1. 27th December, 2011
Tuesday
CARBON CREDITS
Prepared and Presented by:
•Ms. Shruti M. • Mr. Kailash S.
•Ms. Darshika Singhal • Mr. Anupam Mittal
• Ms. Heena Nagrani
•Mr. Punit Harkut
•Ms. Meghana Agrawal
•Mr. Hardik Varyani
•Mr. Varun Aggarwal
•Mr. Pratik Salgia
2. Climate Change
Rapid Industrial Growth
Increased energy consumption
Increased CO2 and other GHG
emissions
Global Warming due to
increased concentration of GHG
Increasing sea Changes in wind Changes in
level and precipitation crop yields
3. Green House Gases
Greenhouse gases are those that can absorb and
emit infrared radiation. The most abundant GHGs
are :
Water vapor
Carbon dioxide
Methane
Nitrous Oxide
Ozone
4. Kyoto Protocol
• It was adopted in Kyoto, Japan, on 11th December 1997 and
entered into force on 16 February 2005.
• Objective:
Stabilisation of greenhouse gas concentrations in the
atmosphere at a level that would prevent air pollution
interference with the climate system.
5. Kyoto Protocol (Contd..)
• A legally binding ‘International Agreement’ made under the
United Nations Framework Convention on Climate Change
(UNFCCC).
• Recognizing that developed countries are principally
responsible for the current high levels of GHG emissions in
the atmosphere as a result of more than 150 years of
industrial activity, the Protocol places a heavier burden on
developed nations under the principle of common but
differentiated responsibilities.
• 191 Countries has ratified the Protocol.
6. United Nations Framework
Convention on Climate Change
• UNFCCC’s aim is to reduce atmospheric
concentrations of greenhouse gases with the goal
of "preventing dangerous anthropogenic
interference with Earth's climate system."
• Parties to UNFCCC are classified as:
Annex I countries – industrialized countries and
economies in transition
Annex II countries – developed countries which pay
for costs of developing countries
Non Annex I countries - Developing countries
7. United Nations Framework
Convention on Climate Change
• UNFCCC serves three purposes:
it avoids restrictions on their development, because emissions are strongly linked to
industrial capacity
they can sell emissions credits to nations whose operators have difficulty meeting their
emissions targets
they get money and technologies for low-carbon investments from Annex II
• Annex 1 (developed countries) agreed to reduce their GHGs by 5.2%
below 1990 levels in 1st commitment period 2008 – 2012.
• Each Annex I country is required to submit an Annual Report of
inventories of all anthropogenic greenhouse gas emissions from sources
and removals from sinks under UNFCCC and the Kyoto Protocol.
• India signed and ratified the Protocol in Aug’02, and maintains that the
major responsibility of curbing emission rests with the developed
countries, which have accumulated emissions over a long period of time.
8. Kyoto Mechanism
• Under the Treaty, countries must meet their targets primarily through
national measures. However, the Kyoto Protocol offers them an
additional means of meeting their targets by way of three market-
based mechanics.
• The mechanisms help stimulate green investment and help Parties meet
their emission targets in a cost-effective way.
• The Kyoto mechanisms are:
Clean Development Mechanism.
Emissions trading – known as “the carbon market"
Joint implementation (JI).
9. Clean Development Mechanism
(CDM)
• The CDM allows emission-reduction projects in
developing countries to earn certified emission
reduction (CER) credits, each equivalent to one
tonne of CO2. These CERs can be traded and sold,
and used by industrialized countries to a meet a
part of their emission reduction targets under the
Kyoto Protocol.
