Carbon Market after COP26: Daily Current Affairs

GS 3- Conservation , Environmental Pollution and Degradation

Keywords- COP 26, Carbon Credit, Carbon offsetting , Carbon market ,CBDR, Climate Justice, Principle of Equity, Kyoto Protocol, Clean development mechanism, Adaptation fund

Why in News?

Recently, COP26 was held in Glasgow, the UK. Many environmentalists raised optimism of expansion of carbon market in the background of significant achievements of COP-26.

What is Carbon Market?

Carbon market is a market where   buying and selling of carbon emissions take place, with the objective of reducing global emissions. Kyoto Protocol and Paris Agreement, both provide provisions for development of carbon market.

What are carbon credits/offsets?

Carbon credits or carbon offsets are ‘points’ issued to an entity for undertaking an activity that has the effect of either avoiding emission of carbon dioxide(CO2) into the atmosphere or absorbing some of the CO2 back from the atmosphere. One credit is given for a one-tonne reduction in CO2.

Working mechanism of Carbon Credit Market

  1. It is based on principle of selling carbon credits and gaining monetary benefits.
  2. The incentives given for avoiding or sequestering CO2 and thereby helping to limit the rise of global warming.

  3. For buyer, it is the penalty paid for not being able to avoid sequestering CO2. So, buyer pays the seller for  reducing CO2 in the atmosphere.
  4. The sellers could be anybody who saves CO2. The buyers are typically companies, governments, municipalities or any other organisations, unable to avoid  CO2 emissions.

Current status of Carbon Market

  1. Clean Development Mechanism under Kyoto Protocol is currently active,  where the buyers are the companies that plan to go carbon neutral.
  2. Recently at COP26 Glasgow, all parties agreed, for a strong and  deep carbon market.

Underlying challenges in Carbon Market

  1. The issue of old carbon credits (certified carbon emissions, or CERs), issued under — the Clean Development Mechanism of the Kyoto Protocol — are still valid. Counting them as valid would slow down climate action because those who are under commitments to reducing emissions would just buy the CERs and call it a done deal. However, declaring them invalid would disappoint all those entities that were given the credits.
  2. Phenomenon of ‘double counting’. If an emission reduction takes place in one country and another entity in another country buys the carbon credits, only one of the two countries should be logically allowed to use the activity against its own commitments — not both.
  3. Issues related to a fee levied on each carbon trading transaction for a fund to help poor countries adapt to the vagaries of the climate change.

COP 26 and Way Forward

  1. All these challenges were discussed at COP26 and countries agreed to settle them.
  2. On the old carbon credits, it has been agreed that all those credits (CERs) issued between January 1, 2013 and December 30, 2020, would be good to be sold in the market.
  3. Also parties agreed to avoid any kind of double counting.
  4. COP26 left it to the wisdom of respective nations to decide which activity  would go towards meetings its own commitment and which would be for tradable carbon credits.
  5. On ‘share of proceeds’, parties agreed that 5 per cent of the proceeds of market transactions would be levied and put into a fund.
  6. Parties agreed there is no fee for bilateral transactions, but countries are “encouraged” to voluntarily give. Switzerland has agreed to put $25million into the Adaptation Fund.

Prelims Question

Q. Consider the following statements regarding Carbon Market:

  1. Carbon offsetting represents the right to emit carbon in the atmosphere.
  2. Carbon Credit represents the carbon sequestering against the carbon emissions.

Choose the correct option:

a. 1 only

b. 2 only

c. Both

d. Neither

Answer: d
1. Carbon credit is the right to emit carbon in the atmosphere.
2. Carbon offsetting is the carbon sequestering against the carbon emissions.

Mains Question

Q. As it is said , without a well established carbon market the targets of Net Zero Emissions are difficult to achieve. In the light of above statement, examine the significant achievements of COP26  in deepening the carbon market. ( 15 marks)

Source:
The Businesses Line