Introduction to Clean Development Mechanism (CDM) and carbon trading Kyoto Protocol and CDM Context

The Kyoto Protocol is an international treaty which extends the 1992 United Nation framework Convention on Climate Change (UNFCCC) that commits, State Parties to reduce greenhouse gasses emissions, based on the premise that State Parties to reduce greenhouse gasses emissions. The Kyoto Protocol committed industrialized countries to legally binding GHG reduction targets during the period 2008-2012. The carbon trade is an idea that came about in response to the Kyoto Protocol.

Summary

Things to Remember

1. The main objectives of CDM are:-

To assist developing countries in achieving sustainable development & in contributing to ultimate objectives of United Nations Framework Convention on Climate Change (UNFCCC )
To assist developing countries in achieving compliance with their qualified emission limit & reduction commitments.

2. Types of CDM Projects

Energy efficiency
- End-use improvements
- Supply-side improvements
Renewable energy
Methane reduction eg. landfill gas capture
Fuel switching
Agriculture (CH₄ and N₂0)
Industrial processes
Sequestration/sinks – only afforestation and reforestation

3. Opportunities of CDM

CDM encourages developed countries to undertake GHG reduction projects in developing countries.

4. Results:

Create new industries in environmentally sustainable technologies
Poverty alleviation through income and employment
Assist in improving current and future environment (including air quality

5. Benefits from Carbon Trading

The reduction in overall cost of meeting emission reduction targets.
the progressively improved definition of a "price" for carbon, particularly as the market becomes more liquid and active, and assuming that all carbon certificate products are fungible, meaning that they are equivalent ways of addressing emission reduction;
the opportunity to generate income from activities that previously attracted no additional revenue, such as investment in emission reduction, renewable energy generation, greenhouse friendly fuels and carbon sequestration;
the ability to use revenue from carbon sequestration to help fund the additional planting of trees and other vegetation, for benefits such as salinity amelioration, biodiversity enhancement, conversion to greenhouse gas friendly fuels and energy, and employment and wealth creation in rural areas.

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Subjective Questions

Q1:

What are the major essential elements of insurance?

Type: Long Difficulty: Easy

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Answer: The essential elements of insurance are listed below:
1. Agreement
The agreement means communication by the parties with one another. There must be an offer and acceptance of the terms and conditions of the insurance contract. The acceptance or rejection of an offer is made by the insurer. The insurance contract becomes valid after the issuance of acceptance notice by the insurer to the insured.
2. Free consent
The parties involved in a contract are said to consent freely when they agree upon the same thing in same sense. There must be free consent between the two parties in the contract. The consent is free when the contract is not made by coercion, undue influence, fraud oor misrepresentation or mistake. 
3. Competents to contract
The parties to the contract should be competent to enter into contracts. Every person is competent to contract who is of the age of majority according to the law and who is of sound mind and is not disqualified from by any law. The insurer must also be legally competent. The insurer must have license to sell the insurance contract.
4. Increase self-respect
There is the direct connection between self-respect and independence of a person in the society. Insurance supports to the person to be independent. It provides economic support to an individual, businessman which helps to increase the self-respect of the person in the society.
5. Legal consideration
In every contract, there should be a legal consideration. In an insurance contract, payment of premium is taken as a valid consideration. Without payment of premium, the insurance contract cannot be initiated.
6. Compliance with legal formalities
In the contract of insurance, the agreement between parties must be in written form and signed by both the parties. It must be properly tested by the witness and registered otherwise, it may not be enforced by the court.
 
7. Certainty
The terms and conditions of a contract should be clear and certain. They should be clearly understood by both the parties. In insurance, the insurance company gives printed policy deocument which contains all the trms and conditions of the policy.
8. Insurable interest
Insurable interest refers that the insured must suffer if the loss takes place in the property. Incase of the property interest, ownership of property can support to insurable interest but in the case of life insurance, close family ties or marriage will satisfy the requirement of insurable interest.
9. Encourage saving
The insurance should pay the amount of premium regularly and compulsorily. It develops the habit of saving. The deposited insurance premium cannot be withdrawn like a blank deposit. Life insurance is the best method of saving an investment. It is a good meant to make provision for retirement age.
10. Writing and registration
The insurance contract must be in writing and duly signed, stamped and registered. The condition is fulfilled as the proposer signs in a printed proposal form. The insurance compnay issues the policy document properly signde and stammped.

Q2:

Explain the principle of insurance.

