Sunday, November 06, 2005

Clean Development Mechanism

World has become a traders marketplace where absolutely everthing under the sun is traded.
Believe it or not, the latest on offering is Pollution.

What is Carbon Trading?
Carbon trading is a business that asks energy-intensive companies to restrict their harmful gas emissions to officially determined levels, or face penalties.
While those failing to meet their carbon reduction targets will be allowed to buy the cuts achieved by others, the efficient ones exceeding their targets will be able to make money by selling the surplus. The emission permits that are bought and sold will have a financial value and will have to be treated by companies as a balance sheet item.
Who is involved?
There are two categories of countries involved in carbon credit trading and finance:
• Developing countries, which do not have to meet any targets for GHG reductions. They can sell the ensuing credits to countries that do have Kyoto targets. These countries like India are covered by the Protocol’s Clean Development Mechanism.

• Industrialized countries which include OECD countries and countries in transition from centrally planned to open market economies.


Role of Developing countries

Developed countries have to spend nearly $300-500 for every tonne reduction in CO{-2} emission. Contrast this with $10-25 to be spent by the developing countries. The stage is thus set for trade to flourish. Trading carbon credits is hence seen as a less expensive option. Yet, there is a limit to which developed nations can buy credits.
In March this year, Det Norske Veritas (DNV) of Oslo, Norway, well known in the field of ISO certification was accredited by the UN to act as a validating body. The first organisation to get the accreditation, DNV has already lapped a few projects around the world. In India, DNV is in the process of validating 9-10 projects.

How can Organizations gain?
A company in a developing country can gain by trading carbon credits? Every tonne of CO{-2} not emitted is considered as one credit and every carbon credit fetches the company $3-6. The remuneration continues year after year. And the best part is that it is quite easy to implement technologies known to reduce emissions provided the project meets certain criteria.

Note: "The most important criterion is for the project proponent to prove that it is `not business as usual' and is a sustainable project." For instance, it is considered business as usual if it is a binding requirement (on the company) to change the fuel or technology. Thus the change over by the Delhi buses to CNG will not fall under the "is not business as usual" clause.


India

The Kyoto Protocol envisages carbon credit trade between countries with carbon sinks (planted forests) and others that produce higher levels of pollution than they are allowed to. At 15m hectares, India has the largest plantation area in the tropics, much larger than even Australia, which aims to be a major player in emissions trading. Australia hopes to add 2m hectares of plantation by 20. The many projects initiated by Indian companies after January 1, 00 in diverse areas such as energy efficiency, co-generation, natural gas, alternative auto fuels and hydel power, will also add to the country’s dominance as a large seller in the carbon credit market.
According to officials Indian companies that have jumped in the fray, from steel and sugar firms to utilities and could generate 500-600 million CERs or nearly a quarter of a global traded total of 2.5 billion units by 2012.
India is considered as the largest beneficiary, claiming about 31 per cent of the total world carbon trade through the Clean Development Mechanism (CDM). It is expected to rake in at least $5 billion to $10 billion (Rs22, 500 crore to Rs45, 000 crore) over a period of time.


Application
The industries, which can qualify for the CDM projects, are as follows:

Renewable energy
• Wind power
• Solar energy
• Biomass power
• Hydel power
• Geothermal
• Tydel Power

Fuel switching from fossil fuel to green fuel like biomass, rice husk, etc.
Energy efficiency measures related to

• Boiler
• Pumps
• Turbines
• Installation of various speed drives
• Efficient cooling systems
• Back pressure turbines, etc

Cogeneration in industries having both steam and power requirements


In waste management
• Capturing of landfill methane emission to generate power
• Utilization of waste and wastewater emissions for generation of energy for captive use of power generation

In transport
• Fuel switch from gasoline and diesel to natural gas
• Modal shift from air to train, road to train at macro level
• Replacement of shipment of certain raw materials through road to pipelines