K S INSTITUTE OF TECHNOLOGY

# 14, Raghuvanahalli, Kanakapura Road, Bengaluru - 560109

Affiliated to VTU, Belagavi & Approved by AICTE, New Delhi

DEPARTMENT OF ELECTRONICS AND COMMUNICATIONS ENGINEERING

Activity Report on BESK508 / BCS508 - Environmental Studies for ECE Stream In Partial
fulfillment for the award of Degree for the academic Year 2024-2025

A Report Entitled” Carbon Trading”

Submitted By

Student Name USN NO

AYYAJI MADHAVA 1KS22EC020
C.RAHUL 1KS22EC022
CHETHAN.A.G 1KS22EC025
CHIDAMBAR.P.M 1KS22EC026
CHINMAY.S 1KS22EC027
D.N.MITHUN 1KS22EC028
KARTHIK.D 1KS22EC047
KISHAN.V 1KS22EC051

Supervised by

Prof. SHWETHA K C
Assistant Professor
Department of Chemistry
KS Institute of technology

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 DECLARATION

We
AYYAJIMADHAVA(1KS22EC020),C.RAHUL(1KS22EC022),CHWTHAN.A.G(1KS22EC02
5),CHIDAMBAR.P.M(1KS22EC026),CHINMAY.S(1KS22EC027),D.N.MITHUN(1KS22EC0
28),KARTHIK.D(1KS22EC047) and KISHAN.V(1KS22EC051) hereby declare that the activity
report entitled “CARBON TRADING” was written by us in partial fulfillment for the degree
under the guidance of Prof. SHWETHA K C, Assistant Professor, Department of Chemistry
during the year 2024-2025.To the best of my knowledge, the information provided in the report
is true and correct.

USN NO Student Name Signature of the

Student
1KS22EC020 AYYAJI MADHAVA
1KS22EC022 C.RAHUL
1KS22EC025 CHETHAN.A.G
1KS22EC026 CHIDAMBAR.P.M
1KS22EC027 CHINMAY.S
1KS22EC028 D.N.MITHUN
1KS22EC047 KARTHIK.D
1KS22EC051 KISHAN.V

Signature of the Supervisor

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 Abstract

Carbon trading, a market-based mechanism, aims to reduce greenhouse gas (GHG) emissions by

assigning a monetary value to carbon emissions. It operates primarily through cap-and-trade

systems and carbon offset markets, enabling entities to trade emission allowances and credits to

meet regulatory or voluntary climate goals. Introduced under international frameworks like the

Kyoto Protocol and strengthened through the Paris Agreement, carbon trading fosters cost-

effective emission reductions, incentivizes innovation in clean technologies, and promotes

sustainable development.

Despite its benefits, challenges such as market oversupply, verification issues, and inequitable
access for developing nations persist. Future advancements include expanding market scope,
integrating emerging technologies like blockchain and AI for transparency, and enhancing global
cooperation. As a dynamic tool, carbon trading supports the transition to a low-carbon economy
while addressing the pressing need to mitigate climate change and achieve net-zero emissions.

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 INDEX

SL.NO CONTENTS PG.NO

1 Introduction:

1.1 Background

1.2 Objectives 4-7

1.3 Scope and importance

2 Methodology/Approach 8-10

3 Action Plan /Future Development Plans 11

4 Team Snapshot 12

5 Conclusion 13

6 References 14

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 Introduction

Background of the Topic:

Carbon trading, also known as emissions trading, is a market-based approach to reducing
greenhouse gas (GHG) emissions. It emerged as part of international efforts to address climate
change, particularly after the recognition of the adverse effects of GHG emissions on global
warming. The system is rooted in the principle of "cap-and-trade," where a limit (cap) is set on
the total emissions allowed, and entities can trade allowances to meet their specific needs.

Objectives of the Topic:

 Reduce Greenhouse Gas Emissions

 Promote Cost-Effectiveness

 Encourage Innovation and Technology Development.

This Photo by Unknown Author is licensed under CC BY

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 Key Components of Carbon Trading

1. Cap-and-Trade Systems:

o Governments or regulatory bodies set a cap on the total allowable emissions.

o Emitters are allocated or purchase emission allowances, each representing one ton
of CO₂-equivalent.

o Entities that emit less than their allowances can sell the surplus to others.

