CARBON CREDITS AND KYOTO PROTOCOL

CLIMATE CHANGE
According to the World Bank Economist Mr. Stern, the effect of climate change could be worse than the two World Wars. A famous ecologist says that 20 billion tonnes of carbon dioxide is generated by humanity, every year and absorbed by Nature. This tolerance of Nature could be reversed, if the carbon dioxide levels increase unabatedly. Prof. James Lovlock, USA believes that the 90 % of mankind may be wiped out if the planet heats up.
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GLOBAL CLIMATE CHANGE SCENARIO

To combat these changes globally, Kyoto Protocol was created and has been ratified by 170 countries so far, committing themselves to reduce Green House Gas Emissions and improve Energy Efficiency.
The Kyoto Protocol envisages reduction of Green House Gases by 5.2% in the period 2008-12.
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CLEAN DEVELOPMENT MECHANISM (CDM)

The CDM is supervised by the CDM Executive Board (CDM EB) and is under the guidance of the Conference of the Parties (COP/MOP) of the UNFCCC Certified Emission Reductions (CERs) commonly known as carbon credits, where each unit is equivalent to the reduction of one metric tonne of CO2e The value of one CER in Indian Rupees is about Rs. 1600/4

TYPE OF GREENHOUSE GASES

S. No. 1 2 3 4 5 6 Greenhouse Gas Carbon dioxide Methane Nitrous oxide Hydrofluoro carbons Perfluoro carbons Sulphur hexafluoride Global Warming Potential (GWP) 1 21 310 140-1170 6500-9200 23900
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CDM PROCESS
9 to 14 months process

CDM Process
Prepare Project Design Document (PDD) Letter of Approval (LOA) by Host Country Validation Registration Verification Issuance of and CERs Certification

Indias Designated National Authority National CDM Authority (NCDMA)

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HOW?
Exchanges Largely used for EUAs Not much activity in CERs VER exchange in place (CCX) but commands lower prices than OTC market Direct Sale Avoid Commission No Guarantee of market price (narrow lens on buyer market) Must deal with market risk and complexity Auctions Few auctions held for CERs/VERs CERs are not a commoditized product many features cause differences in price Sellers credit, project type etc Intermediaries Market professionals matching buyers and sellers Develop optimal transaction structures

Incentive structure to deliver the highest price to the seller

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WHEN ?
Project Development Process
Pre-PDD PDD Validation Registered Issued Guaranteed
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Why Sell Early? Certainty of revenue

May be necessary for project finance.

Certainty of price. Why Sell Later? Delivery risk decreases. Therefore price of credit increases.

PROJECT PIPELINE GLOBAL

Host

Country

China: 976 (>1000) India: 983 Mexico: 180 Brazil: 171 Malaysia: 36 Philippines: 27 Indonesia: 24 Israel: 22 South Africa: 18

Investor Country UK: 486 190 mn Euro Japan: 256 CER acquisition Sweden: 93 budget 2008 Spain: 67 Germany: 59
Japanese power utilities to buy 120 mn
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STATUS OF THE CDM REGISTRATION

Region NAI-Africa NAI-Asia and the Pacific NAI-Other

Number of projects 27 773 8

NAI-Latin America and the Caribbean

375

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STATUS OF THE CDM | ISSUANCE

Country India China

CER Issued 31,122,524 120,105,788

Republic of Korea
Brazil

14,599,555
19,433,547
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HOST COUNTRY APPROVED PROJECTS IN INDIA

AP Chattisgarh Gujarat HP Rajasthan Jharkhand Karnataka WB 100 63 98 39 58 15 113 47 Maharashtra 142 MP 28 Orissa 51 Punjab 54 TN 120 UP 93 Utarranchal 20 Goa/Pondicherry 23 23

POTENTIAL IN RENEWABLES
Technology Potential Cum. Installation upto March 31, 2003 1870 MW 1509 MW 484 MW 26 MW 121 MWp
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Wind Power Small Hydropower (< 25 MW) Biomass Energy from Waste Solar photovoltaic

45000 MW 15000 MW 19500 MW 1700 MW

INVESTMENT IN CDM PROJECTS

Investment in Rs. Crores vs Years
80000 70000

68691

71703

Investment in Rs. Crores 60000

50000 40000

36451
30000 20000

15933
10000 0

358
2003

1794
2004 2005
Year

2006

2007

2008

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Historical CER Prices over the Last 4 years

