Negotiations still open on validity of existing carbon credits

M Ramesh Chennai | Updated on December 17, 2019 Published on December 17, 2019

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‘Certified emission reductions’ likely to continue but with some conditions

Contrary to what was feared, perhaps not all is lost for Indian companies holding ‘certified emission reductions’ (CERs), better known as carbon credits.

These tradeable instruments are given to projects that help bring down greenhouse gas emissions. Mooted under the Kyoto Protocol — the first major international climate action — it was feared that as the world transits to a new system of carbon markets under the Paris Agreement, they would lapse.

However, going by the near-final draft, it appears that the CERs may continue, though subject to conditions. The project must be registered after a certain date, which is yet to be finalised. The CERs must have been issued in respect of emissions reductions or removals before December 31, 2020. No double counting of the CERs sold will be allowed — both buyer and seller cannot claim to have achieved emission reductions.

Likewise, the projects (such as wind or solar power plant) registered under the Clean Development Mechanism of the Kyoto Protocol, can migrate to the Paris regime, subject to certain conditions.

Again, a cut-off date will be specified; projects set up prior to the date cannot transition into the Paris regime. The transitioned projects will get whatever carbon instruments that will be designed for emission reductions that happen from January 1, 2021.

While a final decision on the migration of projects and CERs into the Paris regime is yet to be taken, the draft indicates the direction. Basically, the CERs are not dead, yet.

In India, 1,669 projects have been registered under CDM. An estimated 350 million CERs have been issued, and most of them are unsold. (Some estimates put the number of CERs at 750 million.)

India, along with China, negotiated very hard to keep the CERs alive, at the COP25 UN climate conference, saying that the companies put up projects in good faith hoping to set some revenues from sales of CERs and therefore should have the opportunity to do so.

On the other hand, those opposed to the continuance of the CERs say that allowing the instruments to be traded will flood the market. There are about 4 billion CERs globally waiting to be sold. The oversupply will keep carbon prices depressed and those who are supposed to act strongly against climate change would only buy these cheap CERs and claim to have done their bit.

Published on December 17, 2019
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