Concept Of Emission Trading

Published Date: 02 Nov 2017

Introduction

"Persuading polluters to pay for the damage they cause elsewhere, in the interest of helping those worst affected, will be a major challenge in coming decades. Burden sharing is a very complex issue, and frankly I don't see much sign of it happening yet"

--Rajendra Pachauri, Chairman IPCC

The global carbon market has emerged in a big way and has affected emitters of the Greenhouse Gases (GHGs) and their markets in ways that few anticipated year ago .It has become one of the most critical factors in deciding how an organization does its business and whether it can sustain itself in the post-Kyoto regime. No longer, the developed counties have a license to suck the life out of mother earth.

One of the major implications of the Kyoto Protocol has been the arrival of the carbon market. Compared to 2004, the value of carbon market has increased by 2500% to 9.4 billion euros in 2005 [1] . It now involves more than 150 countries dealing in carbon credit on a daily basis for achieving emission reduction targets without hampering their growth prospects in a major way. The global carbon market has become more lucrative after the 2008 economic crisis.

Concept of Emission Trading

Emission trading is an innovative approach used to control global warming by providing economic incentives for achieving reduction in the emission of the greenhouse gases.

Under this mechanism, a central authority or a government agency sets limits or caps on each GHG, recognizing that clean air is a common resource pool for the whole world. Parties that exceed the limits need to buy emission credits form the entities that are able to say below their designated limits. This transfer referred to as trade.

Two major treaties dilates carbon trade in the world

Kyoto Protocol with UNFCCC as the administrative authority

European Union Emission Treading Scheme (EU-ETS) is one of the largest multinational GHG emission treading scheme

The Kyoto Protocol has lead to development of Carbon (and GHG) market consisting of three components [2] :

European Emission Trading Scheme (ETS) which proposes to cut emissions from 5 dirtiest industries in Europe. Some 13,000 factories and power stations in five different industries may emit carbon only if they have a permit. At the start of the scheme, they were given permits worth around 2.2 billion tones of carbon dioxide per year. These permits may be used up—as fuel is burned and carbon is generated—or they may be traded.

Joint Implementation (JI) between developed countries that trade their offsets with each other. Country A is emitting more than its quota and country B is emitting less.

Clean Development Mechanism (CDM) whereby the excess emissions of developed countries may be offset by reduced emissions of developing countries, whose Certified Emission Reductions (CERs) can be traded in the market thus financially rewarding the developing countries for their emission reduction efforts. Making money in CDM market is a two step process. First you have to earn the CERs. Next you have to find a buyer for it.

India and Greenhouse Gases

The Indian economy experienced strong growth during the last few country’s Gross Domestic Product years. The (GDP) grew at 9% at one point of time. With its vibrant economy, still growing population and increasing welfare, India has become a major energy consumer on the global level. In 2004, it ranked fourth in terms of total primary energy supply with 573 million tonne so foil equivalent( Mtoe), behind the United States (2326 Mtoe), China (1609 Mtoe),and Russia (641 Mtoe). [3] 

India & Carbon Market

India is a key player and represents a very attractive country for hosting CDM activities. Most CDM projects currently in the validation stage or further, pipeline at are located in countries with transition economies and medium income.

Out of over 2000 CDM projects currently in the located in India, followed by Brazil (233), pipeline, 650 are China (524), and Mexico (165) [4] .

India ranks second with a current potential of 323,000 Certified Emission Reductions (each one equivalent to a tone of C02) by 2012, far behind China (1,015,000 CER). This is due to the fact that China is hosting a few high-yielding projects in terms of CER [5] .

Controversy About Carbon Market

Carbon markets find themselves at the center of a growing controversy. The market volume represented transactions for 1.6 billion CO2eq in 2006. [6] 

The rationale behind carbon trading is an economic one. The market allows for the most cost-effective way of reaching. At least so is the GHG emission reduction targets claim, one that is motivated by short-term offset represents permanent perspectives. Indeed, costs to a company, while domestic measures, such as energy efficiency measures, could yield permanent savings.

