The Paris Agreement is a legally binding international treaty on climate change. It was accepted by 196 Parties on December 12, 2015, at the United Nations Climate Change Conference (COP21) in Paris, France. It became effective on November 4, 2016.
Its overarching goal is to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels before 2025 at the latest and decline 43% by 2030”.
The agreement includes a commitment from all major carbon-emitting countries to cut their climate pollution and to strengthen those commitments over time.
Companies that emit more CO2 than the limit set by the Paris Agreement take the following measures:
Carbon credit trading scheme:
Carbon credits, also known as carbon allowances, act as emissions permission slips. When a company purchases a carbon credit, usually from the government, it gains permission to emit one tonne of CO2. Carbon income flows vertically from firms to regulators with carbon credits, while companies with extra credits can sell them to other companies.
Carbon offsets (offset credits) flow horizontally, transferring carbon revenue across firms. When one company removes a unit of carbon from the atmosphere as part of their normal business activity by planting more trees or investing in renewable energy.
A company becomes eligible to issue carbon offsets, and other companies can then purchase that carbon offset to reduce their own carbon footprint. On the other hand, companies can significantly reduce their CO2 emissions by purchasing carbon offsets.
Here’s an example:
Let’s say two companies, Company 1 and Company 2, are only allowed to emit 100 tons of carbon.
However, Company 1 is on track to emit 200 tons of carbon this year, while Company 2 will only be emitting 50 tons.
To avoid a penalty consisting of fines and extra taxes, Company 1 can make up for emitting 100 extra tons of CO2 by purchasing credits from Company 2, which has extra emissions room to spare due to producing 50 tons less carbon this year than they were allowed to.
However, this type of credit exchange for businesses is not cost-effective because the amount of carbon credits allocated to them each year is based on each business’s size, and the efficiency of their operations relative to industry benchmarks will vary, making it more expensive for the company to purchase carbon credits.
So, Many different types of businesses have created carbon offsetting projects including:
● Renewable energy projects,
● Improving energy efficiency,
● Carbon and methane capture and sequestration,
● Land use and reforestation.
As the Indian Government is gradually increasing subsidiaries for the use of renewable energy coupled with higher taxes on emissions, many Indian companies are heavily investing in green energy development to increase their Carbon offsets, including
● Coal India Plans to Invest Over Rs 5600 crore.
● Elecon Engineering Ltd with a capex of Rs 100 crore.
● Kirloskar Ferrous with an investment of Rs 300 crore.
● NTPC aims to invest Rs 10,000 crore.
Similarly, certain Indian companies in the carbon credit business, such as EKI Energy Services, Adani Green Energy, and Indian Energy Exchange.
Written by Omkar S Chitnis
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