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CARBON CREDITS& ITS TRADING Prepared By: Jatin Shah Pratik Jariwala

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Contributors to CO2!

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CARBON CREDIT 1 CARBON CREDIT ≈ 1 ton of CO2 or its equivalent greenhouse gas (GHG) which is an entitled certificate by UNFCCC.

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United Nations FrameworkConvention on Climate Change Act signed by 165 nations in 1992 at Rio de Janeiro. Annex 1 & Non-Annex 1 countries. Annex 1 (developed countries) agreed to reduce their GHGs by 5.2% below 1990 levels in 1st commitment period 2008 – 2012.

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KYOTO Protocol 7 Annex I Non-Annex I Not ratified

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Non -Annex-1 India Bangladesh Brazil China Afghanistan Algeria Nepal Argentina Bolivia Srilanka Pakistan Malaysia Mauritius Annex I Australia(Not ratified) Austria Belgium Monaco Canada Netherland New zealand United Kingdom Germany Spain Switzerland Greece

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Price Influencing Factors Supply-demand mismtch Policy issues Crude oil prices Coal prices CO2 emissions European Union Allowances (EUAs) prices Foreign exchange fluctuations Global economic growth

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An Example.. British Petroleum in UK emitting more than the accepted norms of UNFCCC. Tie up with a subsidiary in India or China under CDM. The credits arising out of the use of the new technology are sold to counterparts in Europe. Thus a carbon credit market is created.

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Conditions In INDIA No fixed norms of emission reduction by government. Potential Participants Registry

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India’s Potential India – Non Annex I country, has a large scope in emissions trading. India and China together contribute to $5 billion of the global carbon trade estimated at $30billion. One of the leading generators of CERs through CDM.

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Hedging The Price Risk – An Example

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Carbon Credit Traders In India Andhyodaya Green Energy Grasim Industries Ltd. Indo Gulf Fertilizers Indus Technical & Financial Consultants Ltd Madhya Pradesh Rural Livelihoods Project Rajasthan Renewable Energy Corporation Reliance Energy Ltd. Tata Motors Limited Tata Steel Limited Bajaj Finserv Limited  Dhariwal Industries Ltd Tata Power Company Limited BlueStar Energy Services Inc. Valera Global Inc.

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Suppose ABC Co. wants to buy carbon credits at the end of year 2008. The current price is Rs.1300 per ton and it expects the prices to up Rs.1400 per ton .To save itself from such Rs.1500 ton increase in price, the company decides to hedge on exchange platform. A COMPANY ABC CO.

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