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IT companies have the potential for generating CERs

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DQI Bureau
New Update

It is quite ironical that India, the worlds fifth largest emitter of green

house gases (GHG) is also the leading supplier of certified emission reductions

(CERs). Experts estimate that Indian companies that have jumped in the Clean

Development Mechanism (CDM) bandwagon could generate 500-600 mn CERs or nearly a

quarter of a global traded total of 2.5 bn units by 2012. So it was but natural

that some form of carbon trading should take place in India. And this is

precisely where Indias leading commodity exchange market, MCX, comes into the

picture.

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Thanks to relaxation in trading norms, earlier this year MCX launched futures

trading in carbon, making it the first such initiative in Asia. MCX entered into

a strategic alliance with Chicago Climate Exchange (CCX) in September 2005 to

initiate carbon trading in India. In an interaction with Dataquest, Joseph

Massey, DMD, MCX, demystifies different aspects of carbon trading and speaks of

ways in which Indian companies could benefit from the situation.

What exactly is carbon trading?



The emission trading system (ETS) is a well-recognized approach to emission

reductions. The ETS works on the cap-and-trade principle, where all signatory

countries are allowed to trade their transferable allowances with other

participating countries. For instance, in order to comply with the targets,

Annexure I countries that are falling short of their target are likely to buy

carbon permits either from other Annexure I countries with surplus allowances or

with certified emissions reductions (CERs) generated through clean development

mechanisms (CDMs) from the developing countries (non Annexure I).

Specifically, countries that have to incur high abatement costs with regard

to reduction of GHG emissions would prefer to buy carbon permits rather than

undertake more expensive abatement control measures to enable compliance with

Kyoto Protocol. Countries that enjoy low abatement costs undertake measures to

meet their Kyoto commitments and sell their excess emission allowances for a

price.

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How can a company trade CERs?



Typically, compliance countries would pass on the baton to the manufacturing

industries/ public utilities, and these companies would have to plan their

existing and future emission status. For example, in the European Union (EU-ETS),

certain industrial abaters of CO2 have allocated the installation-specific

tradable allowances (called as European Union Allowances (EUAs)), indicating the

amount of CO2 or equivalent gases they can emit during each year. The companies

that are falling short of their targets are thus enabled to buy allowances from

those who have surplus EUAs as per the EU ETS scheme or buy CERs/ERUs for

compliance purposes.

What is the profile of companies that trade CERs?



Basically companies that are engaged in CERs generation are from sectors

like the energy sector, energy distribution , manufacturing, chemical

industries, construction, transport, mining, metals production, solvent

extraction, Waste handling, Agriculture, and Afforestation and Reforestation

sectors, among others. Simpy speaking, all sectors which are potential holders

of CERs can trade in CERs.

Are there any IT companies trading CERs?



Chennais Olympia Technology Park is one of the first commercial buildings

in India to go in for carbon trading.

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IT companies have potential for generation of CERs as energy is consumed in

offering the services provided by them. Any savings in the energy is obviously

expected to lead to savings in GHG emissions into the atmosphere, which can

otherwise be converted into CERs, if this can be documented and submitted as a

project to the CDM Board. The CDM Board looks into the merits of the project and

its additionality before approving the same for potential CER generation after

its implementation.

What is the opportunity for IT companies? How best can they make use of

it?



A growing number of Indian firms, irrespective of their size and industry,

are generating or are in the process of generating CERs and are reaping revenues

through another stream called carbon trading. IT companies, by adopting energy

efficient systems, have the potential to earn CERs. In fact, many Indian

companies have been at the forefront of innovation and green field projects that

might get rewarded for adopting ecofriendly practices leading to reduction in

GHG emissions. However, to qualify for the carbon credit trade a company needs

to get its project evaluated from the National CDM Authority. Once approved by

the national authority, the CDM executive board of UNFCCC finally gives its nod

before the implementation and subsequent generation of carbon credits begin.

Joseph Massey, DMD, MCX

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What is the future of Carbon Trading in India?



There is a large scope for India in emission trading, it being one of the

leading generators of CERs through clean development mechanism. The potential

for generation and sales of CERs should be sustainably harnessed by the

ecosystem participants like India, to effectively tap the opportunities in EU

ETS, especially the post-Kyoto Protocol implementation phase (2008-2012).

While the question of India continuing to enjoy the benefits of its

Non-Annexure I status is debatable, I am sure that markets are the way to go as

far as the question of GHG abatement is concerned.

Will Carbon trading be valid till 2012?



As per the current agreement among signatories of Kyoto Protocol the

Emission Trading System would be in vogue till 2012. However, negotiations are

on to extend the validity of the protocol beyond 2012 which we are sure would be

successful given the reality of the socio economic impacts of global warming on

countries.

Shashwat DC



shashwatc@cybermedia.coin

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