Although carbon dioxide is principal gas causing our climate to by far the change, most GHG offset projects target non-CO2 gases [7] .

Conclusion

The carbon market is currently booming and India is in a position to play a key role. Numerous projects providing emission certificates for the carbon market, either regulatory or voluntary, are located in India.

The Clean Development Mechanism, in the regulatory framework, represents an opportunity in developing for sustainable development countries, facilitated by the need of industrialized countries to meet their GHG emission targets.

However, the link between such undertakings and sustainable development is not straight-forward. Indeed, different factors could undermine the valuable objective of the CDM to promote sustainable economic, social and environmental in a country.

Development in The CDM is largely considered a success. It has nevertheless being laden with a lot of unrealistic expectations (rural electrification, poverty alleviation) for which it is not designed. The voluntary market, although well- intentioned, of credibility currently suffers from a lack for a number of reasons. Nonetheless, it seems to trigger projects that are left out by the high transaction costs of the bureaucratic work.

Statement of ProblemOften, the voluntary regulatory frame projects providing offsets for market have a stronger community involvement and broader accompanied sustainable development benefits although at other complaints have arisen.

The global carbon is fast becoming a major contributor in the international trade. The objective with it was setup may have been overshadowed by the economic prospects of carbon trading. But one this is clear that major corporates have made carbon offsets as a major strangely of their CSR program. Companies now float about reducing their carbon footprint and sometimes even at the cost of development of under-developed or developing countries.

This project will focus on the implications of carbon trading especially in India, its evolution from something that the industry saw as hindrance to their growth to now becoming a markets in itself and the need for new regulatory mechanism to curb its misuse by developed nations.

Objectives

To analyze the implications of carbon market in India

To study the development of carbon market from Kyoto Protocol till the end of the 1st decades of the 21st Century

Hypothesis

Carbon trade has both negative and positive implications. It’s the perspective which matters. From the point of view of developed nations it’s an opportunity to reduce their carbon footprint by dolling out cash for carbon.

Whereas, from the point of view of developing countries it’s an opportunity to see some green while sacrificing their long term economic goals. These may the views of a cynic but most of it is true.

Research QuestionsThe new era of carbon trade has helped companies becoming more carbon conscious. Environmental Groups have forced nations let alone corporates to rethink their ways, on how they balance trade with needs.

How has the carbon market evolved?

What led to the growth of the carbon market?

What good has this trade of carbon done to the larger goal of combating climate change?

What role does India and Indian Companies play on global Carbon market?

Research MethodologyHow can India take advantage of the carbon trade without sacrificing its growth objectives?

ScopeThe research has been doctrinal, with the help of reference from the books and several articles published in distinguished law journals and web portals by recognized authors and members of economic community.

Review of LiteratureThe Scope of this project is limited to India in respect of implication of carbon trading. While when I analyse the history & evolution of carbon market the scope expands to the whole world

Several researchers using varying modeling approaches by the conclusions in have studied the economic and energy sector impacts of the Kyoto Protocol on developed countries.

According to Energy Modeling Forum and (1999) the overview published as a chapter (Weyant & special issue of The by the Stanford Energy Journal Hill, 1999) gives a useful summary of the studies. They considered some standard scenarios that included their own reference scenario, no emissions trading, Annex 1 trading only, and full global trading scenarios. In addition to these standard scenarios, several other scenarios between these extremes were also run. The CDM was included the analysis Journal in just three of the 13 studies included in the journal.

According studies such as MacCracken et al. (1999), McKibbin et al. (1999), Bernstein et al. (1999), Tulpule and Criqui et al. (1999) do give some indication of gains to non-Annex B in different scenarios of emissions reduction. OECD organized a workshop (OECD, 1998) The CDM was treated as a sell only global trading scenario in which non- Annex 1 countries could 15% of the full global trading potential,considered feasible because experts did not expect.

According to FEARNSIDE, P.M. 2000 "Global Warming And Tropical Land-Use Change" [Chapter 46, Page: 115-145] Deforestation is the biggest source of emissions for many developing nation. One of the main reasons offered by the Bush administration and the U.S. Congress for failing to support Kyoto was that it neglected to address growing carbon emissions. Carbon Credit have played a major role in achievement of reduction goals.

