It is estimated that 60-70% of Green House Gases (like hydro fluorocarbons, methane and nitrous oxide) emission is through fuel combustion in industries like cement, steel, textiles and fertilizers. They are released as by-products of certain industrial process, which adversely affect the ozone layer, leading to global warming. Carbon credits seek to reduce these emissions by giving them a monetary value. 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 like other inputs such as raw materials or labor.
International treaties have set quotas on the amount of GHG countries can produce, which in turn set quotas for businesses. Businesses that are over their quotas must buy carbon credits for excess emissions, while those below can sell their remaining credits. The ones who are selling are companies that use clean technology and those buying are the world’s polluters. These credits can be exchanged between businesses or bought and sold in international markets at prevailing market price at two exchanges, namely the Chicago Climate Exchange and the European Climate Exchange. The Multi-Commodity Exchange of India (MCX) may soon become the third exchange in the world to trade in carbon credits.
As emission levels increase globally, the number of companies wanting/needing to buy more credits will increase, pushing up the market price and encouraging businesses to undertake eco-friendly activities that create for them carbon credits to sell. Developed countries have to spend nearly $300-500 for every ton reduction in CO2, against $10-$25 by developing countries. India’s GHG emission is below the target and so, it is entitled to sell surplus credits to developed countries. India is considered to claim about 31% of the total world carbon trade, which can give $25bn by 2010.
This is what makes trading in carbon credits such a great business opportunity. Foreign companies which cannot fulfill the norms can buy the surplus credit from companies in other countries. Many Indian companies have been re-rated on the stock markets on the basis of the bonanza that will accrue to them when carbon trading kicks off. SRF Ltd and Shell Trading International have entered into sale and purchase Credit Emission Reduction. Suzlon Energy and Shriram EPC have business in wind energy which is eligible for carbon credit benefits. Shree Renuka Sugars is also expected to benefit from carbon credits. Gujarat Flourochemicals was among the early companies to register for Clean Development Mechanism (CDM) project.
India has emerged as the dark horse in this race as more than 200 Indian entities have applied for registering their CDM Project for availing carbon credits. Currently, one carbon credit is worht 13 euros. Indian companies can have higher incomes more from carbon credits than their core business. The carbon credit market was worht $25 billion last year and is growing at tremendous space, and there is a demand to reduce 1 billion ton of carbon emissions in the world, so that threats like global warming could be dealt with.
Indian companies are fast realizing there’s money to be made by becoming eco-friendly. With new core sector projects like power and steel coming up in India, the carbon credit market will rise once again. The 800 million farming community in India has also a unique opportunity where they can sell Carbon Credits to developed nations.