12. Benefits of CDM:
Sustainable Development
Poverty reduction
Access to energy efficient lighting and cooking
Improvement of air quality and living conditions
Reduction of costs
Generation of jobs and skills
13. Emission Trading
• Acceptance of targets for limiting or reducing
emissions
• Assigned amounts
• Assigned Amount Units (AAUs)
• Allows countries to sell their excess capacity
• A new commodity
• Carbon is now tracked and traded like any other
commodity
• Carbon market
• The commitment period reserve
14. Joint Implementation
• Allows a country with an emission reduction
commitment to earn emission reduction units
(ERUs) from an emission-reduction or emission
removal project
• Offers Parties a flexible and cost-efficient mean
• Host Party benefits from foreign investment and
technology transfer
15. Joint Implementation (Contd..)
• Eligibility and approval:
A JI Project must provide a reduction in emissions
Must have approval of Host Party
Participants have to be authorized to participate by a
Party involved in the project
16. Joint Implementation (Contd..)
• Procedures:
Track 1 Procedure:
• Host Party meets all of the eligibility requirements;
• Verify emission reductions from a JI project;
• Issue the appropriate quantity of ERUs.
Track 2 Procedure:
• Host Party doesn’t meets all, but only a limited set of the eligibility
requirements;
• Verification has to be done through the verification procedure
under the Joint Implementation Supervisory Committee (JISC).
• an independent entity accredited by the JISC decides whether the
relevant requirements have been met before issue and transfer
ERUs.
17. Cancun Conference
• The UN conference on climate change in
Copenhagen in 2009 was replaced by the Cancun
Conference in 2010
• It restored some market confidence in UNFCCC’s
process
• It was decided to keep the average global
temperature below 2 degrees Celsius in comparison
to the preindustrial levels
• They are further reviewing the possibility of moving
to 1.5 degrees Celsius as a new target
18. Cancun Conference (Contd..)
• This conference has resulted in a number of other
positive outcomes for carbon markets and climate
finance
• There has been a decision to establish the Green
Climate Fund
• The Kyoto Mechanisms shall continue with
improvements
19. Cancun Conference (Contd..)
• Apart from CDM there shall be an inclusion of
(REDD+) mechanism which is
Reduced Deforestation mechanism
• Developed and developing country pledges are 60%
of what is needed by 2020 to place the world onto a
trajectory keeping the world temperatures lesser
20. Carbon Credit
• Carbon credits are elements used to aid in regulation of the
amount of gases that are being released into the air
• The extent to which a company emits less carbon, it shall get
credits
• 1 Carbon Credit = 1 tonne of CO2 or its equivalent GHGs
which is an entitled certificate by UNFCCC
21. Carbon Trading
• A carbon trading allows the development of a
market through which Green House Gasses
(GHGs) can be traded between participants in the
form of Certified Emission Reductions (CERs).
22. Carbon Trading – An Example:
• Such accumulated credits are also bought and sold in
international market
• Emissions permitted to countries, but not used can be sold to
countries that are over their targets
• Suppose XYZ Inc., operates in a country which is covered in
Annexure- I country, emits 10L tonnes of CO2 per year. But
law enacted by such country limits the emission up to 8L
tonnes per year by XYZ Inc.
• XYZ Inc. is required to either reduce its emissions to 8L
tonnes or purchase carbon credits to offset the excess.
24. Types of Carbon Trading
(contd..)
• Carbon Cap-Trade Program:
Here we decide an upper threshold limit for a business or
an industry
Emission is permitted only till such limit
If there is any unutilized limit, it can be sold to those
countries who have crossed their limits
25. Types of Carbon Trading
(contd..)
• Carbon Offsetting :
Offset credits are purchased by developed nations for
eco-friendly technologies to avoid or substitute
reduction in their own emission
Objective is to invest in green technologies and harness
alternatives forms of energy in the developing nations
26. Accounting Aspects
• CERs are Assets.
Recognition of CERs as an Asset.
Period upto CERs are issued to CERs actually issued to entity.
generating entity.
Treated as Contingent Asset. As Assets.
27. Accounting Aspects (contd..)
• Recognition in Financial Statements
Future Economics Benefits Asset has a Cost or
will flow to entity Value
• CER should be accounted as per AS-2 and not as per AS-26.
• Measurement of CERs (least of
the below two).
