What are Carbon Offsets/ Credits

Bunch of facts cobbled together on Carbon Offsets

Carbon offsets, called Certified Emissions Reductions, are issued under the U.N.'s Clean Development Mechanism, which is designed to reward investors in clean energy projects in developing nations. CERs are internationally tradeable and major buyers are big European polluters which can use the offsets to meet mandatory emissions reductions under the EU's emissions trading scheme. The carbon trading scheme, is meant to penalise heavy polluters and reward those who reduce their emissions, currently gives out large numbers of “allowances” to companies for free, which can then be sold for cash on the open market.



Following are some details about India's carbon market.


SIZE AND VALUE


Out of the 421 million CERs issued to date by the United Nations body governing the CDM scheme, India has received 79 million and China 207 million. Of these, an estimated 10 million CERs issued to Indian projects remain unsold, analysts say. The CDM market was worth $2.7 billion in 2009, comprising part of a global carbon market totalling $144 billion that year. The market is dominated by the EU's emissions trading scheme. CERs currently trade around at 13 euros each.


NUMBER OF PROJECTS AND PROJECT TYPES


A total of 513 Indian CDM projects have been formally registered by the U.N. governing panel. Nearly another 800 are in the development pipeline, either proposed or awaiting auditing before being registered and then issued with CERs after a final round of verification. China has 873 projects registered out of a total project pipeline of more than 2,100. In total, there are more than 5,000 projects in the CDM pipeline of which 2,253 have been registered.


As of the beginning of June, India had projects developed or planned:


-- Wind power: 380 (6,020 megawatts total capacity)


-- Biomass: 303


-- Energy efficiency: 251


-- Hydro: 144 (6,352 megawatts planned)


-- Destruction of hydrofluorocarbon HFC-23: 8


Of the more than 220 registered Indian projects to have received CERs, four are HFC-23 projects and these are responsible for about 50 million of the 79 million CERs issued to date.


HFC-23 is an industrial byproduct and a powerful greenhouse gas. Europe is a top buyer of HFC-23 offsets, although severe criticism of these projects means investors are looking to develop more renewable energy resources instead.


INDIA VERSUS CHINA


India allows unilateral development of CDM projects. That is, private investors or large firms take on all the costs and risks of designing, developing and verifying a project to ensure it meets the U.N.'s rules to be registered and earn CERs. In return, project owners have much greater flexibility in choosing when and at what price to sell their CERs.


Chinese projects must have a buyer and a seller before any investment can proceed, meaning the CERs are generally pre-sold before formal registration.


DEMAND FOR INDIAN CERs


According to the NGO Sandbag, which monitors the EU emissions trading scheme, 21.4 percent of the 77.9 million CERs for 2009 EU ETS compliance came from India. This was down from 31 percent (25.3 mln) of the 81.5 mln CERs surrendered in 2008. The vast majority were CERs from Indian HFC-23 projects.


MAJOR CONCERNS FOR INVESTORS


Several. The CDM is a key part of the U.N.'s Kyoto Protocol climate pact and nations have yet to agree on the shape of a successor treaty to Kyoto after its first phase ends in 2012. While it's generally believed the CDM will continue in some form after 2012, the exact rules are unclear and it is unlikely all CERs will be accepted in the EU ETS or other national emissions trading schemes. The U.N. is under pressure to ban HFC-23 projects or sharply discount the number of CERs issued from them. A flood of cheap CERs from HFC-23s has dominated the CDM to date and any tightening of the rules could slash the number of CERs available to buyers.


(Source: The United Nations Framework Convention on Climate Change, UNEP's Risoe Centre, the Carbon Rating Agency)