AU2006100751A4 - Apparatus, method and program for originating and trading carbon credits - Google Patents

Description

Name of Applicant: Khai Hee KWAN 0 0 Address: 315 Avoca St, Randwick NSW 2031 0 Title of Invention Apparatus, method and program for originating and trading carbon credits.

0 0 1-.

Cross-reference to Related Applications 0 Not Applicable Statement Regarding Federal Sponsored research or development Not Applicable Reference to a microfiche appendix Not Applicable 0 Field of the Invention 0 0 This invention relates to originating carbon credits, its derivatives and trading said carbon credits over a network.

0 Background Art Carbon dioxide is well known as the main greenhouse gas causing climate O change. Australia is also known to be a world producer of said gas. Some 0examples of greenhouse gases are carbon dioxide (CO.sub.2), water vapor methane (CH.sub.4), chlorofluorocarbons (CFCs), nitrous oxide o 15 (N.sub.20), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur Shexafluoride (SF.sub.6). Possible methods of reducing carbon dioxide emissions include reducing actual emissions, avoiding potential emissions, or removing and storing atmospheric carbon in a sink. Emission reductions may qualify for accreditation under current or future international regulatory regimes, domestic regulatory regimes, or both.

Since the signing of the Kyoto Protocol and in particularly in the European Union, carbon trading has been touted as the fix all solution to reduce carbon emission. However, at best the current approach toward carbon trading fails to focus on changing consumer behaviour or directly influence consumers' choices. The current trading regime is concentrated by identifiable targets and carbon allowance which are then traded like any capital instrument over an exchange, often by the carbon producers themselves through an intermediary.

Furthermore, while a buyer can purchase, these carbon benefits are purchased and sold only in large quantities.

Summary of the Invention The present invention relates to systems and methods for creating and trading carbon credits impacting on consumers' preference. In short, it is designed to let consumers determine the emission reduction alternative amongst a basket of goods and services by deliberately offering them intangibles credits such as carbon credits which are created upon selecting said goods or services. More particularly, this invention relates to systems and methods for allowing aggregation said credits from different supplier to provide benefits to buyers and sellers.

In accordance with the present invention, electronic systems and methods for facilitating the creation of carbon credit projects and trading carbon credits are ,0 provided.

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0 To better appreciate the following details, the nomenclature is defined below.

The illustrative examples herein, but not limited to them, all focus on emission reductions, as well as the creating and trading of emission reduction benefits.

0 The following terms are used with the associated definitions: 1. Emission reducing plan (ERP).

This is defined as a plan having the benefit of modifying consumer's choices.

O For example, the plan can be initiated by a government entity or corporation 0 a for profit or non-profit organization, an individual. Generally this entity or corporation directly competes with other entities for the provision of a 0 15 particular service, process or product. The entity may wish to sell an emissions 0neutral product or advertise that they have emissions neutral processes as compare to current service, product or process. Carbon Credits are calculated and verified by an independent auditor and certified for the service, product or process. Three specific plans labelled 1A,1B,1C are detailed below for better understanding.

lA. Rail User Plan.

A corporation such as a Rail Corporation which operates rails, bus and ferry for the public or generally known as a public transport provider. The competitor will be private users of motor-vehicles. This means the consumer has a choice of using a private vehicle or a public vehicle to get from point A and point B. In the same sphere the amount of carbon emitted by public transport and private transport can be calculated. The aim is to reduce the overall use of private vehicles on the road. In this plan, the consumer/user of public transport vehicles will be given a number of carbon credits based on the trips or value of the tickets used for said trips. As an example, the carbon credits are created by calculating the differences between taking a public transport and private vehicles from point A to point B. For example, a public transport such as a bus can take 30 people from point A to point B as compare to 30 motor vehicle carrying one person from point A and point B. By using a public transport, X amount of Carbon is emitted and by using private vehicle Y amount of Carbon is emitted. Assuming Y is greater then the benefit or credits will be Y-X for the plan. For each person then Note this is a simplistic approach to aid understanding only. Another simple approach is to assume carbon credits as a percentage of the ticket price, say 5 So a ticket costing $1 dollar will have 0.05 Carbon Credit The extraction or assumption of the carbon credit created is dependent on the approach taken by the plan proponent and preferably be approved by a government entity to legitimise the CC in order to make them tradeable. A uniform scheme is preferred.

