Carbon Trading in India

Reducing Greenhouse Gas emissions is good for environment.It is estimated that 60-70% of emission of greenhouse gases (like hydro fluorocarbons, methane and nitrous oxide) is through fuel combustion in industries like cement, steel, textiles and fertilizers.These products adversely affect the ozone layer, leading to global warming. Recent estimates predict that uncontrolled carbon emissions could cost the global economy more than $200 billion annually by 2030 unless the pollution levels are controlled. Environmental group Greenpeace has said that shifting to renewable energy and reducing carbon emissions could save Southeast Asia $80 billion annually.

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• The two distinct mechanisms of CDM, a market-based instrument and a grant-based instrument (the global environment facility or GEF), have their own special roles to play as financing options. GEF integrates with the government’s institutional framework while CDM is more private-sector-driven. The GEF provides upfront grant and also seeks to leverage support from other sources, while CDM generates revenue over the years. Globally, there are more than 4,000 projects under various stages of CDM. More than 1,000 projects are already registered.

• Carbon credits seek to reduce GHG emissions by giving industries a monetary value or an incentive in undertaking such projects. One credit gives the owner the right to emit one ton of carbon dioxide. Such a credit can be sold in the international market at the prevailing market price. This means that carbon becomes a cost of business and is seen as an input (such as raw materials or labour).

• India’s dominance in carbon trading under the clean development mechanism (CDM) of the UN Convention on Climate Change (UNFCCC) is beginning to influence business dynamics in the country. India Inc pocketed Rs 1,500 crores in the year 2005 just by selling carbon credits to developed-country clients. Various projects would create up to 306 million tradable CERs. Analysts claim if more companies absorb clean technologies, total CERs with India could touch 500 million. Of the 391 projects sanctioned, the UNFCCC has registered 114 from India, the highest for any country. India’s average annual CERs stand at 12.6% or 11.5 million.

• Some of the benefits of Trading in CERs include - 
  Sellers and intermediaries can hedge against price risks.
  Forward selling can help projects in generating liquidity and thereby reducing the cost of implementation.
  No counter-party risks as the exchange guarantees the trade.
  Price discovery on the futures exchange platform ensures fair prices for both buyers and sellers.
  Buyers and sellers come on a single platform, which ensures credibility among them.
  
  
  
  
  
  
  
• There is no fixed market price for CERs. Like any other market good, CER prices are dictated by supply and demand. More so depending upon the project type, the CER price can also change. For example, a project with high sustainable development merit may attract a premium from buyers interested in enhancing their corporate social responsibility image. The prices are quoted in euros (€) or U.S. dollars (US$) for sale on the global market. Pricing structures offered are typically 'Fixed', 'Floating', or a combination of the two. However, trading monitored by carbon brokers (e.g. CO2e.com) report current price of emissions reduction credits in existing carbon markets between US$3/t CO2 and US$5/t CO2.

• Institute of Global Environment Strategies has consolidated the Clean Development Activities in India till June 2010. An 8 page presentation that gives a complete picture of CDM scenario in India can be downloaded from here -  http://indscanblog.com/2010/09/02/cdm-country-fact-sheet-india-free-download/ .  

Sources -

http://www.financialexpress.com

http://indscanblog.com

http://cdmdna.emb.gov.ph

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