According to CLIMATE CHANGE AND OPTIONS FOR INDIA [BY: V.Ranganathan, Indian Institute of Management, Bangalore] there seems some inevitability in higher coal usage for India for its electricity needs and this cannot be compromised by the climate change argument. The nuclear electricity cannot replace coal based electricity, as the former is twice as costly as the latter. So India cannot afford to sell its precious carbon credits to other countries for inadequate compensation

Following are the books which were referred:

Climate Change: A Guide to Carbon Law and Practice, By Paul Q Watchman [347.34]

Carbon Trading: Some Insight and Perspectives, By: Radha Purawani [333.7]

Legal Aspects of Carbon Trading : Kyoto, Copenhagen & Beyond, By: David Freestone & Charlotte Streck [344.046]

GROWTH OF CARBON MARKET

The Kyoto Protocol allocated emissions quotas to all countries, keeping 1990 as the baseline year, and required nations that had historically contributed to the problem to undertake binding obligations to reduce emissions within a fixed time period. [8] 

The Protocol also provided several economic based incentives for reducing emissions, notably provisions for emissions trading, joint implementation, and clean development mechanisms. Emissions trading, or carbon trading, facilitated the sale, and purchase, of carbon credits among countries, based on their Kyoto allocations; joint implementation allowed countries to collaboratively invest in projects that would reduce emissions and generate carbon credits; clean development mechanisms allowed developed countries to invest in emission-reducing technologies, particularly in developing countries, in return for carbon credits.

The principles and norms of emission trading now established at the international level are within the EU Emissions Trading Scheme and was not invented at the Kyoto Protocol. They were learned the hard way over nearly three decade of practical experience in the United States which culminates in the US Sulphur dioxide Acid Rain Program being enacted into a US federal Law. Emission Trading is an ad-hoc instrument to bring some flexibility in the system

However, the Kyoto Protocol provoked several negative reactions, notably, from the United States, which withdrew completely from the Protocol, and also from the nongovernmental sector and from economists. [9] Newly industrializing nations such as Brazil, China, and India criticized the U.S. government's position that the developing countries should also undertake mandatory obligations given their growing rate of emissions. As a result of the controversy, the Protocol and its mechanisms did not come into effect until 2005, nearly a decade after its being open for signature and six years before its expiration.

Countries that ratified the Protocol, including the European Union (EU) and Japan, have established carbon-trading mechanisms. In fact, Japan recently received its carbon offsets. [10] Further, even within non-ratifying countries, emissions reduction policies are being developed. For example, U.S. states have independently taken initiatives to reduce carbon emissions through internal trading mechanisms, and other regulations. Developing countries such as India and China have also adopted policies to reduce emissions from certain sectors and promote renewable energy. [11] 

Working of the Carbon Market:

Source: http://science.org.au/nova/newscientist/054ns_003.html

Suppose it costs Company A $15 to cut carbon emissions by a ton, it makes sense for that company to pay $8 to Company B who can achieve the same reduction for $1.105 Thus, trading creates a win-win for everyone: Company A saves $7, while Company B makes $7. The is how the Carbon Market around the world functions

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In many ways, carbon markets are parallel to financial derivatives markets. As there is no data about the extent to which they are regulatable, it is widely acknowledged that they are not now being regulated effectively.

Carbon markets take an equally revolutionary step with regard to climate-benefiting actions. The first step to climate crisis is having a measurable, divisible greenhouse-gas "emissions reductions". This paves the way for construction of individuated, tradable pollution rights (or "thingified" climate benefit/disbenefits) whose status as asset, grant, or financial instrument is engineered to fit various accounting standards.

As with financial markets, there exist both motives and opportunities to expand this process of carbon trading. Carbon has been predicted as prospectively "the world's biggest market overall," with "volumes comparable to credit derivatives inside of a decade." [12] Incentives became intense for both buyers and sellers to see to the establishment of mass-production lines for CO2 equivalents and cheap offsets. [13] 

Despite the recent economic downturn and low carbon prices, carbon market trading volumes have continued to rise as compliance buyers look to make money from low permit prices, permit accumulators look to make money from rising prices, and hedge funds look to make money from permit price volatility.