2. Carbon Offset Markets:

o Focus on projects outside regulated sectors, such as reforestation or renewable

energy, which reduce or avoid emissions.

o These generate credits (carbon offsets) that can be purchased voluntarily or to

meet regulatory requirements.

Goals and Benefits

 Cost-Effective Emission Reductions: Allows companies to find the most economical

ways to reduce emissions.

 Innovation: Encourages investment in low-carbon technologies.

 Global Cooperation: Facilitates international collaboration to meet climate targets.

Challenges

 Market Oversupply: Excessive allocation of allowances can undermine the system's

effectiveness.

 Verification and Fraud: Ensuring that reductions are genuine and permanent.

 Equity Issues: Developing countries may face challenges accessing benefits or

protecting their interests.

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Scope and Importance of the Topic:

1. Global Reach

 Encompasses developed, emerging, and developing economies, creating opportunities for

international collaboration.

 Includes cross-border mechanisms like the Clean Development Mechanism (CDM) and
international emissions trading under frameworks such as the Paris Agreement.

2. Sectoral Coverage

 Applies to industries with significant GHG emissions, such as energy, transportation,

manufacturing, agriculture, and forestry.

 Expands to voluntary markets, including reforestation, renewable energy projects, and

other carbon offset initiatives.

3. Policy Frameworks

 Operates under regulatory systems like the European Union Emissions Trading System
(EU ETS), California’s Cap-and-Trade Program, and China’s National Carbon Market.

 Supports voluntary markets, allowing corporations and individuals to offset emissions

beyond regulatory requirements.

4. Economic Integration

 Links carbon markets with financial systems through tradeable carbon credits and
derivatives.

 Encourages innovation in green finance, creating instruments like green bonds tied to
carbon reduction projects.

5. Scalability

 Adapts to local, regional, and global levels, offering flexibility to address specific climate
and economic contexts.

 Scales with advancements in monitoring, reporting, and verification (MRV) technologies.

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Importance of Carbon Trading

1. Mitigating Climate Change

 Provides a market-driven mechanism to reduce GHG emissions and transition to a low-

carbon economy.

 Helps nations meet their climate targets, including those set under the Paris Agreement.

2. Cost-Effective Emission Reduction

 Allows entities with lower abatement costs to sell surplus allowances, optimizing the cost
of reducing emissions globally.

 Encourages efficient allocation of resources to achieve emission reduction goals.

3. Fostering Innovation

 Stimulates investment in cleaner technologies, renewable energy, and energy efficiency.

 Drives research and development in carbon capture, utilization,

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 Methodology/Approach
Approach for Research:

1. Establishing the Framework

Setting Emission Caps

 Governments or regulatory bodies establish a total allowable emission limit (cap) for a
specific region, industry, or sector.

 The cap aligns with environmental goals, such as reducing emissions in line with national
climate policies or international agreements like the Paris Agreement.

Allocating Allowances

 Emission allowances (permits) are issued, each representing the right to emit one ton of
CO₂ or its equivalent.

 Allowances are distributed either:

o Free of charge to entities based on historical emissions or benchmarks

(grandfathering).

o Through auctions, allowing market forces to determine their initial price.

2. Trading Mechanism

Market Structure

 Two primary types of markets:

o Compliance Markets: For entities regulated under cap-and-trade systems.

o Voluntary Markets: For organizations and individuals looking to offset their

emissions beyond regulatory obligations.

Trading of Allowances

 Entities with excess allowances (due to lower emissions) can sell them to those who
exceed their cap.

 Trading can occur:

o Directly between entities.

o Through exchanges or brokers.

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Carbon Credits and Offsets

 Carbon offsets are generated from projects that reduce or sequester GHG emissions, such
as reforestation or renewable energy initiatives.

 These offsets can be traded in voluntary markets or used to meet compliance obligations
in some systems.

3. Monitoring, Reporting, and Verification (MRV)

Monitoring

 Emitters must measure and monitor their emissions using standardized methods.