Cost Net Realisable Value
28. Taxation Aspects
• Depreciation on CDM Devices:
Energy saving devices, renewal energy devices.
Air pollution control devices, solid waste control
equipments.
29. Taxation Aspects (Contd..)
• Expectations from Government:
Income from other sources
Special (Minimum) rate
Tax holidays
MAT exemption – VCF
30. Advantages of Carbon Trading
• Reduction in Green House Gas Emission
• Source of revenue for developing nations
• Supports a free market system
• Impetus for alternative sources of energy or green
technology
31. Disadvantages of Carbon
Trading
• Right To Pollute
• Lack of Centralized system or global framework
• No effective Carbon reduction in the atmosphere
34. Key Risks and Uncertainities
• The key risks & uncertainties associated with
carbon trading markets are:
The extent to which the Kyoto Protocol guidelines are
implemented & followed
The attitude of US which is the biggest polluter and had
refused to sign the treaty
The final rules and decisions relating to an emissions
trading market
36. Outlook for India
• India and China are the biggest sellers and Europe is going to be the
biggest buyers of carbon credits.
• India is one of the countries that have CREDITS for emitting less carbon.
India and China have surplus credit to offer to countries which have a
deficit.
• India has generated carbon credits worth 30 million $ and has roughly
another 140 million $ to push in the world market.
• Waste disposal units , plantation companies ,chemical plants and
municipal corporations can sell the carbon credit and make money.
37. Outlook for India
• However, under UNFCCC the polluters cannot buy 100 per
cent of the carbon credits they are required to reduce. Say,
out of 100 per cent they have to induce 75 per cent locally by
various means in their own country. They can buy only 25
per cent of carbon credits from developing countries.
38. Outlook for India
• On 23/5/2011 World bank has signed an agreement with
Himachal Pradesh government for what is to be the worlds
largest and India’s first CDM project.
• Under this the bank will buy carbon credit from the new
forests developed on degraded lands under a watershed
management programme.
• Besides being the 1st pilot project for India, it would also be
the World’s 1st carbon credit project that is linked to an
ongoing watershed management programme.
• The broad objective of the bio-carbon CDM project is to curb
greenhouse gases by expanding forestry plantations.
39. Outlook for India
• Spread over 11 watershed divisions in 177 gram panchayats
across 10 districts under the mid-Himalayan watershed
development programme, the CDM agreement is estimated
to fetch a carbon revenue of at least Rs 20 crore for the first
crediting period of 20 years.
• Under this agreement ,the benefit accruing to the community
and the private landholders will be about Rs.2500/ hectare ,
which depends on growth of trees and other factors.
40. Outlook for India
• Delhi Metro has been certified by the United Nations as the
first metro rail-based system in the world to get carbon
credits for contributing to the fight against climate change by
help reducing pollution levels in the city by 6.3 lakh tons
every year.
• The organization has also earned carbon credit worth Rs. 47
crores annually for the next 7 years.
• With nearly 20 lakh people taking the new age transport
system everyday, the metro has helped reduce pollution and
emission of green house gases as it is a completely non
polluting and environment friendly system.
41. Outlook for India
• No other Metro in the world could get the Carbon Credit for
the above because of the very stringent requirement of the
United Nations Body to provide conclusive documentary
proof of reduction in emissions.
• Delhi metro has helped remove more than 91000 vehicles
from the roads of Delhi.
• Every passenger who chooses to travel by metro instead of
car/bus contributes in reduction of emissions to the extent of
approximately 100 grams of carbon dioxide for every trip of
10 kms and therefore, becomes a party to reduce global
warming.
42. Outlook for India
Finally I would like to conclude by saying that carbon credits is
helping to remove all the blackness in the Indian economy.
Indian companies are in the fore front in green practices and
are benefiting the most in the world.
It is one of the high growth areas for Indian CA’s who are
amongst the 1st in the world for preparing the accounting
mechanism for carbon credit.
Also it has opened new areas for auditing like environment
audit, green energy audit, etc.
A green environment will thus lead to a green sensex.
