Wednesday, September 06, 2006

Corporate biggies warm up to carbon credit trade

THE carbon credit trade is entering the big league, with large Indian business houses jumping onto the bandwagon. After small- and mid-sized companies, it's now the turn of the Birlas and the Ambanis to explore options of cashing in on efficient production technologies to boost profitability, as polluting foreign companies rush to meet international deadlines starting next year. The trend could witness the entry of India's Exim Bank as a key player in facilitating trading in carbon credits.

India is considered one of the largest beneficiaries in carbon credit trade, accounting for about bn, or 31%, of the total world carbon trade through the Clean Development Mechanism. In what could be the first such public disclosure, a senior Aditya Birla group executive said Grasim Industries is talking to various international companies, while a Reliance Industries official privately admitted that India's largest private refiner and petrochemicals maker is negotiating with European firms to explore ways of selling credits earned through tight emission controls. Carbon credits are certificates issued to companies that reduce their greenhouse gas emissions. These credits are then sold to companies who cannot fulfil the protocol norms.

"We're talking to several companies and are close to striking a deal soon," Grasim director DD Rathi told ET, without elaborating on the financial size. Of late, there has been some hectic activity seen on this front. Chemical firm SRF has already sold 2.5m units of carbon credits to two European agencies for Rs 250 crore. Recently, refrigerant maker and mid-sized company Gujarat Fluorochemicals said it expects revenue of about Rs 500 crore over the next 6-7 years through the sale of carbon credits. News of the carbon credit sale lifted the stock of the company by 19% last month, at a time when the broader sensex grew by only 8%.

According to a Reliance Industries official, the company sees "potential growth in this space and is currently talking to a European company". But there were no financial details. A Reliance Industries spokesperson declined to comment.
It's estimated that 60-70% of emission is through fuel combustion in industries such as cement, steel, textiles and fertilisers. Some gases like hydrofluorocarbons, methane and nitrous oxide are released as by-products of industrial processes which affect the ozone layer. Cement maker Gujarat Ambuja and fertiliser major Tata Chemicals are also learnt to be studying options in this space. One credit is equal to one tonne of carbon dioxide in the international carbon credit market. Carbon credit units are currently trading at -20 per unit.

Apart from manufacturing companies, Indian financial institutions are also taking a plunge here. A senior Exim Bank executive said the bank had approached the ministry of environment and forests for permission as a nodal player in enabling carbon credit trades.
Apart from the European sale, SRF, the first mover, has put another 8m tonnes of greenhouse gas credits up for sale. The firm has appointed EDF Trading of France, Barclays Capital, Climate Change Capital Carbon Fund, ICE Cap (UK), KFW (Germany), Shell Trading and Solvey as partners for the project. SRF has also struck deals with Dutch/Shell and ICECAP to sell 5,00,000 carbon credits each.

The Kyoto Protocol that aims to reduce greenhouse gas emission by 5.2%, to below 1990 levels by '12, is a voluntary treaty signed by some 141 countries, including the European Union, Japan and Canada. However, the US, which accounts for one-third of the total greenhouse gas emission, is yet to sign the treaty. The penalty for non-compliance in the first phase is E40 per tonne of carbon dioxide equivalent. In the second phase, the penalty will be hiked to E100 per tonne of CO2.

Developed countries have to spend nearly 0-500 for every tonne reduction in carbon dioxide, as against -25 by developing countries. In countries such as India, greenhouse gas emission is much below the target fixed by the Kyoto Protocol and hence, excluded from reduction norms of emission. On the contrary, they are entitled to sell surplus credits to developed countries.

As of April 8, '06, actually certified emissions for Indian companies added up to 7.6m tonnes of carbon dioxide equivalent a year. Of these, 3.8 MT was by SRF, whose project was formally cleared on December 24, '05, and another 3 MT by Gujarat Fluorochemicals, on March 8, '05. Asia and Latin America are other key sellers of carbon credit in the international market. India, Brazil and Chile together account for 58% of carbon credit. India is the largest producer of carbon credit and highest in country ratings.

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