Structure 2004 2005 Fixed Forward 4 until 2012 (without recourse to the company 5-7 2006 7-10 Euro/CER Price 2007 8-11 Remarks Price firm irrespective of the market fluctuations. Current Fixed Forward Price a) 8 for the project planning stage. b) 10 for registered projects. c) 12 for Registered projects and in operation Price dependent on the EUA Price Current spot price : 15-17 Price dependent on the EUA price. Current price : 15-17
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Spot

NA

NA

10-24

12-17

Fixed Forward until 2012 (with recourse to the company)

12-17

GLOBAL CLIMATE CHANGE SCENARIO

5 outreach countries Brazil, China, India, Mexico and South Africa have challenged G-8 countries to reduce their GHG emissions by more than 80% by 2050 and by 25 40% by 2020. Switzerland wants a carbon tax imposed on emissions of all countries above a certain level of per capita emissions. Stern Committee had recommended a carbon tax on all coal, natural gas and oil based industries so that social cost of carbon production could be countered by using this fund for developing renewable energy. Sweden has a carbon tax since 1991 on power generating plants and aviation fuel used in air 27 27 travel.

GLOBAL CLIMATE CHANGE SCENARIO

5 outreach countries Brazil, China, India, Mexico and South Africa have challenged G-8 countries to reduce their GHG emissions by more than 80% by 2050 and by 25 40% by 2020. Switzerland wants a carbon tax imposed on emissions of all countries above a certain level of per capita emissions. Stern Committee had recommended a carbon tax on all coal, natural gas and oil based industries so that social cost of carbon production could be countered by using this fund for developing renewable energy. Sweden has a carbon tax since 1991 on power generating plants and aviation fuel used in air 27 27 travel.

 India wants the issues of technology transfer, expanded trade in carbon credits and a strong adaptation fund to be put in place at Copenhagen in 2009. Britain wants to start a carbon ration card to sensitize each adult about the carbon dioxide allowance given to him annually. Those in excess pay for it to those who show savings. Recent estimates show that uncontrolled carbon emissions cost the Global economy $200 Billion annually.
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INDIAS POSITION
India wants not only promotion of sustainable production processes but also sustainable lifestyles across the Globe. India wants the developed world to fulfill its commitments for reduction of Green House Gases, transfer new and additional financial resources and climate friendly technology to support adaptation and mitigation measures in developing countries. India wants to protect the vulnerable sectors of Society in its sustainable development strategy. In its Action Plan 8 National Missions have been 29 29 listed namely

National Mission for Sustaining the Himalayan Eco System by safeguarding the Himalayan Glacier. National Mission for Green India by undertaking afforestation of 6 million hectares to reach the National target of 33% green cover. National Mission for Sustainable Agriculture by developing thermal resistance crops and supported by Bio-technology, geo-spatial technology and IT National Mission on Strategic Knowledge to fund high quality and focused research on 31 31 climate change.

CDM MARKET
Fastest growing financial market rose 80% in 2007 to reach nearly $ 60 billion - expected to be $ 1 trillion by 200910. 2007 carbon market shows Chinas share at 61% and India at 12%. In terms of total CERs issued of 166 million, India has 43 million or 26%. In 2008, Chinas share at 23% and India at 30% in terms of no of projects and 36% and 25% in terms of no of CERs issued respectively. (13.10.08) An Indian firm, J.S.W Steel won the largest single CER of 5.4 million in 2 projects. Multi-commodity exchange has traded CERs of Rs.1000 crores so far with participation by 85 32 32 members and 91 clients.

START OF CDM ACTIVITY IN DELHI GOVERNMENT

Government of Delhi in February 2007, initiated the idea of adoption of CDM concepts in all infrastructural agencies in a meeting taken with the World Bank officials with Chief Secretary. Subsequently in March 2007, a seminar with experts from World Bank, Japan Industrial Development Co-operation, IIM Banglore,TERI ,Clinton Foundation was organized in which all the developmental agencies made their project presentation and experts highlighted potential CDM avenues.This was inaugurated by Pr Secy( Finance) 33 33

Similarly in June,2007 another round table Conference was organized which was inaugurated by Honble Chief Minister of Delhi, wherein interaction with the experts from Bureau of Energy Efficiency (BEE), MOEF ,GTZ, World Bank and Central Electricity Authority(CEA) was organized for all the 10 infrastructural agencies. In August,2007 interaction with noted CDM Consultants namely IL&FS Ecosmart, PriceWaterhouse Coopers Pvt.Ltd., Ernest & Young, ONGC and ICF International was organized wherein modalities , formulation and submission of CDM projects were discussed with the Infrastructural Agencies. Again in April & August 2008, interactions with the infrastructural agencies were organized with experts form MOEF, MNRE, MCX, NCDEX, FICCI etc. The objective was to sensitize the infra structural agencies about the procedures and formalities required for preparation 34 34 of CDM projects.

