India losing out on carbon credits

From Tata Power to NTPC, few companies have moved in for the kill.

India Inc is sitting on a goldmine, but seems hesitant to go for it. Companies ranging from Reliance Energy to National ThermalPower Corporation, and Tata Chemicals to Chambal Fertilisers, have failed to take advantage of carbon credits, where certified reductions in the emission of greenhouse gases (GHG) can be sold at a premium on exchanges to companies in developed countries.

Under the Kyoto Protocol to reduce greenhouse gas emissions, signed voluntarily by 160 countries - the US is a major exception - global companies that have exceeded their emission levels can either cut down emissions or buy carbon credits from developing countries.

To avail themselves of this extra stream of income, companies in developing countries like India have to make some technology changes that will result in a lowering of carbon emissions. Once this reduction is certified by organisations like Ernst & Young and EcoSecurities, the value of this credit is tradable at a premium.

About 60-70% of greenhouse gas emissions are created by fuel combustion in industries like cement, steel, textiles and fertilisers, apart from power. But bureaucratic sloth and a general lack of awareness on ways of monetising carbon credits has resulted in many Indian companies losing an opportunity while Chinese and Brazilian companies are making hay, say carbon credit experts.

A majority of power generating, transmitting and distributing companies in India, including Tata Power, Reliance Energy and Power Grid, have so far not
partaken of this multi-million euro bonanza. Nor have fertiliser companies such as National Fertilizers, Deepak Fertilizers, Tata Chemicals and GNFC. Even Suzlon Energy, among the global majors in wind turbine energy, has lost an opportunity in getting its wind farms in Tamil Nadu registered for carbon credits, which could have generated another stream of revenue for its business.

Morgan Stanley to pour $3bn in carbon trading

INVESTMENT bank Morgan Stanley plans to invest $3bn in carbon trading under the Kyoto Protocol to '12, it said on Thursday in a vote of support for a pact that has doubters including, most recently, Canada.

Kyoto sets greenhouse gas emissions limits on 35 industrialised countries - which they must meet by '12 - but allows countries busting these like Japan, Spain and Italy to fund cuts elsewhere and count them as their own.

This carbon market is seen peaking next year and in '08, and specialist investors are hovering up emissions-permitting carbon credits ready to offload these to countries chasing targets as the '12 date nears.

It is through this intermediary role - buying direct from
emissions-cutting projects now and selling later to national governments and
industry - that Morgan Stanley hopes to profit.

"We're talking a lot to the utilities and industrials and national governments too," said a Morgan Stanley spokesman. "We do see a healthy demand. We're seeing a lot of interest from Japan too."

The global carbon market was worth $21.5bn in the first nine months of ' 06 up from about $11bn for all of '05, the World Bank told a carbon market trade fair in Beijing in a market update on Thursday. But most of this trade took place in the European Union's carbon market, while Kyoto has faced skeptics - the US pulled out of the pact in '01 and Canada said this year it has no chance of meeting its Kyoto target.

The UN's climate change body launched on Thursday a new carbon trading arrangement between industrialised and former communist countries - termed Joint Implementation - and a UN official welcomed the Morgan Stanley investment plan. "We're pleased to see the interest the private sector investment community is taking in Kyoto mechanisms," said James Grabert, JI team leader at the UNFCCC.
 

Asia's carbon exchange grows after a slow start

Clean Development Mechanism projects in India kick-start process, more activity expected from next year.
Activity on Asia's first exchange geared towards trading Kyoto-related carbon emissions credits should pick up next year as the second phase of the pact goes into force, an exchange official said.

"It's been a slow start, with most of the activity coming from Clean Development Mechanism (CDM) projects in India," N. Yuvaraj Dinesh Babu, the carbon trading director with the Asia Carbon Exchange (ACX), said. "There has been little activity from China as most parties prefer direct bilateral deals rather than unilateral ones involving the exchange," he said.

However, Babu expects more activity from next year when the Kyoto Protocol enters its second phase, from 2008 to 2012, and is in talks to list carbon credit derivatives on stock exchanges in Singapore and India. He did not say when this might happen.

Since its launch in mid-2005, the Singapore-based ACX has traded about 2.4 million Certified Emission Reduction (CER) credits.

A CER is equivalent to one tonne a year of reduced carbon dioxide-equivalent greenhouse gas generated by an investment in a developing nation certified by the United Nations.

About 214 million CERs had traded in Europe and Japan through September last year, the official said. CERs on the exchange are currently trading at around ?13-14 per tonne.

Activity was also curtailed by a meltdown in prices in Europe last year that saw many players banking their credits rather than trading them on the exchange and by the imminent expiry of Phase 1 of the Protocol by the end of this year.

Over-the-counter brokers pegged both December 2008 delivery and the December 2008-December 2012 CER strip at just over 80% of the value of European Union allowances (EUAs), which closed on the European Climate Exchange at ?16.45 on Thursday.

Carbon-credit trading, under the Kyoto Protocol to reduce global emissions of greenhouse gases, operates under the principle where developed countries can buy credits and exceed pre-agreed caps on emission levels by investing in projects that cut emissions in developing nations.

The European Union's allowance system emerged after the EU put in place binding caps on carbon emissions, while a global market inKyoto-linked CER credits generated as a result of UN-compliant clean-energy investment has been slower to emerge.

The credits are then traded in an open secondary market where polluting industrial owners can buy them to offset their emission levels or sell when prices move up.

Babu said ACX also plans to introduce trading in credits involving non-Kyoto signatories such as the US and Australia.

These credits are presently traded on the US Chicago Climate Exchange, where power companies have voluntarily banded together to buy carbon credits to offset their emissions. It traded about 5 million tonnes last year. REUTERS