance with a
72% share of the market. However, China’s market share did decline from 2008.
India is still the second biggest carbon credits supplier after China in the market. Indian
average carbon market share over the period 2003 to 2009 has been around 16% to 17%.

56


SECTORIAL CDM PROJECTS IN INDIA
AND
OPPORTUNITIES IN OIL AND GAS
SECTOR

57


INDIAN SECTORIAL CDM PROJECTS

Till date 506 projects have been registered by the CDM executive board, which account
for about 20% of all the registered projects (as of 1 June 2010). In the initial stage of
CDM development in India, biomass utilization projects, waste gas/heat utilization
projects, and renewable energy (wind, hydro) projects were mainly being implemented.
Other than those projects, India has various types of registered CDM projects that include
energy efficiency (cement, steel and etc.), fuel switch, HFC reduction, N2O
decomposition, afforestation and reforestation, and transportation. The following pie
chart shows percentage share of the CDM projects in various sectors.

Source: IGES CDM Project database

Type of projects, which are being applied for CDM and which can be of valuable
potential, are:

Energy efficiency projects
Increasing building efficiency (Concept of Green Building/LEED Rating), eg.
Technopolis Building Kolkata
58


Increasing commercial/industrial energy efficiency (Renovation & Modernization
of old power plants)

Fuel switching from more carbon intensive fuels to less carbon intensive fuels;
and also includes re-powering, upgrading instrumentation, controls, and/or
equipment

Transport

Improvements in vehicle fuel efficiency by the introduction of new technologies

Changes in vehicles and/or fuel type, for example, switch to electric cars or fuel
cell vehicles (CNG/Bio fuels)

Switch of transport mode, e.g. changing to less carbon intensive means of
transport like trains (Metro in Delhi); and

Reducing the frequency of the transport activity

Methane recovery

Animal waste methane recovery & utilization

Installing an anaerobic digester & utilizing methane to produce energy

Coal mine methane recovery

Collection & utilization of fugitive methane from coal mining;

Capture of biogas

Landfill methane recovery and utilization

Capture & utilization of fugitive gas from gas pipelines;

Methane collection and utilization from sewage/industrial waste treatment
facilities

59


Industrial process changes
Any industrial process change resulting in the reduction of any category
greenhouse gas emissions
Cogeneration
Use of waste heat from electric generation, such as exhaust from gas turbines, for
industrial purposes or heating (e.g. Distillery-Molasses/ bagasse)

Agricultural sector
Energy efficiency improvements or switching to less carbon intensive energy
sources for water pumps (irrigation).
Methane reductions in rice cultivation.

Reducing animal waste or using produced animal waste for energy generation
(see also under methane recovery) and any other changes in an agricultural
practices resulting in reduction of any category of greenhouse gas emissions.

60


OIL AND GAS SECTOR

The O&G sector encompasses a wide variety of operations, ranging from the discovery
and production of O&G, to the delivery of products to consumers. In the scope of
upstream and downstream operations, O&G companies emit two primary types of GHG
emissions: carbon dioxide and methane. The general scope of applicable emission
sources for companies in the O&G sector that have the potential for CDM/JI projects are:

Combustion in flares and incinerators
Physical or chemical process emissions such as from gas processing, oil refining,
and petrochemical manufacture.
Fugitive losses from equipment leaks (e.g. gas pipeline transmission, valves)
Production of steam heat or electricity
Production of work by engines and turbines (e.g. drive pumps/compressors)

The principal aqueous waste streams resulting from exploration and production operation
are:

Produced water
Drilling fluids, cuttings and well treatment chemicals
Process wash and domestic wastes
Cooling water
Spills and leakage

Although considerable emission reduction opportunities exist in the sector, in general the
O&G sector has been relatively slow to implement projects under the CDM and JI
Mechanisms in their operations. Recently this mind-set has shifted as O&G companies
have come to realize the significant financial benefits of reducing GHG emissions. The
period of political uncertainty over the Kyoto Protocol and its instruments is over, and

61


early risk-takers in the carbon market have gained large financial rewards from investing
in emissions reduction projects. The CDM has become a well established international
financing mechanism creating billions of dollars in future carbon revenues, and
leveraging billions more in investments in renewable energy and other sectors. The
current status of the new carbon market presents excellent funding opportunities for
companies to develop projects in the O&G sector.

