Carbon Trading - Business for saving environment
[Submitted by CA Deepak Pardeshi,
Pune, Maharashtra]
February 16, 2010
Carbon Trading is a platform where Carbon credits can be sold and purchased. This concept arises as part of Kyoto Protocol.
Carbon Credits are measured in units of Certified Emission Reductions (CERs). This is certificate of reduce generation of Carbon Dioxide. A carbon credit means emission of one tone Carbon Dioxide. This can be sold or purchase as trading goods.
The exact concept of Carbon Trading is in Kyoto Protocol participating countries decided to reduce generation of Carbon Dioxide and Green House Gases (GHG’s) to save the environment. This could be done by two types: firstly a country can reduce its Carbon Dioxide or GHG production for which it will get CERs. Secondly it can help developing country by technology to reduce GHG or Carbon Dioxide. After this they can get certificate for it. In this way developing country will get new technology and funds for its industry.
One more way to get credit is, it can purchase credit from the countries which has got enough CER’s. Every country must get the target within the time prescribed. For example let assume America needs 100 CERs but by reduction of its own Carbon Dioxide it gets only 30 CER then it can purchase rest 70 CER from any developing country like India which has more CER from its target. For this America will pay to India.
Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets.
For example, consider a business that owns a factory putting out 100,000 tonnes of greenhouse gas emissions in a year. Its government is an developed country that enacts a law to limit the emissions that the business can produce. So the factory is given a quota of say 80,000 tonnes per year. The factory either reduces its emissions to 80,000 tonnes or is required to purchase carbon credits to offset the excess. After costing up alternatives the business may decide that it is uneconomical or infeasible to invest in new machinery for that year. Instead it may choose to buy carbon credits on the open market from organizations that have been approved as being able to sell legitimate carbon credits.
One can say why developed country will purchase these credits and use their money. For this view is environment protection is necessary. This cost millions of Dollars already to control the environment. Hole in Ozone, melting ice in Antarctic is big reason to worry. For this safety governments are spending a lot of money. But main cause was unaffected. So to reduce the main cause this treaty was made.
Now this is a big business opportunity for all developing countries because in these countries industry is developing. So by the help of developed country they can establish new factories with latest technology and help by fund from them.
In India more than 100 companies are ready to do business in Carbon Trading. These have clean technology to emit GHGs.
Many companies have already purchasing CER. These are FII’s which believe that the value will these CERs will increase in future. They are following market mechanism based on demand and supply. Developed countries have to fulfilled their targets when they will not be able to do so they would have to purchase these CERs from these FII’s. As per estimation of World Bank this business can go up to $100 millions.
Conclusion: Climate change is a very big problem; at the same time poverty of developing countries is a big problem for them. This Carbon credit scheme brings a answer for both the problems. The government should give priority in financing clean projects to increase production and by these it can earn credits to sale to developed countries.