The Infrastructural Agencies in general agreed to adopt the following concepts in making CDM projects: 1) 2) 3) 4) 5) 6) 7) 8) 9) Energy Conservation Use of CFL and Electric Chokes Solar Water Heating Systems Efficient Street-lighting Efficient use of water pumps. Energy efficient buildings Promotion of LEDs Solar Air-conditioning, etc. Afforestation

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 PDD ready for small-scale afforestation and reforestation projects activities in Dera Mandi and Bhatti Mines Another PDD is under development for Asola Wild Life Sanctuary. Project proposals under consideration in the area of Energy efficiency:

Department of Env. & Forest and Wildlife.

- CFL replacement (3 million households) expected volume of CERs will be approx 12 million per annum - solar water heating systems (5 lakh households) expected volume of CERs will be approx 0.65 million per annum.

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PWD

i.
ii. iii. iv. v. a) b) c) d)

PWD proposes to adopt following initiatives in all its projects: Sustainable site planning and adoption of Green Building concept. Optimum Energy efficiency Use of renewable forms of Energy Water and waste Management Strategies Use of fly ash bricks. Projects proposed based on the above practices are: 500 bedded new ward Block of GTB Hospital 500 bedded Dwaraka Hospital Thyagaraja Sports Complex. Delhi Institute of Pharmaceutical Sciences
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DIAL
Has CDM potential in the following areas: Green Buildings Energy efficiency in lighting, heating operations Energy efficiency in water and wastewater treatment by setting up STP, and reuse of water for air-conditioning and horticultural purposes. M/S PWC has been appointed as consultant for CDM in September,2008 For adopting Green Building certification, M/S L &T has been appointed as consultant.
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NDMC
NDMC has potential for CDM projects in the following activities: Development, Construction, Operation and maintenance of an integrated Municipal waste Processing at Okhla Integrated multilevel parking facilitiesSarojini Nagar, B.K.S Marg & K.G Marg proposed under PPP mode Up gradation of Street Lighting General energy conservation measures for reduction of demand for energy by 1500 KW by 2009.
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MCD
MCD is in process of developing a methane extraction project under CDM, with World Bank, for the existing three land filed sites. MCD is also working with M/S ILFS in other waste to energy and compost projects and it is envisaged that carbon credits @0.2 per Mt. Ton of garbage shall be earned. Civic Centre built up in an area of 1.16 Lac Sq. Mts., is designed on the Green Building Concept and is likely to be registered under TERIs GRIHA rating scheme. LED based Street lighting as well as automation control & dimmer based system for getting energy savings and earning Carbon Credits. Mechanized/Automated Car Parking: The work at Kamala Nagar (Capacity 863 ECUs) is in full swing.
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MCD
MCD is in process of developing a methane extraction project under CDM, with World Bank, for the existing three land filed sites. MCD is also working with M/S ILFS in other waste to energy and compost projects and it is envisaged that carbon credits @0.2 per Mt. Ton of garbage shall be earned. Civic Centre built up in an area of 1.16 Lac Sq. Mts., is designed on the Green Building Concept and is likely to be registered under TERIs GRIHA rating scheme. LED based Street lighting as well as automation control & dimmer based system for getting energy savings and earning Carbon Credits. Mechanized/Automated Car Parking: The work at Kamala Nagar (Capacity 863 ECUs) is in full swing.
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MCD
MCD is in process of developing a methane extraction project under CDM, with World Bank, for the existing three land filed sites. MCD is also working with M/S ILFS in other waste to energy and compost projects and it is envisaged that carbon credits @0.2 per Mt. Ton of garbage shall be earned. Civic Centre built up in an area of 1.16 Lac Sq. Mts., is designed on the Green Building Concept and is likely to be registered under TERIs GRIHA rating scheme. LED based Street lighting as well as automation control & dimmer based system for getting energy savings and earning Carbon Credits. Mechanized/Automated Car Parking: The work at Kamala Nagar (Capacity 863 ECUs) is in full swing.
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 On the lines of the Customs Department, Environment Department may move a Cabinet proposal for providing 1% of the revenue earned by the carbon credits to the concerned Department, who formulates the project and generates this additional revenue.

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