Kyoto Protocol And The Future Of Carbon Trading

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: President Vladimir Putin’s announcement at the world climate change conference held in Moscow late last month that Russia was still undecided about acceding to the Kyoto Protocol (KP), has undoubtedly come as a blow to those who were hoping for its quick implementation. For with Russia accounting for 17.4% of greenhouse gas emissions at 1990 levels, its accession to the treaty would have allowed it to cross the crucial goal of 55% reduction in emission levels required for it to enter into force.

While Russia’s decision may or may not spell the end of the KP, it may, however, delay its implementation. For developing countries like India, which belong to the category of non-Annexe I countries, and hence are not required to cut their GHG emission levels, it could mean that that their potential of earning lucrative projects through clean development mechanism projects as defined in the KP could be affected.

One of the most important CDMs that are emerging is the system of carbon trading, which allows the development of a market wherein carbon dioxide as well as carbon equivalents, ie, other greenhouse gases like methane, can be traded between participants. The participants could be countries or companies. Though the political and institutional framework for carbon trading is yet to develop, it is generally believed that a potentially large and lucrative global market for carbon trading could develop by the end of the decade.

How does the system work? Once the KP enters into force, Annexe I countries (developed countries) are required to reduce their average GHG emissions by 5% by 2008-12. A country or company wishing to reduce or meet their emission targets can do so by investing in clean projects, which would contribute towards offsetting their GHG emissions, but would also earn the investor some “credits” which would go towards a net carbon reduction. A typical CDM project would be substituting fossil fuel-based power generation with renewable energy or a project that would improve existing energy efficiency levels. Or, as in India, by investing in forestation or community tree planting projects, called “carbon sinks”.