What is Carbon Trading?
Navin Shetty
B2B Growth Strategist | Business Leader | Entrepreneur & Podcast Host | Lead Generation Expert
“India will achieve the target of Net Zero by the year 2070” – It’s one of the 5 promises Prime Minister Mr. Narendra Modi presented during his speech at UN Climate Change Conference COP 26 in Glasgow. At the recently concluded COP 26 Climate Change Conference, many nations pledged and defined a concrete road-map towards securing global net zero by mid-century and keep 1.5 degree within reach. So does that mean countries across the world will completely stop its carbon emissions to attain this goal? What does Carbon Neutrality or Net Zero actually mean??
In this second series of understanding the Business Sustainability we will cover topics such as Carbon Trading, Carbon Credits and Carbon Offsets. If you haven’t read my first blog regarding Business Sustainability, please head over here to get a better understanding on the topic. https://www.dhirubhai.net/pulse/understanding-business-sustainability-from-laymans-eye-navin-shetty/
What does it mean to be Net Zero?
Net Zero or Carbon Neutrality basically means to keep a balance between the amount of Greenhouse Gases (GHG) you are releasing into the atmosphere and the amount you are removing from the atmosphere. For example: If you are a manufacturing plant releasing 1000 Metric Tons of Carbon into the atmosphere per year, and you are also reducing 500 Metric Tons of Carbon from the atmosphere through various means such as planting more trees through CSR initiatives, using Solar-powered resources or through Carbon Offset projects, than you are on a path towards Net Zero or Carbon Neutral. Net Zero basically looks at removal of any unavoidable carbon emissions from industries such as Aviation or Manufacturing as it will be slightly unrealistic to think there will be no emissions from these industries in the first place.?
What are Carbon Offset Projects?
Many Non-Profit organizations across the world are running Carbon Offset projects where companies and individuals invest in carbon credit schemes to balance their carbon emissions. You’ve read it right! Individuals too. Clean Energy, Clean Drinking Water, Healthy Forest Area with fully flourished Flora & Fauna are some of the Carbon Offset Projects taken globally. There are thousands of such projects which are managed by different Non-Profit companies who are in the Carbon Offset business working towards achieving the goals set by Paris Agreement on Climate Change impacts. Now how does the carbon offset projects usually work? Let’s discuss using an illustration taking into consideration two companies.
Company A – which is a cement manufacturing company based in India
Company B – which is a Non-Profit Carbon Offset company based in UAE
Cement is a key component in the construction & building industry, but many don’t know that Cement Industry is also the largest source of Carbon Emitter across the world. Company A is emitting 8,000 Metric Tons of Carbon every year through cement production and through plant and business operations. This is the bare minimum Company A can go to keep their manufacturing and business operational.
Company B is managing and running a solar farm in the Arabian desert that is generating 600 MW of solar electricity to power an entire sustainable city. Company B is now working towards adding more Solar Farms, which will require a series of funding.?
So in this case, Company A will invest in the Carbon Offset project setup by Company B and in return Company B will provide something called as Carbon Credit to Company A which states that Company A is balancing their Carbon Emissions in India by offsetting Carbon Control projects in UAE.
This is called as Carbon Trading.?
To ensure carbon offset projects is reliable and genuine as per the rules set across Kyoto Protocol under United Nations Framework Convention on Climate Change (UNFCCC), A Gold Standard for Global Goals certificate is issued ensuring highest level of environmental integrity and contribution towards sustainable goals.?Please check below for few examples of Carbon Offset Projects:
Agroforestry in Savannah Forest
Clean cookstoves in Nyungwe, Rwanda
400 MW Solar Power Project at Bhadla, Rajasthan, India
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Carbon Trading
Reducing Carbon Emissions through Carbon Offset Programs has given way to a new form of business activity called as Carbon Trading. Buying and Selling of Carbon Credits as part of international climate agreements aim towards attaining Net Zero or Carbon Neutrality is called as Carbon Trading. Companies and Countries are under pressure to reduce carbon emissions and turn towards sustainable solutions with less or no impact on climate and environments. Many large corporations have pledged to achieve Net Zero by 2030. How will companies or nations achieve this target? By trading in Carbon Credits.?
Carbon Credits
Carbon Credits are basically a certificate or license permit issued by the Carbon Offset companies which are regulated by UNFCC. Carbon Credit certificate implies that the company or nation is investing in Carbon Offset projects such as mentioned above and is committed towards the Net Zero goal. This works in both ways. For example, one company is not able to reduce its carbon emissions, and the other company is able to reduce its carbon emissions by using sustainable solutions such as solar energy to power their plants. So in such a case, the company with less carbon emissions can sell the credit to the company emitting more amounts of carbon. This transaction is carried out through Carbon Exchanges.?
Carbon Exchanges
Singapore Exchange in collaboration with DBS Group, Standard Chartered Bank and Temasek launched a global exchange for high quality carbon credit transactions called as Climate Impact X, or CIX
Carbon Trade Exchange or CTX was the first global exchange trading in million tones of Carbon Credit transactions. It allows Free Listing of Carbon Credits and charges a nominal fee for selling those credits.?
You’re a Non-Profit organization running and managing sustainable projects in Africa. You’ve setup a Solar Farm generating 10,000 GW of electricity every year. You’re listed in these exchanges and selling Carbon Credits. As the demand for Credits increase, the value of your listing also increases. If you are familiar with Stock Trading, you know what I mean.
According to a survey by IHS Markit’s Global Carbon Index, the current weighted carbon price is $34.99 (as of June 2021), which is up from around $20 near the end of 2020. Before December of 2020, the IHS Markit Global Carbon Index calculation of carbon credit cost had not risen above $22.15.
Basically that means 1 Carbon Credit will cost to $34.99, now imagine you’re an organization emitting 1000 Metric tones of Carbon every year and you need the similar amount of Carbon Credits to attain Net Zero level. The price also depends upon the project quality of your Carbon Offset. If the Carbon Credits you are buying are Gold Standard, the price will be much higher.?
Carbon Balanced Living Plan (Monthly Subscription)
Most of us are using some or the other subscription plans – Netflix, Amazon Prime, Uber Eats, Zoom etc. Concerned and responsible individuals are also making a positive impact by subscribing to a Carbon Balanced Life. Now you might think why we as individuals should pay for these subscriptions? We use energy at our home and workplace, drive cars and use public transport, travel through Air etc. These activities directly and indirectly impact the environment and we as individuals are also responsible in reducing the carbon footprint. How do we balance our carbon emissions?
By subscribing to a Carbon Balanced Living Plan – They have multiple packages depending upon your lifestyle.?
Now as you can see from the above illustration: If you are a family of 3 Persons with 2 cars at your home and travelling across States up to 5 times in a year – You can choose to Offset your Carbon Footprint by 55,000lbs with an annual cost of $17.12/Month.
You shall also receive a Carbon Offset certificate that will showcase how you are helping and contributing in the efforts to tackle climate change. Again, subscribing to such Carbon Offset projects or Carbon Balanced Subscriptions plans doesn’t actually mean that you are not emitting carbon into the atmosphere, it basically means that your investment will be put across in different projects to reduce carbon and related GHG in the atmosphere.
With this I conclude my understanding about sustainable business and Carbon Trading. Please feel free to share your insights and thoughts on the topic in the comments below. Also any clarifications and corrections is highly appreciated.