GHG abatement projects in upstream oil and gas sector:

Installation of Gas Recovery Facilities to prevent emission of methane/CO2 to the
atmosphere:

Installation of compressors to recover low pressure (LP) gas and compress the
same for further distribution
Installation of ejector systems which uses the motive force to suck LP gases
which were previously flared
Installation of separators to separate gas at various pressures and recover very low
pressure gas that was previously flared
Up-gradation of process gas compressors (PGC)
Optimal utilization of gas for internal consumption in gas lift wells/ gas re-
injection
Laying pipelines from gas rich areas to areas where there is scarcity of gas but
greater demand (by identifying potential consumers).

Common Grid of Power at Offshore:

A common grid of power is setup by achieving interconnectivity across various
process and well platforms.

62


This interconnectivity can be achieved by laying submarine cables and
transferring surplus power (NG based) to the shore for sale.
The project replaces more carbon intensive power source (DG based) to relatively
cleaner (NG based) power.

Recovering Vapors from Storage Tanks:

Recovery and utilization of vapors, previously being vented out from oil storage
tanks, using ejector system.
Carbon Capture & Storage (CCS):

Capture of CO2 from large stationary sources, transportation of the gas to an
appropriate injection site where it is pumped and stored into underground
geological formations such as natural gas and oil fields.
Storage may also be combined with Enhanced Oil Recovery (EOR) or Enhanced
Gas Recovery (EGR).

GHG abatement projects in downstream oil and gas sector:

Energy efficiency Improvement measures in the existing system- Steam generation and
distribution system up-gradation:

Enhanced heat utilization through installation of centralized flash steam recovery
system to recover steam condensate
Flash steam utilization in vapor absorption chiller to produce refrigeration effect
Better steam trap management to reduce heat loss
Improvement in the cogeneration/ self generation efficiency

63


Steam optimization by installation of Dry-ejector system instead of steam-jet ejector in
VDU:
In Dry-ejector system vacuum gas oil is used as motive liquid and circulated in
the system. This reduces generation of LP steam which is required as motive fluid
in conventional steam-jet ejector.

Other potential areas in refinery units where CDM may be applicable:
Flare recovery system:
utilization to cater to heat demand of refinery
utilization in boilers/ Gas Turbine

Fuel switch projects:
Fuel switching in furnace, heater etc
Fuel switch in the thermal energy generation system/ cogeneration/ self
generation equipments

Optimization in H2 recovery from off gases from CRU, VGO hydro-treater etc

Application of Advanced Processes:

Use of new generation catalysts which reduces coke deposition on the catalyst
Application of energy-efficient Solvent De-asphalting technology instead of
energy-intensive Cracking/Coking technology
Novel bio-catalytic processes with very low energy consumption
Application of membrane separation technology instead of conventional
separation techniques
H2 generation in the refinery through natural gas reforming instead of naphtha
reforming

64


Gas-to-Liquid (GTL) technology for production of petroleum fuel/Lube oil/Wax
from Natural Gas
Integrated Gas Combined Cycle (IGCC) based power generation from vacuum
residue/ petroleum coke – higher power generation efficiency with generation of
H2 as by product
Steam-injection in Gas Turbine

Alternative Fuels/ Energy:
Bio-diesel
Efficient generation of H2 and utilization
Renewable energy – wind power/ hydro power/ solar power etc.
Transportation project:
Changes in the mode of transportation of petroleum products e.g. from road to
rail/ pipeline
Energy efficiency improvement in the intermediate pumping stations of crude/
product pipelines

Registered CDM projects in Indian oil and gas sector:

Company Project implemented

Oil and Natural Gas Flare gas recovery project at Uran
Corporation (ONGC) Limited plant, Oil and Natural Gas
Corporation (ONGC) Limited.
Flare gas recovery project at Hazira
Gas Processing Complex (HGPC),
Hazira plant, Oil and Natural Gas
Corporation (ONGC) Limited.
Up-gradation of Gas Turbine 1 (GT

65

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