Corporate biggies warm up to carbon credit trade
Rajesh Unnikrishnan and MV Ramsurya MUMBAI
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 $5bn, 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
midsized 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 $15-20 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 $300-500 for every tonne
reduction in carbon dioxide, as against $10-25 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.
Publication:Economic Times Mumbai; Date:Aug 30, 2006; Section:Corporate;
Page Number:19