dioxide, the most important greenhouse
gas produced by combustion of fuels, has
become a cause of global panic as its
concentration in the Earth's atmosphere
has been rising alarmingly.
This devil, however, is now turning into
a product that helps people, countries,
consultants, traders, corporations and
even farmers earn billions of rupees.
This was an unimaginable trading
opportunity not more than a decade ago.
Carbon credits are a part of
international emission trading norms.
They incentivise companies or countries
that emit less carbon. The total annual
emissions are capped and the market
allocates a monetary value to any
shortfall through trading. Businesses
can exchange, buy or sell carbon credits
in international markets at the
prevailing market price.
India and China are likely to emerge as
the biggest sellers and Europe is going
to be the biggest buyers of carbon
Last year global carbon credit trading
was estimated at $5 billion, with
India's contribution at around $1
billion. India is one of the countries
that have 'credits' for emitting less
carbon. India and China have surplus
credit to offer to countries that have a
India has generated some 30 million
carbon credits and has roughly another
140 million to push into the world
market. Waste disposal units, plantation
companies, chemical plants and municipal
corporations can sell the carbon credits
and make money.
Carbon, like any other commodity, has
begun to be traded on India's Multi
Commodity Exchange since last the
fortnight. MCX has become first exchange
in Asia to trade carbon credits.
So how do you trade in carbon credits?
Who can trade in them, and at what
Deputy Managing Director, MCX, spoke to
Managing Editor Sheela
explain the futures trading in carbon,
and related issues.
What is carbon credit?
As nations have progressed we have been
emitting carbon, or gases which result
in warming of the globe. Some decades
ago a debate started on how to reduce
the emission of harmful gases that
contributes to the greenhouse effect
that causes global warming. So,
countries came together and signed an
agreement named the Kyoto Protocol.
The Kyoto Protocol has created a
mechanism under which countries that
have been emitting more carbon and other
gases (greenhouse gases include ozone,
carbon dioxide, methane, nitrous oxide
and even water vapour) have voluntarily
decided that they will bring down the
level of carbon they are emitting to the
levels of early 1990s.
Developed countries, mostly European,
had said that they will bring down the
level in the period from 2008 to 2012.
In 2008, these developed countries have
decided on different norms to bring down
the level of emission fixed for their
companies and factories.
A company has two ways to reduce
emissions. One, it can reduce the GHG
(greenhouse gases) by adopting new
technology or improving upon the
existing technology to attain the new
norms for emission of gases. Or it can
tie up with developing nations and help
them set up new technology that is
eco-friendly, thereby helping developing
country or its companies 'earn' credits.
India, China and some other Asian
countries have the advantage because
they are developing countries. Any
company, factories or farm owner in
India can get linked to United Nations
Framework Convention on Climate Change
and know the 'standard' level of carbon
emission allowed for its outfit or
activity. The extent to which I am
emitting less carbon (as per standard
fixed by UNFCCC) I get credited in a
developing country. This is called
These credits are bought over by the
companies of developed countries --
mostly Europeans -- because the United
States has not signed the Kyoto
How does it work in real life?
Assume that British Petroleum is running
a plant in the United Kingdom. Say, that
it is emitting more gases than the
accepted norms of the UNFCCC. It can tie
up with its own subsidiary in, say,
India or China under the Clean
Development Mechanism. It can buy the
'carbon credit' by making Indian or
Chinese plant more eco-savvy with the
help of technology transfer. It can tie
up with any other company like Indian
Oil or anybody else, in the open market.
In December 2008, an audit will be done
of their efforts to reduce gases and
their actual level of emission. China
and India are ensuring that new
technologies for energy savings are
adopted so that they become entitled for
more carbon credits. They are selling
their credits to their counterparts in
Europe. This is how a market for carbon
credit is created.
Every year European companies are
required to meet certain norms,
beginning 2008. By 2012, they will
achieve the required standard of carbon
emission. So, in the coming five years
there will be a lot of carbon credit