In 1992, countries joined an international treaty, the United Nations Framework Convention on Climate Change, to cooperatively consider what they could do to limit average global temperature increases and the resulting climate change, and to cope with whatever impacts were, by then, inevitable.
By 1995 countries realized that emission reductions provisions in the Convention were inadequate. They launched negotiations to strengthen the global response to climate change, and, two years later, adopted the Kyoto Protocol. The Kyoto Protocol legally binds developed countries to emission reduction targets. The Protocol’s first commitment period started in 2008 and ends in 2012.
THE KYOTO PROTOCOL
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC or FCCC), aimed at fighting global warming. It is an international agreement linked to the United Nations Framework Convention on Climate Change. The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialized countries and the European community for reducing greenhouse gas (GHG) emissions .
These amount to an average of 5 % against 1990 levels over the five-year period 2008-2012.The major distinction between the Protocol and the Convention is that while the Convention encouraged industrialised countries to stabilize GHG emissions, the Protocol commits them to do so.
Recognizing that developed countries are principally responsible for the current high levels of GHG emissions in the atmosphere as a result of more than 150 years of industrial activity, the Protocol places a heavier burden on developed nations under the principle of “Common But Differentiated Responsibilities.”
The Kyoto Protocol was adopted in Kyoto, Japan, on 11 December 1997 and entered into force on 16 February 2005. The detailed rules for the implementation of the Protocol were adopted at COP 7 in Marrakesh in 2001, and are called the “MARRAKESH ACCORDS”
THE KYOTO MECHANISMS
Under the Treaty, countries must meet their targets primarily through national measures. However, the Kyoto Protocol offers them an additional means of meeting their targets by way of three market-based mechanisms.
The Kyoto mechanisms are:
1. Emissions trading - known as “ CARBON MARKET”
2. Clean development mechanism (CDM)
3. Joint implementation (Jl).
The mechanisms help stimulate green investment and help Parties meet their emission targets in a cost-effective way.
As of September 2011, 191 states nave signed and ratified the protocol. The only remaining signatory not to have ratified the protocol is the United States. Other United Nations member states, which did not ratify the protocol, are Afghanistan, Andorra and South Sudan. In December 2011, Canada denounced the Protocol.
Under the Protocol, 37 countries (“ANNEX I COUNTRIES”) commit themselves to a reduction of four greenhouse gases (GHG) (carbon dioxide, methane, nitrous oxide, sulphur hexafluoride) and two groups of gases (hydrofluorocarbons and perfluorocarbons) produced by them, and all member countries give general commitments.
At negotiations, Annex I countries (including the US) collectively agreed to reduce their greenhouse gas emissions by 5.2% on average for the period 2008-2012. This reduction is relative to their annual emissions in a base year, usually 1990. Since the US has not ratified the treaty, the collective emissions reduction of Annex I Kyoto countries falls from 5.2% to 4.2% below base year.
Emission limits do not include emissions by international aviation and shipping, but are in addition to the industrial gases, chlorofluorocarbons, or CFCs, which are dealt with under the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer.
The benchmark 1990-emission levels accepted by the Conference of the Parties of UNFCCC (decision 2/CP.3) were the values of “global warming potential” calculated for the IPCC Second Assessment Report. These figures are used for converting the various greenhouse gas emissions into comparable C02 equivalents (C02-eq) when computing overall sources and sinks.
The Protocol allows several “flexible mechanisms”, such as emissions trading, the clean development mechanism (CDM) and joint implementation to allow Annex I countries to meet their GHG emission limitations by purchasing GHG emission reductions credits from elsewhere, through financial exchanges, projects that reduce emissions in non-Annex I countries, from other Annex I countries, or from annex I countries with excess allowances.
Each Annex I country is required to submit an annual report of inventories of all anthropogenic greenhouse gas emissions from sources and removals from sinks under UNFCCC and the Kyoto Protocol. These countries nominate a person (called a “designated national authority”) to create and manage its greenhouse gas inventory. Virtually all of the non-Annex I countries have also established a designated national authority to manage its Kyoto obligations, specifically the “CDM process” that determines which GHG projects they wish to propose for accreditation by the CDM Executive Board.
ANNEX I, ANNEX II AND DEVELOPING COUNTRIES
Annex I countries (industrialized countries and economies in transition) which have ratified the Protocol have committed to reduce their emission levels of greenhouse gasses to targets that are mainly set below their 1990 levels. They may do this by allocating reduced annual allowances to the major operators within their borders.
These operators can only exceed their allocations if they buy emission allowances, or offset their excesses through a mechanism that is agreed by all the parties to UNFCCC. Annex II countries (developed countries that pay for costs of developing countries) are a sub-group of the Annex I countries. They comprise the OECD members, excluding those that were economies in transition in 1992.
Developing countries are not required to reduce emission levels unless developed countries supply enough funding and technology. Setting no immediate restrictions under UNFCCC serves three purposes:
1.It avoids restrictions on their development, because emissions are strongly linked to industrial capacity
2.They can sell emissions credits to nations whose operators have difficulty meeting their.emissions targets
3.They get money and technologies for low-carbon investments from Annex II countries.
Developing countries may volunteer to become Annex I countries when they are sufficiently developed.There are 41 Annex I countries with European Union, and 23 Annex II countries. Turkey was removed from the Annex II list in 2001 at its request to recognize its economy as a transition economy. These countries are classified as developed countries, which pay for costs of developing countries.
