Carbon trading is a synergy between environmental and economic goals

Many companies have taken leadership in corporate governance, social and environmental responsibility. The self-motivation of these companies deserves high praise. But the share of such companies is still much smaller. I always wonder how you can motivate an organization to invest in society and the environment. How can an organization convince its stakeholders of its investments if they make no economic sense?

After corporate greed and the fall of organizations like Enron, World Com, Tyco and others, companies realized the importance of corporate governance for long-term survival. The importance of ethical behavior has been recognized by companies through benefits such as respect in society and increased brand awareness, which means increased sales in the long run. We have many examples where goods withdraw from the market even small defects. These actions have improved the perceived value of the brand over time. Yet larger problems, such as society and the environment, still do not attract the attention of the organization because there is no visible impact of these problems on its profits or survival. In this regard, I consider carbon trading a turning point that encourages organizations to contribute to the environment. Recently, there has been great activity in “Carbon Trading” with an increase in trading volumes, the opening of new exchanges and the emergence of new exchange instruments. In India, many Indian villages and Indian corporate companies have jumped on the bandwagon and are selling carbon credits.

What is “carbon trading”? For readers who are new to the term, the word “carbon” in the carbon trade symbolizes the carbon dioxide that is most widely produced by the greenhouse gas. Emissions of other greenhouse gases can be recorded and counted in carbon dioxide equivalent. The origins of carbon credits can be traced back to the 1997 Kyoto Protocol, which required all countries to reduce greenhouse gas emissions by 5% (from 1990 levels) by the end of 2012 or to pay the price for what to do. Countries that have contributed the most to global warming have generally benefited directly from greater business profits and higher living standards. On the other hand, the negative effects of global warming are being felt around the world. The idea of ​​the protocol was to make developed countries pay for emissions and monetaryly reward those countries that adhere to good environmental behavior. Developing countries start with clean technologies and are rewarded with those that continue to pollute the environment. This is widely known as the “cap and trade” approach.

The rules and mechanisms of the “cap and trade” approach were not developed before the Marrakesh Accords in 2001. Three flexible mechanisms have been set up to pollute the environment (covering energy, steel, glass, cement, ceramics and paper) to acquire pollution rights beyond their limits. Such mechanisms are the Clean Development Mechanism (CDM), Joint Implementation (JI) and emissions trading. CDM and CO are environmental projects that reduce greenhouse gas emissions and thus generate carbon credits. These carbon credits can then be purchased by an entity whose pollution exceeds the emission limit. Polluters are given certain pollution quotas (ie pollution rights, like the EUA – European Union quotas). These quotas can be traded as part of emissions trading.

Any contaminant that exceeds the limit can take one of three steps.

“The first option is to pay the tax at the end of the execution period, which is generally very high.

“The second option is to purchase pollution quotas (such as the EUA) from an emissions trading organization that has polluted less than the quota.

»And the third option is to purchase carbon credits in CDM or CO projects. Carbon credits obtained by CDM / JI and pollution permits make up the modern carbon market.

The main buyers of carbon credits were Europe and Japan. Markets based on pollution quotas are the European Union Emissions Trading Scheme (EU ETS), the New South Wales Greenhouse Gas Emission Reduction Scheme, the Chicago Climate Exchange (CCX) and the United Kingdom Emissions Trading Scheme (UK ETS). In 2006-2007, the carbon market grew by leaps and bounds. Of these, ETS is the largest carbon market to date and is fully compliant with the Kyoto Protocol. According to the World Bank, in 2006 the carbon market grew to $ 30 billion. The carbon credit market, including CDM and JI, was worth $ 146.2 million in 2006, three times more than in 2005. Transactions in the first three months of 2007 exceeded the total volume of transactions in 2006. This is a clear indication that carbon trading will remain. But like any other innovative approach, it had its starting challenges. The European Union has been too generous in allocating allowances. As a result, there was a large price volatility in the ETS ETS. In addition, allowances from Phase I (January 5 to December 7) were not allowed to be transferred to Phase II (January 8 to December 10). This led to a fall in the market. Taking Phase I as a learning experience, the restrictions in Phase 2 of the EU ETS will be more stringent. Continuity of marketing and banking of carbon credits will also be ensured.

Although Carbon Trading is a step in the right direction, it cannot be considered the ultimate panacea for environmental concerns. The enormity of climate change will require a profound transformation in how industries operate to provide a cleaner environment. These include public and private investment in research and development of cleaner technologies and dissemination, changes in economic and fiscal policies to promote environmental protection, and the abolition of subsidies for high-carbon fuels and technologies. In fact, the development of a functioning people’s market mechanism does not relieve politicians of their responsibility to the environment and society.

Carbon trading has affected me in two main ways. First, it symbolizes an excellent, pivotal path and an innovative market-based approach to combating global warming, a radical departure from traditional means such as direct taxes and regulation. This is a classic example of human ingenuity. Based on 2005 emissions data, CO2 emissions were reduced by 50-200 metric tons in 2005. In 2006 alone, 493 metric tons of CO2 emissions were prevented or destroyed under CDM / JI environmental projects. With further policy improvements, carbon trading is likely to become more powerful in the future. Such non-standard solutions that change the paradigm inspire me to break away from traditional methods and look for new innovative approaches to problems. Second, I am excited about the promise that Carbon Trading has for developing countries.

India, as a developing country, has signed the Kyoto Protocol as a non-Annex I country. Only Annex I countries are required to limit and reduce emissions. This means that there are no restrictions for India yet, and India can accept environmental projects and sell carbon credits to Annex I countries for their compliance. GFL & SRF are two Indian companies that sold $ 87 million in carbon credits and $ 37 million in 2006, respectively. This sale greatly contributed to their profits, and all they did was set up an incinerator to destroy the HFC23 pollutants (their waste industry). Carbon trading makes the average business opportunity much more profitable. Many environmental projects that are not worthy of traditional business thought are now being implemented through carbon trading. India also receives funding for such projects. The World Bank recently allocated $ 10 million to the Indian Infrastructure Financing Company to finance “clean” projects, which provides an additional incentive to develop environmental projects that would not otherwise be carried out normally. As India develops at a rate of 8% per year, this is the right time to introduce clean technologies because developed India in the future will be based on clean technologies as opposed to today’s countries that are stuck in technologies that pollute the environment.

The best part is the role of rural India in the emerging carbon trading market. The first time this happened was in 2004, when a village in India called Powergood sold $ 645 in carbon credits to the World Bank. These carbon credits were obtained from CO2 stored by biodiesel (pioneering in India), which was extracted from 4,500 Pongamia trees. Biodiesel does not pollute the air at all compared to gasoline. Since then, many villages have begun to follow this trend. In India, 75% of the population lives in villages, and it is indeed very gratifying to note that the carbon credit trade has opened the door for the development of Indian villages.

The carbon trade is here to stay and promises a clean and healthy environment for our offspring and offspring. An example of the synergy created between environmental and economic goals through carbon trading should be followed in other areas such as social security, organizational culture, etc. The only requirement is to develop a breakthrough mechanism for the integration of seemingly opposite goals.