Carbon Credit Trading has emerged as new source of finance
for Indian companies. The concept came into vogue as part of
an international agreement, popularly known as the
Kyoto Protocol, which came into force and became legally binding
on February 16, 2005. Under the Protocol, 37 industrialized
countries committed themselves to reduce their collective greenhouse
gas (GHG) emissions by 5.2% from the 1990 level, between 2008 to
2012. The objective of the Kyoto climate change conference was to
establish a legally binding international agreement, whereby all
the participating nations committed themselves to tackling the issue
of global warming and GHG emissions. The main purpose of
the Protocol was to make developed countries pay for their ways
with emissions while at the same time, monetarily reward countries
with `good behavior' in this regard. The Protocol also reaffirms
the principle that developed countries have to pay and supply
technology to other countries for climate related studies and projects. In
other words, this system is poised to become a big machine for
partially transferring wealth from wealthy, industrialized countries
to developing and underdeveloped countries.
CDM is the only mechanism under the Kyoto Protocol
involving countries that are not subject to binding GHG emission caps by
the Protocol. Also called the non-Annex I countries, these
include developing nations like India, China, Brazil, Sri
Lanka, Afghanistan, Kenya, Kuwait, Malaysia, Pakistan,
Philippines, Saudi Arabia, South Africa, etc. Under the CDM arrangement,
in case the industries and companies in the Annex I states like the
US, the UK, Japan, New Zealand, Canada, Australia, Austria,
Spain, France, Germany, etc., are not in a position to
lower the emissions levels themselves, they can buy Certified Emission
Reduction (CERs) from developing countries, those that do not have any obligation of emission reduction
(non-Annex I countries). CERs are in the form of certificates just like stocks and are issued by the
CDM Executive Board. One CER is equivalent to one ton of Carbon Dioxide
(CO2) emission reduced. The CDM Executive Board supervises the operation of CDM project, gives the approval and also
certifies whether the project has fulfilled the obligations under the guidance of Conference of Parties (COP)
of the United Nations Framework Convention on Climate Change (UNFCCC).
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