Type: Long Difficulty: Easy

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Answer: The principles of insurance are listed below:
1. Principle of nature of contract
Nature of contract is a fundamental principle of an insurance contract. An insurance contract comes into existence when one party makes a proposal of a contract and the other party accepts the proposal. A contract should be simple to be a valid contract. The person who is entering into a contract should enter with his free consent. 
2. Principle of utmost good faith
An insurance contract is based on the principle of utmost good faith.Under this insurance contract both the parties should have faith over each other. They must behave or act in utmost good faith. It means that they should disclose all material facts or information fully and truly at the time of entering into a contract. 
3. Principle of insurable interest
Under this principle of insurance, the insured must have an interest in the subject matter of the insurance. In the absence of insurable interest, no one can get a property insured and can claim the compensation of loss from the insurance company by destroying property. 
4. Principle of indemnity
The principle of indemnity the insurer makes compensation to the insured against the loss in financial terms. This principle clarifies that the insurance is only for compensation of loss but not for any financial benefits. It means compensation given  to the insured can never be more than the actual loss of the property.
5. Principal of mitigation
According to this principle, it is the duty of the insured to make every effort and to take all possible steps to minimize the loss in the event of an accident. He must do his best to minimize the damage and save the property from damage.
6. Double insurance
Double insurance denotes the insurance of same subject matter with two different companies. It is the same company under two different policies. A double insurance policy is adopted where the financial position of the insurer is doubtful. Here, the insured cannot recover more than the actual loss and cannot claim the whole amount from both the insurers.
7. Principle of proximate cause
The Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This principle states that if the loss is caused by two or more than two reasons, then it becomes necessary to identify the nearest cause of the loss. The insurance company is not liable to compensate the loss caused by remote cause.
8. Principle of subrogation
This principle of subrogation strongly supports the principle of indemnity. Subrogation is the right of the subject matter of insurance gets to be transferred from insured to the insurance company after indemnity.
9. Principle of contribution
The principle of Contribution allows insurance companies to share the cost of claims and prevents an insured from collecting in full on more than one policy. This principle exists when the insured can insure the same property within more than one insurance company. It states that if a person takes insurance policy from more than one insurance company for a single property than the insured will be paid the actual loss by these insurance companies in the ratio of the value of policy issued by them.

Q3:

Explain any six principles of insurance.

Type: Short Difficulty: Easy

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Answer: Any six principles of insurance are as follows:
1. Principle of nature of contract
Nature of contract is a fundamental principle of an insurance contract. An insurance contract comes into existence when one party makes a proposal of a contract and the other party accepts the proposal. A contract should be simple to be a valid contract. The person who is entering into a contract should enter with his free consent. 
2. Principle of utmost good faith
An insurance contract is based on the principle of utmost good faith.Under this insurance contract both the parties should have faith over each other. They must behave or act in utmost good faith. It means that they should disclose all material facts or information fully and truly at the time of entering into a contract. 
3. Principle of insurable interest
Under this principle of insurance, the insured must have an interest in the subject matter of the insurance. In the absence of insurable interest, no one can get a property insured and can claim the compensation of loss from the insurance company by destroying property. 
4. Principle of indemnity
The principle of indemnity the insurer makes compensation to the insured against the loss in financial terms. This principle clarifies that the insurance is only for compensation of loss but not for any financial benefits. It means compensation given  to the insured can never be more than the actual loss of the property.
5. Principal of mitigation
According to this principle, it is the duty of the insured to make every effort and to take all possible steps to minimize the loss in the event of an accident. He must do his best to minimize the damage and save the property from damage.
6. Double insurance
Double insurance denotes the insurance of same subject matter with two different companies. It is the same company under two different policies. A double insurance policy is adopted where the financial position of the insurer is doubtful. Here, the insured cannot recover more than the actual loss and cannot claim the whole amount from both the insurers.

Q4:

Explain any five essential elements of insurance.

