Carbon Credits: Promoting Sustainable Development or Trading in Pollution?

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Case Details:

Case Code : BECG095
Case Length : 16 Pages
Period : 2005-2009
Pub Date : 2009
Teaching Note :Not Available
Organization : -
Industry : Carbon Trading
Countries : Global

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Paying To Pollute?

In April 2008, the carbon credits earned from projects that reduced carbon emissions were priced at about €22 per Certified Emission Reduction (CER)8,9 but this dropped to €8 per CER in March 2009,10 and investors were left with huge losses (Refer to Exhibit I for a graph showing a decline in prices of carbon credits). Because of the financial crunch, traders sold carbon credits heavily in the trade markets to raise quick finance, thereby creating a surplus in the markets. As a result, carbon credits lost market value. Also contributing to the price drop was the declining cost of fossil fuels like natural gas.

When oil prices were high, energy producers relied more on coal, which emitted higher levels of carbon dioxide (CO2), and this increased the demand for carbon credits. As oil prices fell, the demand for carbon credits came down.

Carbon credits are certificates issued to countries that reduce their emission of Green House Gases (GHG)11 responsible for global warming.12..

Excerpts >>

8] Carbon credits were measured in units of certified emission reductions (CERs). Each CER is equivalent to one ton of carbon dioxide reduction.
9] As on May 15, 2009, US$ 1= 0.658751; US$ 1= € 0.739754.
10] Sreelatha Menon, "Fall in Crude Oil Prices Affects Carbon Credits Mkt,", March 1, 2009.
11] Green House Gases (GHG) are gases in the atmosphere that absorb and retain heat. Many greenhouse gases occur naturally, such as water vapor, carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O). Others such as hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6) are the result of industrial processes.
12] Global Warming is an increase in the atmospheric temperature of the earth due to an increase in the levels of greenhouse gases in the atmosphere. The consequences of global warming are ecological damage, changing landscapes, and rising sea levels with an increased risk of drought and floods, increase in heat related illness, and diseases all over the world.


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