Some of the biggest buyers of CDM credits are financial sector powers such as Barclays, Goldman Sachs, Credit Suisse, Deutsche Bank, Rabobank, Morgan Stanley, BNP Paribas, Vitol and Merrill Lynch. [14] 

Carbon Market Around the World:

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Source: http://nwww.koreaherald.com/view.php?ud=20121024000825

Corporate and state actors that enjoy or are able to gain legal control over large areas of land in countries such as Uganda, Brazil or New Zealand meanwhile stand to gain from markets for forestry offsets. [15] 

From the start, the rush into carbon commodities created a heavy demand for technical mechanisms that could construct quantifiable "equivalences" among emissions reductions in different locations, among different greenhouse gases, between land- based uptake of carbon dioxide and fossil-origin carbon emissions, and so forth. In order to provide the quantitative price framework needed for "efficiency" (and for the related polemical assertion that

Statistics of the Carbon Market:

The CDM is an increasingly lucrative option for foreign investors, host country partners, and host governments. Project growth expanded rapidly over the past couple of years, and is not expected to slow anytime soon. The 3000-plus projects in the CDM project pipeline are expected to produce 2.7 billion CERs by 2012 [16] ,translating to an annual reduction of 464 million tons of CO or almost 0.9 percent of global CO2 emissions

CDM globally introduced, many carbon reduction and carbon sink projects have been registered. Following table gives the quantitative information about the top ten countries having highest numbers of registered CDM projects across the world. Table also shows the volume of CERs (Carbon Credits) in periodic manner.

Top ten countries in terms of registered CDM projects

Source: http://greencleanguide.com/2010/12/25/cdm-projects-statistics/

Carbon Market in India

Currently, India is ranked as one of the top five emitters of greenhouse gas emissions [17] , but as a developing country whose industrial process began in the later half of the 20th century it does not bear historical responsibility for carbon dioxide reduction targets.

Moreover, despite having a 4.23% share of the global emissions, which excludes the 10% global emissions share from land use shifts such as deforestation [18] , the sub-continent's overall position on the issue is less troubling than that of other emitters, particularly China and the United States.

According to a recent Climate Change Performance Index, India's energy-related emissions are much lower than that of China or United States, which contributed 18.80% and 21.44%, respectively in 2007. [19] 

Further, India's global share remains relatively low despite the fact that its share of the global population is 17.02%, and its share of the global GDP is close to that of Japan at 6.16%, in effect the fourth largest economy among the top emitters.

In fact, India a high ranking of five for its climate performance in 2007; this figure is closer to that of Germany and United Kingdom that are undertaking critical measures to address the problem, and much higher than that of most other top emitters including Canada, China, Italy, Japan, Republic of Korea, The Russian Federation, and the United States were ranked in the high 40s and 50s. [20] 

The Government has also adopted energy regulations and established new ministries or administrative agencies [21] . It has also set up special committees, including one headed by IPCC Chairperson, Rajendra Pachauri and other prominent government and non-government representatives, to consider additional venues for action.

Yet, despite the positive trends, India's climate scenario is not entirely encouraging. Within the country, competing policies and interests present significant challenges to ongoing mitigation efforts. Demand for energy and carbon intensive materials to sustain development activities has risen exponentially. Notably, there is increasing demand for electricity for hi-tech industries and for modern amenities such as air conditioners and cars; for materials to build infrastructure for the spiraling land and air traffic; and for cement for commercial and residential construction.

