/dq/media/agency_attachments/UPxQAOdkwhCk8EYzqyvs.png)
Follow UsThe carbon market is divided into two parts-that which is compliance
driven and the other being the voluntary market. The more dominant and
lucrative compliance market only accepts carbon credits under the CDM
programme, while there are various regional non UN administered
voluntary programs worldwide.
For carbon credit trading, India follows a scheme called Clean
Development Mechanism (CDM) or more commonly,
trading. CDM is an arrangement under the Kyoto Protocol allowing
industrialized countries with a greenhouse gas reduction commitment to
invest in emission reducing projects in developing countries as an
alternative to what is generally considered more costly emission
reductions in their own countries. Under CDM, a developed country can
take up a
gas (GHG) reduction project activity in a developing country where
the cost of GHG reduction project activities is usually much lower. The
developed country would be given carbon credits for meeting its
reduction targets, while the developing country would receive the
capital and clean technology to implement the project. Carbon credits
are certificates issued to countries that reduce their emission of GHG,
which causes
warming. Developed countries that have exceeded the levels can
either cut down emissions, or borrow or buy carbon credits from
developing countries.
Carbon credits are a part of the international emission trading norms.
They incentivize companies or countries that emit less carbon. The
total annual emissions are capped and the market allocates a monetary
value to any shortfall through
Businesses can exchange, buy or sell carbon credits in international
markets at the prevailing market price. India and China have emerged as
the biggest sellers and Europe is the biggest buyer of carbon credits.
Waste disposal units, plantation companies, chemical plants and
municipal corporations can sell the carbon credits and make money.
Assume that British Petroleum is running a plant in the United Kingdom.
If it is emitting more gases than the accepted norms of the UNFCCC. It
can tie up with its own subsidiary in, say, India or China under the
CDM. It can buy the 'carbon credit' by making the Indian or Chinese
plant more eco-savvy with the help of technology transfer. It can tie
up with some other company like Indian Oil or anybody else, in the open
market. China and India ensure that new technologies for energy savings
are adopted so that they become entitled for more carbon credits. They
then sell their credits to their counterparts in Europe. This is how a
market for carbon credit is created.
India under the Scanner
The Indian market is extremely receptive to CDM. Having cornered more
than half of the global total in tradable certified emission reduction
(CERs), Indias dominance in carbon trading under the CDM of the UN
Convention on climate change is beginning to influence business
dynamics in the country. Carbon credits are measured in units of CERs,
which is equivalent to one tonne of carbon dioxide reduction.
"India has generated approximately 30 million carbon credits and
approximately 140 million in run, the second highest transacted volumes
in the world. Indias carbon market is growing faster than even
information technology, bio technology and BPO sectors as 850 projects
with a huge investment of Rs 650,000 million are in pipeline. As per
the Prime Minister's Council on
Change, the revenue from 200 projects is estimated at Rs. 97
billion till 2012. Carbon, like any other commodity, has begun to be
traded on India's Multi Commodity Exchange and has become first
exchange in Asia to trade carbon credits. 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, " informs Hari Kishan Burle, General Manager, Business
Technology Services, Wipro Technologies.
"India is still the second biggest carbon credits supplier after China
in the market. The Indian government is betting big on renewable energy
and so we are seeing many private players investing in wind and solar
energy in India. By default, such projects would also earn carbon
credits if they play their cards right. So, while Indian carbon
projects were expecting to sell carbon credits to the US market, post
Copenhagen and the lack of a clear policy by the Obama administration,
there is hope that Japan and Australia will be the next buyer
destinations for Indian carbon credits, " adds Kishore Butani, Founder,
carbonyatra.com.
Profits Galore
For trading purposes, one allowance or CER is considered equivalent to
one metric tonne of CO2 emissions. These allowances can be sold
privately or in the international market at the prevailing market
price. These trade and settle internationally and hence allow
allowances to be transferred between countries. Each international
transfer is validated by the UNFCCC. Each transfer of ownership within
the European Union is additionally validated by the European Commission.
Climate exchanges have been established to provide a spot market in
allowances, as well as futures and options market to help discover a
market price and maintain liquidity. These features reduce the quota's
financial impact on business, while ensuring that the quotas are met at
the national and international level. Currently, there are five
exchanges trading in carbon allowances, namely, the Chicago Climate
Exchange, European Climate Exchange, Nord Pool, PowerNext and the
European Energy Exchange.
"Multi Commodity Exchange (MCX) has launched futures trading in carbon
credits in India. 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 are actually financial investors. Their thinking is
that, if the Europeans are unable to meet their target of reducing the
emission levels by 2012, then the demand for the carbon will increase
and then they may make more money, " explains Burle about the Indian
mindset.
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. In India, already 300 to 400 companies have carbon credits
after meeting UNFCCC norms.
"India needs to put a price on carbon, since true leaders do not wait
for international climate mandates. There is nothing stopping India
from setting up a domestic environmental exchange based on the
guidelines of the international carbon market and converting air and
water pollutants such as CO2, SO2, NOx and BoD into tradable
instruments. NOx and SOx trading schemes in the US have shown that it
is possible to reduce emissions and acid rain under an environmental
trading scheme," informs Butani.
Butani further adds, "There has to be an incentive to reduce pollution
in India. The environmental market rightly rewards companies which cut
pollution and makes the polluter pay. Skeptics who insist otherwise,
have either never traded or developed a carbon reduction project in the
first place. Right now, there isn't a practical alternative to the
carbon market to reduce climate change and any debate only increases
the problem and delays the inevitable. The elections are over,
has failed, it's time to stop talking and start delivering."
Road Ahead
India's huge potential for generation and sale of CERs needs to be
harnessed especially to tap the huge opportunity in the European Union
Emission Trading System (EU-ETS). Hence, in order to bring vibrancy to
the emission market in the country, there is a need for a transparent
platform that will help buyers and sellers get a fair deal and reduce
the margins of the intermediaries to reflect the economic
value-addition. With technology at India's side, it is time the country
leveraged it for a sustained growth of the carbon credit market.
"Indian industries, which looked at CDM implementation in their process
have failed to realize fair prices in most cases due to the currently
thriving OTC (over-the-counter) markets that have fleeced most sellers
by buying at prices much lower than that provided by buyers. The
MCX-CCX (Chicago Climate Exchange) tie-up is expected to ensure
better price discovery of carbon credits besides helping the
participants cover the risks associated with selling and buying of
carbon credits. Further, the exchange, with its various ways of
educating the eco-system participants, would enhance the benefits
accruing to them in its endeavor to make India a major global
commodity-trading hub, " remarks Burle.
On a strong note, Butani feels that instead of switching off light
bulbs for an hour each year or holding concerts to raise climate change
awareness, it would be much sensible to invest in a wind mill, which
produces clean power. This mill would offer two-fold benefits of
supplying power to the state grid for the next 25 years and it would
also earn carbon credits.
Crediting on Carbon
New Update