0 lB. Furniture Purchase Plan.

This refers to providing choices between purchasing wood furniture made from plantation wood or non-plantation wood. Therefore, the proponent for the plantation wood can apply for Carbon Credits sanctioned by the government and directly pass these carbon credits to their consumers. Similarly this can be attached to a process such as using non-toxic glue.

I C. Health Plan.

0 This is a plan to discourage smokers. So in order for smokers to purchase cigarettes, the smokers will also need to satisfy the Carbon Credits required for 0 15 each packet. For example, a packet of cigarettes costing 6.00 may require 0 CC. If the smokers do not have the required CC then he/she will need to purchase from another from a Carbon Trading Exchange before the purchase can be completed for said cigarettes. Obviously, the cigarette manufacturer can bulk purchase the CC and pass them to the consumers to defeat this plan but this only means said manufacturer having to absorb the cost of purchasing the CC on the exchange. The 60 CC is merely an example and can be set by the Health Authority.

2. Carbon Credits The number of Credits determined based amount of Carbon Dioxide that is removed from or prevented from entering the environment as a result of the emission reducing plan. Carbon Debits (CD) are the negative of said CC, generally used by entities who by reasons of their process, product or service are unable or unwilling to provide a neutral service, product or services. See Health Plan above- cigarettes) It is also envisaged that CC will be a quasi-currency for micro payment. For example, depending on the exchange rate, such CC could be converted back to currency or simply used in its current form to buy or exchange for goods or services.

2A. Derivatives of Carbon Credits. (DCC). Given that Carbon Credits have market value, a derivative of these CC could also be created in order to hedge its future prices for example options and futures contracts. The relationship between the value of a derivative and the underlying asset (CC) are not linear and can be very complex. As is well known in the relevant art(s), the Black- Scholes option pricing model is the most influential and extensively used pricing model. The Black-Scholes model is based on stochastic calculus and is described in detail in a variety of publicly available documents. Pricing such an option premium to lock in future CC value is done by applying a modified Black Scholes model (as a base model) where traditional variables are transformed to take into account the different requirements. A binomial and other options models could also suit.

O For example, the exercise price in the said model is now the future price for Scarbon credit as denoted below by X being locked by the CC option buyer.

Volatility which is measured as standard deviation is equated to the annualised standard deviation of CC price (normalised log) over the period and is denoted below by a. Current price is a value for the current price of the CC and denoted o by S. Risk Free Rate is the rate of investment in a risk free security denoted by r and time is a measured as the contract time to lock in said volumetric rate and is denoted by T Therefore according to the modified Black Scholes model as applied in this invention the base value here is calculated using said formula; O The Carbon Credit call option premium is calculated as: o Premium S N(d 1 Xe-rT N(d 2 (Ni The Carbon Credit put option premium is calculated as: Premium Xe-rT N(-d 2 S N(-di) where S current price of the Carbon Credit.

X exercise price of Carbon Credit, purchaser wants to purchase.

r risk-free interest rate and a volatility of the carbon credit logarithmic price T time in years for calculating CC option.

area under the normal curve di ln(S/X) (r 2/2) T o T 1 2 d 2 di T 1 /2 As an example, assume the risk free rate is 10 percent, the desired future rate is 1 dollar per CC/m3 for purchase. The current rate is 0.89 per CC/m3.

This buyer wants to hedge 50000 CC for period Feb 2005 Feb 2006. Standard deviation is 4 percent.

X 1 50000 T 1 year r=0.10 S 0.89 50000 0.04 Therefore using the Black Scholes, we arrived at the premium 405 0 which is paid to the carbon credit seller. In short, if the market cost is higher 0than 50,000 on or before Feb 2006, the option holder will exercise and pay only 50,000 ie 1 dollar for 50,000 CC). Else for some reason his actual need is less than 50,000 or market value is less than 50,000, he is not obligated to pay $50,000. The option gives the uscr (buycr) the right but not obligation to oexercise said option against the seller. This option program provides a fair value to the cost of the option and can be implemented in a host server connected to a plurality of users wishing to hedge future CC prices by matching them to sellers.