According to Report on National Action Plan f or operati onal i si ng Cl ean Devel opment Mechanism(CDM) by Planning Commission, Govt. of India, the total CO -equivalent emissions in 1990 were 10, 01, 352 Gg (Gigagrams), which was approximately 3% of global emissions. If India can capture a 10% share of the global CDM market, annual CER revenues to the country could range from US$ 10 million to 300 million (assuming that CDM is used to meet 10-50% of the global demand for GHG emission reduction of roughly 1 billion tonnes CO 2 2 , and prices range from US$ 3.5-5.5 per tonne of CO ) [22] . As the deadline for meeting the Kyoto Protocol targets draws nearer, prices can be expected to rise, as countries/companies save carbon credits to meet strict targets in the future. India is well ahead in establishing a full-fledged system in operationalising CDM, through the Designated National Authority (DNA). 2

Industries from Gujarat are estimated to be collectively earning anywhere from Rs 3,000 crore to Rs 3,900 crore from carbon credits, more than industries from any other state, according to data available with the National Clean Development Mechanism Authority (NCDMA) [23] .

A CER is equivalent to a tonne of carbon, and one CER is currently being traded at 4 to 5 euros, according to a Belgium-based group called CDM Watch, which monitors the carbon trading market or Clean Development Mechanism (CDM) functioning under the United Nations Framework Convention on Climate Change (UNFCCC).

In total, the NCDMA has approved 2,105 projects across India with 65.78 crore CERs. Earnings from these could possibly fetch anywhere from Rs 17,000 crore to over Rs 21,000 crore.

ndian industries were able to cash in on the sudden boom in the carbon market making it a preferred location for carbon credit buyers. It is expected that India will gain at least $5 billion to $10 billion from carbon trading (Rs 22,500 to Rs 45,000 crore) over a period of time. Also India is one of the largest beneficiaries of the total world carbon trade through the Clean Development Mechanism claiming about 31 per cent (CDM). [24] Â 

India’s carbon market is one of the fastest growing markets in the world and has already generated approximately 30 million carbon credits, the second highest transacted volume in the world. The carbon trading market in India is growing even faster than information technology, bio technology, and BPO sectors. Nearly 850 projects with an investment of Rs 650,000 million are in the pipeline. Carbon is also now being traded on India’s Multi Commodity Exchange. It is the first exchange in Asia to trade carbon credits. 

Examples of Carbon trading in India [25] 

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 Jindal Vijaynagar Steel

 The Jindal Vijaynagar Steel has recently declared that by the next ten years it will be ready to sell $225 million worth of saved carbon. This was made possible since their steel plant uses the Corex furnace technology which prevents 15 million tonnes of carbon from being discharged into the atmosphere. 

Powerguda in Andhra Pradesh

 The village in Andhra Pradesh was selling 147 tonnes equivalent to saved carbon dioxide credits. The company has made a claim of having saved 147 MT of CO2. This was done by extracting bio-diesel from 4500 Pongamia trees in their village. 

Handia Forest in Madhya Pradesh

 In Madhya Pradesh, it is estimated that 95 very poor rural villages would jointly earn at least US$300,000 every year from carbon payments by restoring 10,000 hectares of degraded community forests.

Adani Power, a subsidiary of Adani Enterprises and part of the Adani Group, a global integrated infrastructure player, today announced that the phase III of its 4,620 MW power plant in Mundra, Gujarat, consisting of two units of 660 MW each, has received carbon credits under the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change (UNFCCC) [26] .

This achievement makes the Mundra plant the world's first coal fired power project to receive carbon credits. With this measure, the plant is expected to generate about 1.8 million Certified Emission Reductions (CERs) each year. Adani Power is expected to earn Rs 600 crore by trading these carbon credits during the first 10 years of its operations.

Statewise registered CDM project in India

Source: http://greencleanguide.com/2010/12/25/cdm-projects-statistics/

Trading of CERS:

 As a welcome scenario, India now has two Commodity exchanges trading in Carbon Credits. This means that Indian Companies can now get a better trading platform and price for CERs generated. [27] 

• Multi Commodity Exchange (MCX), India’s largest commodity exchange, has launched futures trading in carbon credits. The initiative makes it Asia's first-ever commodity exchange and among the select few along with the Chicago Climate Exchange (CCE) and the European Climate Exchange to offer trades in carbon credits. The Indian exchange also expects its tie-up with CCX which will enable Indian firms to get better prices for their carbon credits and better integrate the Indian market with the global markets to foster best practices in emissions trading. 