 Advanced technologies, such as satellite imaging and IoT sensors, enhance accuracy.

Reporting

 Entities report their emissions data periodically to regulatory authorities or market

operators.

 Reports must adhere to predefined guidelines and formats.

Verification

 Independent third-party auditors verify emissions data and project outcomes.

 Ensures integrity and credibility of the trading system.

4. Enforcement and Compliance

Regulatory Oversight

 Regulatory bodies monitor trading activities and ensure compliance with emission caps.

 Penalties are imposed for non-compliance, such as fines or reduced future allowances.

Transparency and Accountability

 Public registries track the issuance, transfer, and retirement of allowances.

 Enhances trust and credibility in the market.

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5. Price Dynamics

Market Forces

 Factors influencing price include:

o Stringency of emission caps.

o Availability of offsets.

Price Stabilization

 Mechanisms such as price floors, ceilings, or reserve allowances may be introduced to

prevent extreme price volatility.

6. Linking Carbon Markets

 Different carbon trading systems can be linked to enhance market efficiency and broaden
coverage.

7. Review and Adjustment

 Periodic reviews ensure that caps remain aligned with evolving climate goals.

 Adjustments may include tightening caps, revising allocation methods, or incorporating

additional sectors.

Future Development Plans

As the urgency to address climate change intensifies, carbon trading systems are

evolving to meet more ambitious environmental, economic, and social objectives.

Future developments in carbon trading focus on expanding market coverage,

enhancing efficiency, and integrating innovative technologies.

1. Expanding Market Coverage

Global Integration

 Linking regional and national carbon markets to create a unified global carbon

trading system.

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 Promoting cross-border collaboration under frameworks like Article 6 of the Paris

Agreement, which facilitates international carbon credit trading.

Sectoral Inclusion

 Extending carbon trading to more sectors, such as agriculture, shipping, and

aviation, which are currently underrepresented.

 Developing mechanisms to address emissions from land use, deforestation, and

industrial processes.

Voluntary Market Growth

 Encouraging businesses and individuals to participate in voluntary carbon markets.

 Establishing global standards for voluntary markets to improve credibility and

attract more participant

Snapshot

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13
 Conclusion
Carbon trading has emerged as a crucial market-based tool to address the global challenge of
climate change. By putting a price on carbon emissions, it incentivizes businesses and
governments to reduce greenhouse gas emissions, invest in clean technologies, and adopt
sustainable practices. Through mechanisms such as cap-and-trade systems and carbon offset
markets, carbon trading not only encourages cost-effective emission reductions but also fosters
international cooperation and innovation.

Despite its successes, the system faces challenges such as market oversupply, verification issues,
and ensuring equitable participation for developing countries. However, with continuous
improvement in regulatory frameworks, technological advancements, and global collaboration,
carbon trading has the potential to significantly contribute to achieving climate goals, including
limiting global temperature rise to below 2°C as outlined in the Paris Agreement.

In the future, scaling up carbon trading systems, integrating them with emerging technologies,
and expanding their scope to more sectors and regions will be essential. As a dynamic and
evolving tool, carbon trading holds promise in driving the transition toward a low-carbon,
sustainable economy while addressing the pressing need to combat climate change.

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 References
1. Stern, N. (2007). The Economics of Climate Change: The Stern Review. Cambridge

University Press.

o Comprehensive analysis of climate change economics, including carbon trading.

2. Ellis, J., & Tirpak, D. (2006). Linking GHG Emission Trading Systems and Markets.

Organisation for Economic Co-operation and Development (OECD).

o Insights into linking carbon trading markets across jurisdictions.

3. Convery, F. J. (2009). Reflections – The Emerging Literature on Emissions Trading in

Europe. Review of Environmental Economics and Policy.

o Overview of the EU Emissions Trading System (EU ETS) and its development.

4. Intergovernmental Panel on Climate Change (IPCC). Assessment Reports (various

years).

o Provides scientific context for the role of carbon trading in climate mitigation.

Website

5. World Bank. (2023). State and Trends of Carbon Pricing.

o Annual report on carbon pricing mechanisms globally.

Website

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