India’s per capita C02 emissions are much lower (1.52 C02 tons) than those of the developed countries even if historical emissions are excluded. Nevertheless, India has already taken a number of actions on voluntary basis with own resources in pursuance of a sustainable development strategy. Like adoption of the National Action Plan on Climate Change (NAPCC) in 2008 which has both mitigation and adaptation measures like announcement of a domestic goal of reducing the emission intensity of its GDP by 20-25 per cent of the 2005 level by 2020 is a noteworthy measure.
EMISSIONS TRADING
An emission trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. A central authority (usually a governmental body) sets a limit or cap on the amount of a pollutant that may be emitted. The limit or cap is allocated or sold to firms in the form of emissions permits, which represent the right to emit or discharge a specific volume of the specified pollutant. Firms are required to hold a number of permits (or CARBON CREDITS) equivalent to their emissions. The total number of permits cannot exceed the cap, limiting total emissions to that level. Firms that need to increase their emission permits must buy permits from those who require fewer permits.
The transfer of permits is referred as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. Thus, in theory, those who can reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest cost to society.
There are active trading programs in several air pollutants. For greenhouse gases, the largest is the European Union Emission Trading Scheme, whose purpose is to avoid dangerous climate change. In the United States, there is a national market to reduce acid rain and several regional markets in nitrogen oxides.
CARBON EMISSIONS TRADING
Under the UNFCCC, countries are permitted to use a trading system to help meet their emissions targets. In principle, a country may allocate permits to individual companies for the emission of a certain quantity of greenhouse gases. If permits are only issued to a level equal to or below the assigned amount, then a country should meet its Kyoto commitment (assuming that the measures of its emissions are accurate). If a country is incapable of meeting its target, it can buy permits from countries that are under their targets. Similarly, companies within a country that prove more able to reduce their emissions are allowed to ‘trade’ excess permits to other, more polluting, enterprises.
Carbon Finance:
Carbon finance is a new branch of Environmental finance. Carbon finance explores the financial implications of living in a carbon-constrained world, a world in which emissions of carbon dioxide and other greenhouse gases (GHGs) carry a price.
Carbon Foot Print:
A Carbon foot print measures the total G.H.G emissions caused directly and indirectly by a person, organisation, event or product. The carbon foot print consider all six of the Kyoto protocol greenhouse gases.
CLEAN DEVELOPMENT MECHANISM (CDM)
The Clean Development Mechanism (CDM), defined in Article 12 of the Protocol, allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (Annex B Party) to implement an emission-reduction project in developing countries. Such projects can earn saleable CERTIFIED EMISSION REDUCTION (CER) CREDITS, each equivalent to one tonne of C02, which can be counted towards meeting Kyoto targets.
The mechanism is seen by many as a trailblazer. It is the first global, environmental investment and credit scheme of its kind, providing a standardized emission offset instrument, CERs.
A CDM project activity might involve, for example, a rural electrification project using solar panels or the installation of more energy-efficient boilers.
The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction or limitation targets.
INDIA AND CDM
As on 31 December 2011, 776 out of a total of 3797 projects registered by the CDM Executive Board are from India, which so far is the second highest for any country in the world. China leads with 1790 registered projects and Brazil has 200 projects registered. Also, as on 31 December 2011, the NATIONAL CDM AUTHORITY (NCDMA) has accorded host country approval to 2160 projects facilitating an investment of more than ' 364,034 crore.
These projects are in the sectors of energy efficiency, fuel switching, industrial processes, municipal solid waste, renewable energy, and forestry. If all these projects get registered by the CDM Executive Board, they have the potential of generating 711 million certified emission reductions (CERs) by the year 2012. At a conservative price of US $10 per CER, it adds up to an overall inflow of approximately US $7.11 billion in the country by the year 2012 if all the projects get registered.
As on date CERs issued to Indian projects are 124 million. DELHI METRO RAIL CORPORATION (DMRC): WORLD’S FIRST RAIL NETWORK TO BE REGISTERED UNDER THE CDM SCHEME: The DMRC is the world’s first rail network to be registered at the UNFCCC under the CDM scheme. The DMRC has registered two projects till date, namely: a) Emission Reduction by Low GHG Emitting Vehicles (also called Regenerative Braking project) registered on 29.12.2007 and b) Metro Delhi, India (also called Modal Shift Project) registered on 30 June 2011. It is expected that around an average 41,160 CERs per annum for next 10 years will be generated from Regenerative Braking Project and around an average of 5, 29,043 CERs per annum for next 7 years will be generated from the Modal Shift project.
JOINT IMPLEMENTATION
The mechanism known as “joint implementation,” defined in Article 6 of the Kyoto Protocol, allows a country with an emission reduction or limitation commitment under the Kyoto Protocol (Annex B Party) to earn emission reduction units (ERUs) from an emission-reduction or emission removal project in another Annex B Party, each equivalent to one tonne of C02, which can be counted towards meeting its Kyoto target. Joint implementation offers Parties a flexible and cost-efficient means of fulfilling a part of their Kyoto commitments, while the host Party benefits from foreign investment and technology transfer.
COMMON BUT DIFFERENTIATED RESPONSIBILITY
The UNFCCC adopts a principle of “common but differentiated responsibilities.” The parties agreed that:
1. The largest share of historical and current global emissions of greenhouse gases originated in developed countries;
2. Per capita emissions in developing countries are still relatively low;
3. The share of global emissions originating in developing countries will grow to meet social and development needs.