• On 11th April 2008, National Commodity and Derivatives Exchange (NCDEX) also has started futures contract in Carbon Trading for delivery in December 2008.

• MCX is the futures exchange. People here are getting price signals for the carbon for the delivery in next five years. The exchange is only for Indians and Indian companies. Every year, in the month of December, the contract expires and at that time people who have bought or sold carbon will have to give or take delivery. They can fulfill the deal prior to December too, but most people will wait until December because that is the time to meet the norms in Europe. If the Indian buyer thinks that the current price is low for him he will wait before selling his credits. The Indian government has not fixed any norms nor has it made it compulsory to reduce carbon emissions to a certain level. So, people who are coming to buy from Indians who are actually financial investors. They are thinking that if the Europeans are unable to meet their target of reducing the emission levels by 2009, 2010 or 2012, then the demand for the carbon will increase and then they may make more money. So investors are willing to buy now to sell later. There is a huge requirement of carbon credits in Europe before 2012. Only those Indian companies that meet the UNFCCC norms and take up new technologies will be entitled to sell carbon credits. There are parameters set and detailed audit is done before you get the entitlement to sell the credit. 

he number of carbon credits issued for emission reduction projects in India is set to triple over the next three years to 246 million by December 2012 from 72 million in November 2009, according to a CRISIL Research study.

This will cement India's second position in the global carbon credits market (technically called Certified Emission Reduction units or CERs). The growth in CER issuance will be driven by capacity additions in the renewable energy sector and by the eligibility of more renewable energy projects to issue CERs. Consequently, the share of renewable energy projects in Indian CERs will increase to 31 per cent. [28] 

India, on its part, has generated around 30 million carbon credits, and approximately 140 million are in pipeline. Around 225 Indian projects in the fields of biomass, cogeneration, hydropower, and wind power with a potential of 225 million CERs have been registered. Carbon offsets from solid waste projects, too, will see a rise. At present, the Indian solid waste management market is witnessing tremendous growth. Currently it is valued at around $155.56 million (Rs 728 crore) and is expected to grow at a rate of around 20 to 25 per cent in the next three to five years. [29] 

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Ch-4 implication of carbon market & its defects

The CDM is intended to serve the dual purpose of allowing cost-effective compliance with emissions caps in developed nations, while encouraging developed countries to fund sustainable development in poorer nations that will be disproportionately affected by climate change. [30] But the CDM as adopted is likely to make the developing countries suffer the most from climate change. Its market-based approach and insufficient procedural safeguards will allow developed countries to pursue their economic bottom line without meaningfully contributing to sustainable development in developing nations.

4.1 Climate Change and Climate Injustice

This unequal distribution of climate change obligations will be a problem because developing countries will be not be able to insulate themselves from the effects of climate change. Adapting to the reality of climate change will be expensive and require technological and economic resources which the poorest developing countries lack.

India have not yet created infrastructure that will allow them to adjust its lifestyles or relocate its populations as areas become unlivable; even simple innovations like importing food and water may be beyond the reach of many impoverished communities.

industrialized countries have not yet undertaken large-scale investments to help poorer countries adapt to climate change. [31] As of 2007, only $ 40 million was being spent annually for adaptation measures in the world's poorest regions. [32] 

The West is investing billions of dollars in technology and infrastructure to prepare its own populations for the climate change. Certainly, wealthy countries will be able to prepare themselves at least partially while "the poorest of the poor are going to be the worst hit."

Developing countries face several injustices related to climate change: they are likely to suffer the worst effects of climate change, they are least able to invest in adaptation measures, and they are historically the least responsible for the emissions that caused climate change in the first place.

4.2 International Response to Clean Development Mechanism

The United Nations Framework Convention on Climate Change created a structure for further action and cooperation among its signatories. It does not provide any binding greenhouse gas (GHG) limitations. [33] It established the Conference of the Parties (COP), "a kind of super-legislature" for the climate change effort that consists of representatives from all the Convention's signatories and meets annually in numbered meetings.