Type: Short Difficulty: Easy

Show/Hide Answer

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Introduction to Clean Development Mechanism (CDM) and carbon trading Kyoto Protocol and CDM Context

Introduction to Clean Development Mechanism (CDM) and carbon trading

Kyoto Protocol and CDM Context

The Kyoto Protocol is international treaty that commits State Parties to reduce greenhouse gasses emissions based on the premise that State Parties to reduce greenhouse gasses emissions based on,

Global warming exists
Man-made co2 emissions have caused it

The Kyoto Protocol adopted in Kyoto,Japan on 11 December 1997 and entered into the force on 16 February 2005. There are currently 192 Parties to the Protocol. Its first commitment period started in 2008 and ended in 2012.The emission reduction in the developed country is a very difficult job. To meet this target in developed countries, the factories that emit more carbon need to be banned. Many people will become unemployed. This will cause economic instability in developed countries. So the sudden implementation of the carbon reducing mechanisms seems infeasible in the developed countries. So reducing the emissions in Developing Countries is eligible which is known as CDM.

CDM and Its Objectives

CDM (Clean Development Mechanism) is one of the key components of the Kyoto Protocol. CDM is a mechanism which is based on understanding among the nations for adopting a new outlook for economic activities aiming at protecting the world eco-system.

The scheme appears simple i.e. private companies fund projects in developing countries which reduce greenhouse gas emissions. They must meet sustainable development criteria and “additionally” requirement which means emission reductions made must be additional to what would have been possible without CDM funding.

Types of CDM Projects

Energy efficiency
- End-use improvements
- Supplyside improvements
Renewable energy
Methane reduction eg. landfill gas capture
Fuel switching
Agriculture (CH₄ and N₂0)
Industrial processes
Sequestration/sinks

Opportunities of CDM

CDM encourages developed countries to undertake GHG reduction projects in the developing countries.

Results:

Increased investment flows
Attract capital for less carbon intensive projects
Technology transfer

CDM assists in development priorities and sustainable development goals.

Results:

Create new industries in environmentally sustainable technologies
Poverty alleviation through income and employment
Assist in improving current and future environment (including air quality

Carbon Trading

The carbon trade is an idea that came about in response to the Kyoto Protocol. The idea behind carbon trading is quite similar to the trading of securities.

Carbon Buyers:

European buyers now represent the bulk of the purchases of emission reductions with a combined 60% of total volume purchased between January 2004 and April 200 5. Within this group, the Government of the Netherlands (through its various agencies and intermediaries except the CFB (Center, and programs established within Rabobank, the International Finance Corporation, European Bank for Reconstruction and Development, and the Corporation Andina de Foment o) is the largest single buyer with 16%, followed by private firms from the United Kingdom (12%). All other European purchasers combined account for 32% of the total volume purchased. The s h are of Japan (mostly private Japanese entities) has diminished from 29% (Jan. 2003 –Dec. 200 4) to 21% (Jan. 2004 – April. 2005). Interestingly, two-thirds of the volume purchased from Europe was purchased by private firms, against one-third by governments (mostly The Netherlands, Den mark, Sweden, and Austria).

Carbon Seller:

The largest seller of ERs is Asia (45% from January 2004 to April 2005). Latin America is second with 35% of the volume supplied. Projects in OECD countries which include both JI projects in New Zealand and voluntary activities in U.S. rank third with 14% while transition economies rank fourth at 6%. These aggregate figures, however, are strongly influenced by the dynamics of HFC23 destruction projects, which are few in number but very large in volume, and for the moment, to our knowledge at least, all located in Asia. In fact, Latin America is by far the largest supplier of ERs from projects other than HFC23 destruction (46%). Asia’s share of notHFC-based ERs is stable (28% from Jan. 2004 to April 2005, against 28% from Jan. 2003 to Dec. 2004), and is lower than Latin America’s.

Benefits from Carbon Trading

The benefits of carbon trading are listed below:

1) The reduction in overall cost of meeting emission reduction targets.
2) The progressively improved definition of a price for carbon, particularly as the market, becomes more liquid and active with assuming that all carbon certificate products are fungible meaning that they are equivalent ways of addressing emission reduction.
3) The opportunity to generate the income from activities that previously attracted no additional revenue such as investment in reduction emission, renewable energy, greenhouse friendly fuels and carbon sequestration.

References:
1. Mackenzie L. Davis & David A. Cornwell, “Introduction to Environmental Engineering”, McGraw Hill.
2. Gilbert M. Masters, Standford University, “Introduction to Environmental Engineering and Science”, Printice Hall.
3. Stephan Konz, Kansas State University, “Work design”, Grid Publishing Inc., Colombus, Ohio
4. C. S. Rao, “Environmental Pollution Control Engineering”, New age International (P) Limited, Publishers, India.

Lesson

7 Global issues and responsible development practices

Subject

Mechanical Engineering

Grade

Engineering

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