Carbon Trading
“Clean money for dirty air” - that’s the premise of an emerging trade in carbon credits. In simply words, it signifies the trade of polluting gases which is gaining increasing impetus in India with heightened emphasis being put on reducing greenhouse gas emissions in the environment.
So what exactly is carbon credit? The concept of carbon credit, is that of incentivising the industrial units which pollute less, and disincentivising those that pollute more. A central authority, fixes a limit to the amount of a pollutant that can be emitted into the environment. This permit or credit or allowances, gives licenses to emit a fixed amount of pollutant into the environment. Now, if a company say SRF, emits only eight units of greenhouse gases out of the 10 units allotted to it, then SRF will have two units of emission as ‘credit outstanding’ in its ‘pollution’ account. On the other hand, if a company say MRF, emits 14 units instead of the 12 units allotted to it, then MRF will have two units of ‘debit balance’ in its ‘pollution’ account. In such a case, SRF will be able to transfer its two ‘credit balance’ to the two ‘debit balance’ account of MRF. So, both the companies’ pollution account will be matched, and the environment too is able to digest a certain scientifically fixed amount of pollutants. This transfer, from SRF to MRF will be for some monetary consideration, and hence it is referred to as carbon trading.
The value of the carbon trading market was around $30 billion in 2006 as per estimates of the International Emissions trading Association. Almost all industrialized countries, are huge buyers of carbon credit, and all developing countries where industrialization has not reached its peak, are supplier of carbon credit. Japan is the largest buyer of carbon credit, while India and Brazil are amongst the largest suppliers of carbon credit.
With Indian economic growth based mainly on energy from fossil fuels such as coal, there is considerable potential for reducing greenhouse gases, and for CDM projects. Most of the beneficiaries of the carbon trading, are those companies that are investing in windmills, Biodiesel, and Biogas. Actually, by investing in such an alternative, non-polluting source of energy, these companies will earn carbon credit in the form of CER’s (Certified Emissions Reductions), equivalent to the amount of environmental pollution they have prevented. These CER’s could be sold by Indian companies,
to companies, say in Japan, at market prevailing rate of CER’s, and thus make profit.
The Institute for Global Environmental Strategies, estimates the potential for CDM projects in India to be about 300 million tonnes of CO2 equivalent, which includes 90 million tonnes from renewable energy sources alone. Listed Indian companies are already reaping sizeable profits through CER deals. Carbon trading has brought a huge opportunity for Indian companies. Companies can earn CER’s by adopting energy saving and environment protection methods, and in turn can earn huge incomes by selling them. Its how cleverly these companies make use of this opportunity, that could give them a boost in their businesses.
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