Additionally, the Framework Convention marked the initial recognition of the principle of "common but differentiated responsibilities" in the battle against climate change.

Generally understood to reflect the fact that developed countries bear a greater historical responsibility for climate change and are in a superior position to take action in response, the principle foreshadowed the later decision to make emissions limitations binding only on developed countries. The Framework Convention was ratified almost universally and its creation signified the start of an ongoing effort to address global climate change.

4.3 The Poorest Developing Nations left behind

Evolution of Carbon Market has not helped climate change, this is because it is a competitive mechanism that inherently favors more-developed developing nations that have already begun industrialization and have strong financial and governmental institutions in place.

As developed nations select CDM investment projects, the first category of developing nations, like India, Brazil, and China, make them more desirable CDM project hosts.

First, the more-developed non-Annex I countries are preferable because they have the institutional structure required to both implement high-yield projects and reassure investors that their investments will not be lost because of instability in the developing country. [34] 

Second, less-developed developing nations will be at a disadvantage in attracting carbon offset projects because the Kyoto Protocol requires that each project must reduce GHG emissions below the level that would be achieved without the project in place.

This provides an advantage to non-Annex I countries already on the path to industrialization because they are currently conducting large-scale, high-pollution activities that can be incrementally improved, generating a large number of credits.

As compared to completing numerous smaller projects in nations with lower GHG emissions, investors can reduce their administrative burden, utilize economies of scale to decrease costs, and generate credits more quickly by pursuing projects in wealthier developing nations that have higher existing emissions. [35] 

The evidence confirms that, while technically eligible for participation in CDM projects, the poorest developing nations have been unable to compete against more-developed developing countries.

For example, two-thirds of the CDM arrangements signed by the World Bank between January 2005 and March 2006 were with China. Africa attracted only twelve of the 156 projects undertaken. [36] 

With market incentives driving the carbon market, these results are likely to persist, allowing the carbon market to ignore the poorest nations completely.

4.4 Ill-effects of Carbon Sinks

Carbon markets main currency is CERs which leads to creation of "carbon sinks."

The Marrakesh Accords permit countries to earn CERs through the creation of carbon sinks in non-Annex I countries. During the first commitment period, the number of CERs available for sink creation is limited: for each year of the five year commitment period, countries may earn only 1% of their base year emissions by investing in carbon sinks. Also, for the first commitment period, credits for carbon sinks can be generated through either afforestation or reforestation, but not through forestry management. Carbon sinks generate credits inexpensively, especially in developing nations near the equator where land is cheap and trees grow quickly, so sink projects are extremely popular [37] .

The IPCC observes that afforestation may have highly varied impacts on groundwater supply, river flows, and water quality, and in at least some regions may decrease the availability of water significantly. [38] Commercial tree farms will also require pesticides that may further degrade water resources while affecting food and air quality in rural communities.

4.4 The CDM's Inadequate Procedural Protections

Carbon market has become more and more commercialized developed countries are seeking profit, and the first category developing countries like China, India, and Brazil providing the best investment opportunities.

Participation by local residents in the design and implementation of projects should be an obvious priority for any legislative initiative intended to promote sustainable development in countries with dispersed, impoverished, and rural populations.

The Marrakesh Accords require CDM host countries to invite comments by local stakeholders, summarize those comments, and explain how the comments were taken into "due account." n112 This provision is much less stringent, and probably less effective,

In addition to requiring some nominal opportunity for stakeholder participation, the Marrakesh Accords also require project participants to analyze the impacts of each project activity. [39] 

This analysis provision is aimed at traditional environmental effects, such as pollution, generation of information on a variety of problems, the provision would provide community members or advocates with evidence that they could utilize to identify problematic aspects of projects before legal rights have been transferred to the investing party.

The host country and its investing partner are given complete discretion over the environmental impact assessment decision. Assuming that the parties are interested in pursuing the CDM project - which is a safe assumption since the parties are in the process of getting approval for a voluntary project - it seems likely that the countries may decline to study environmental impacts extensively, especially because these assessments are notorious in the developed world for their costliness and time consumption.