Obviously the final option premium price is determined by the market.

o 3. Carbon Trading Exchange.

Primarily this invention takes into account carbon credits from all different type O 15 of plans by offering them on an exchange. By offering carbon credits on an 0 exchange will facilitate trading and market making. In the past while there are 'loyalty' programs by specific entities or corporation, these are not aggregated with others and made tradable. The loyalty points are not related to carbon emission and are primarily designed to track the consumer's purchasing habits as part of their marketing intelligence. In fact, many of these "fly-buy" or "points" are non-transferable and had to be used within certain time. The incorporation of an exchange will provide a pricing mechanism for these carbon credits and directly encourage consumers to participant in shaping their future climate conditions.

4. Identifier.

Crucial to any trading scheme or crediting of benefits, an identifier is required, preferably an anonymous one. Due to the sensitive nature and the need for universal accessibility, this invention considers the use of a telephone number or mobile telephone number as a neutral identifier. By providing such an identifier, transactions could automatically be logged and confirmation be received via a SMS. Alternatively, the Medicare card number could be used which is hashed using a key password when stored in a database. Effectively this means the service provider of this invention will not know the consumer's Medicare card number which satisfy privacy matters being anonymous.

Buyers. A buyer pays for carbon credit at whatever the market price is or willing to accept said CC on an exchange.

6. Consumer. An entity that buys products or service that have greenhouse gas emissions associated with their production or use. Preferably said consumer chooses to purchase an emissions neutral product or service where Carbon Credits can be generated.

Brief Description of the Drawings Further features of the present invention, its nature, and various advantages will 0 be more apparent from the following detailed description of the preferred embodiments, taken in conjunction with the accompanying drawings, in which like reference characters refer to like parts throughout, and in which: o FIG. 1 is a block diagram of a system that may be used to implement the O processes and functions of some embodiments of the present invention; o FIG. 2 shows the Depicts the block diagram of the Host Server o Detailed Description of the Invention Aspects of the invention apply to various types of electronic trading, but are described herein primarily in the context of electronic trading of carbon dioxide equivalent (CO.sub.2e) emission reducing plan and the emission reduction benefits resulting from the emission reducing plan for specificity and clarity.

As used herein, the carbon dioxide equivalent (CO.sub.2e) is the universal unit of measurement used to indicate the global warming potential of greenhouse gases. Emission reduction may refer to a reduction in actual emission, avoidance of potential emission, or the removal of atmospheric carbon all done by influencing the purchasing decision of a consumer.

It should be noted that although the following embodiment of the invention relates to the trading of a carbon credits created from a ERP or the creation of an emission neutral product that supports a single ERP, this invention is not limited only to a single ERP. Rather, the invention may also be applied to an emission neutral product that supports a basket of multiple ERPs.

Further details of the invention are described below with respect to FIGS. 1-2.

FIG. 1 is a block diagram of a computer network system 10 of the present invention. Computer system 10 comprises at least one client computer 200, preferably a computer workstation. Computer 200 is connected to a host server computer 300, at least one of merchant's computers 400 over at least one computer network 500. Said network 500 may be any suitable computer network including the Internet, an intranet, a wide-area network (WAN), a localarea network (LAN), a wireless network, a digital subscriber line (DSL) O network, a frame relay network, an asynchronous transfer mode (ATM) 0network, a virtual private network (VPN), or any combination of any of the same.

Computer 200 is a computer generally known in the field of computers which enable buyers and users/customers to engage in the trading process. Computer 200 may be personal computers, laptop computers, mainframe computers, dumb terminals, data displays, Internet browsers, personal digital assistants (PDAs), two-way pagers, wireless terminals, portable telephones, etc., or any combination of the same. Computer 200 may include processor, display, input O device, and memory, which may be interconnected. A host server computer 300 o contains hardware and software adapted to communicate with other computers over a computer network and to make available computer files or software 0 15 stored in the server computer or a storage device connected thereto such that 0 they can be accessed by a person from another computer connected to the network.

Although one host computer server 300 is adequate for the purpose of this invention, to achieve the benefit of redundancy, data security and distributed computing, more than one computer servers is preferred.

