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