Furthermore, even if an environmental impact assessment is deemed necessary, there are no guidelines dictating how stringent the assessment must be. Instead, the party participants need only show that they "have undertaken an environmental impact assessment in accordance with procedures as required by the host Party."

Also, the lack of strong environmental assessment provisions exacerbates public participation problems. Even if community members overcome the notice, communication, and distance hurdles to participation, without a strong environmental impact assessment provision, they may have difficulty finding technical and scientific data to support their claims. For the reasons outlined in this section, the market-based CDM, widely sold as a tool to increase equity and relieve the burdens of climate change on the poorest nations, is unlikely to help the least-developed developing nations. Instead, its economic emphasis, unequal balance of power, and inadequate assurance of local participation may cause the CDM to further the injustices already suffered by the poorest regions of the world.

4.5 GLOBAL WARMING SUPER POLLUTANTS: THE REAL LOW-HANGING FRUIT DILEMMA

Carbon market helps in reduction of high GWP gases at the expense of more critical long-term CO reductions. Any country seeking to reduce its emissions would naturally start with the cheapest reductions first the so called "low-hanging fruit."

This "low-hanging fruit" phenomenon is traditionally raised in the fear that "developing countries' low-cost options would be used up so that developing countries would face only 2 high-cost options in the event that they signed up to their own emission targets at a future date.

This concern ignores a more imperative global problem: by creating huge incentives to invest in high GWP abatement projects, the CDM fails to stimulate investment in desperately needed low-carbon energy infrastructure in the developing world.

On the one hand, reductions in "Super-Pollutants" (CH 4 , N 0, HFC-23, PFCs, SF 6 2 ) are highly beneficial, because they lead to far greater reductions in global warming than one molecule of carbon dioxide. Compared to CO's GWP of 1, the remaining super-pollutants have dramatically higher GWPs: CH 2 0 (310), HFC-23 (11,700), PFCs (6,500-9,200), and SF (23,900). [40] 

Because CERs are awarded based on the GWP of a gas, investors can receive thousands more CERs for a one-ton reduction from a super-pollutant than CO2. By reducing Annex I parties' cost of compliance, super pollutants offer a much more attractive alternative to CO2 reduction projects.

Unfortunately, the presence of these cheap non-CO credits creates a perverse incentive not to invest in CO2 reducing projects. The abundance of HFC-23 and NO destruction projects depresses the price of carbon, subsequently reducing the competitiveness of other CDM projects.

Reliance on super-pollutants is especially problematic because carbon dioxide represents 77% of all GHGs (in CO e), making it the greatest threat to climate change.

India, requires vast sums of energy to fuel their rapid economic growth, its needs to lay the foundation for long-term energy infrastructure. Without sufficient clean alternatives, developing countries fossil fuel emissions are expected to double from 10 billion tons CO e today to 20 billion tons in 2030. [41] Rising energy demand and cheap coal are prompting India to build one new coal-fired power plant a week and 500 over the next decade. In contrast to many superpollutants, which can be halted instantly (and inexpensively) through HFC-23 or N20 destruction projects, CO from a coal-fired power plant is likely to go unabated for the plant's estimated 30-50 year lifetime operation. [42] 

THE CDM FAILS TO EVENLY DISTRIBUTE PROJECTS & LOW-CARBON TECHNOLOGY TO THE DEVELOPING WORLD

The CDM is also heavily criticized for primarily benefiting the largest developing economies (i.e. China, India), while ignoring the development needs of poorer nations. CDM project location breakdown support these criticisms with 62% located in Asia and the Pacific, 34.6% in Latin America, and only 2.7% in Africa. [43] Similarly, four countries China, India, Brazil, and South Korea dominate projected CER allocations, accounting for greater than 80% of all expected annual CERs. [44] 

Although the CDM was designed to promote technology transfer and sustainable development in developing nations, these figures indicate that only a handful of the wealthiest developing nations are benefiting. In fact, China & India profits handsomely from the wallets of developed nations with its 65% tax on HFC-23 CER revenues.