The computer system of the present invention operates as follows: Computer 300 makes available a web page which is a program written in either PHP3 or in Active Server Pages (ASP) to process scripts on the server, which is accessible by users' computer 200 and 400 through computer network 500. This is where the main entry point is into the system.

FIG. 1 depicts a preferred embodiment of a carbon trading system 10 for originating carbon credits, offering options for carbon credits and associated said credits to an user's identifier of the present invention. Computer network system 10 comprises a general purpose computer 300 as a server connected to computer network 500. Preferably, server computer 300 is a computer workstation, and computer network 500 is the Internet. More preferably, server computer 300 is connected to the Internet 500 via the fastest available connections. Computer 400 (also Point of Sale POS) is a merchant terminal offering carbon credits which is generated from said merchant's ERP connected to the Internet 500. These credits which are approved carbon credits are credited to a user's account upon being claimed by said user when purchasing said merchant's service or goods. Several merchant computers can be linked which are not shown here. For example, a customer which is also an user could purchase a rail ticket from said merchant at a Point of Sale, upon issuance of the ticket, the customer request the available carbon credits to be credited by providing his identifier such as a mobile phone number. User could also check 0his account details using computer 200 or offer his carbon credits for sale or to 0 purchase some. The merchant key in this identifier which is verified by Server 0300 and input the credits.

Server computer 300 includes: a World Wide Web site 31 hosted by a web server such as Apache or IIS 5.0 a computer software 33, for managing the "front-end" of the system such as receiving and accepting submission and generating the responses to the clients requests when they click through the website; a computer software 34 called Carbon Credit Management System (CCMS) for managing the "back-end" of the system such as managing database with updates, deletion, administrative procedures, billings Exchange O Authority 36 a program that verify, list and offer for exchange carbon credits 0 and its derivatives. They are described in more detail below. All programs are 2 accessible via their respective clients and are managed at the server side.

O 0 A. CCMS 34 CCMS is a client/server application residing on server computer 300. It operates to manage the client response/requests sent by 33 and from Exchange Authority 36. It hosts a database such as Oracle or MS SQL 7. TMS 34 is designed to be all purposed and can be adapted for as many database administrative functions as possible. It stores the various accounts details of the users and their carbon credits, carbon credits created by merchants or providers of services and products, derivatives of carbon credits and accounting for each transaction.

Buyers/Sellers or Users at terminal 200 may participate by providing trading information and by otherwise interacting with the carbon credit management application. The carbon credit management application may provide a buyer/seller or Users at 200 with screens containing various carbon trading information. For example, the buyer may be presented with screens that allow the buyer to make trades, view and update any suitable information relating to the buyer, or any other suitable screen in connection with carbon trading.

The carbon credit management application may provide the buyer or any other suitable user with interactive screens containing menus and selectable options that allow the buyer to navigate through the carbon management application and participate in the carbon management application. With terminal 200, the buyer may use a keyboard, mouse, trackball, touch pad, or other suitable input or pointing device to navigate the various menus and selectable options.

B. Exchange Authority 36 Exchange Authority 36 is to provide an electronic market to offer and buy carbon credits and or derivatives. A potential buyer 200 over the network indicate interest to purchase the carbon credits at a price and provided payment CD are satisfactory, exchange authority will then transfer the credits by instructing N CCMS 34 and post the payment to the seller less any commission. In addition, users can also transfer carbon credits to each other by using terminal 200 which is approved by 36. Such transfer will not be listed on the electronic market but arc book entry in thc system. Thc sending user howcvcr must know thc identifier of the receiving user which could simply be a telephone number. In 0 this way it facilitates a micro carbon currency.

FIG 2 is a block diagram of a preferred host server 300. The server includes a CPU 21 which performs the processing functions of the controller. It is also 0 includes a read only memory 22 (ROM) and a random access memory 23 0 (RAM). The ROM 22 is used to store at least some of the program instructions that are executed by the CPU 21 such as portions of the operating system or BIOS or a program and the RAM 23 is used for temporary storage of data. A N clock circuit 24 provides a clock signal which is required by the CPU 2 1. The use of a CPU 21 in conjunction with ROM and RAM and a clock circuit is accepted to those skilled in the design of the CPU based electronic circuit design. The server 300 also includes a communication port 25 which enables the CPU 21 to communicate with devices external to the server 300. In particular the communication port 25 facilitates communication between the modem 26 and the CPU 2 1, so that information arriving from the modem 26 can be processed by the CPU 21 and the CPU 21 can send information to remote location via the modem 26.

While the illustrated embodiment uses a modem for communicating with devices outside the server, it should be understood readily that other methods of communicating with external devices may be used instead of the modem. These other methods include hard-wired connections, wireless such as radio frequencies, fibre optic lines, network card etc.

The CPU 21 can also store information to and read information from, the data storage device 27. This data storage device 27 includes a transaction database 27a and a customer database 27b. In addition, it includes transaction processor instruction 27c which can be read by and executed by the CPU 2 1, thereby enabling the CPU 21 to process transactions. While FIG 2 depicts separate transaction and customer databases, a single database that incorporates both of those functions may be used.

It should be noted that the present invention is primarily described herein in terms of a carbon credit management program or application. It will be understood that the carbon credit management application may be any suitable software, hardware, or both configured to implement the features of the present invention. In one suitable approach, said program may be located at a central location a central server 300). In another suitable approach, the carbon 0 management application may reside among different locations a network O 500). O In one particular embodiment, the carbon credit management application may include client-side software, hardware, or both. For example, one or more Webpages or Web-page portions via any suitable encoding, such as HyperText Markup Language (HTML), Dynamic HyperText Markup Language (DHTML), Extensible Markup Language (XML), JavaServer Pages (JSP), Active Server Pages (ASP), Cold Fusion, or any other suitable approaches).

Although the carbon credit management application is described herein as being O implemented on user computer equipment, this is only illustrative. The carbon 0 management application may be implemented on any suitable platform personal computer mainframe computer, dumb terminal, data display, 0 15 two-way pager, wireless terminal, portable telephone, portable computer, 0palmtop computer, H/PC, automobile PC, laptop computer, personal digital assistant (PDA), combined cellular phone and PDA, etc.) to provide such features.

One skilled in the art will realize that the present invention can be practiced by other than the described embodiments, which are presented for purposes of illustration and not of limitation, and that the present invention is limited only by the claims which follow.

Claims (8)

1. A system for originating and trading carbon credits, the system comprising: 0 a server processor connected to a plurality of workstations over a network; wherein said server processor connect to the server storage device, the server storage device storing a program for controlling the server processor; 0 the server processor operative with the program to perform comprising: 0 e to originate carbon credits from a carbon emission reducing plan; 0 O 0 to assign the carbon credits in proportion to a service or product associated to said plan; to receive a request for said carbon credits from a consumer having purchased a service or product under said plan wherein request includes an identifier; to transfer said carbon credits to an account associated with said identifier; to aggregate all carbon credits linked to said identifier; and to offer the carbon credits on an exchange to a plurality of buyers.

2. A system according to claim 1, wherein said emission reduction plan is based in part on the benefit of using public transport.

3. A system according to claim 1, wherein said identifier is a telephone number or a Medicare card number.

4. A system according to claim 1, wherein the server processor operative with the program to offer a carbon credit derivative and determine its fair value price.

A computer readable medium for carrying machine-executable instructions for implementing the method; and wherein said method is comprised of machine-executable instructions for a server processor performing the acts comprising of: originating carbon credits from a carbon emission reducing plan; assigning the carbon credits in proportion to a service or product associated to said plan; o receiving a request for said carbon credits from a consumer having purchased a N service or product under said plan wherein request includes an identifier; transferring said carbon credits to an account associated with said identifier; aggregating all carbon credits linked to said identifier; and offering the carbon credits on open exchange to a plurality of buyers.

6. A computer readable medium according to claim 5, wherein said emission O reduction plan is based in part on the benefit of using public transport. C 0

7. A computer readable medium according to claim 5, wherein said identifier is o 15 a telephone number or a Medicare card number. C

8. A computer readable medium according to claim 5, includes machine- executable instructions to offer a carbon credit derivative and determine its fair value price.