PSUs join Rs 4,500-cr carbon trading race
Cos Earn Rs 1,500 Cr In The Last One Year
Shishir Prasad MUMBAI
GREEN planet in the long run. Greener balance sheets in the short term.
If the initial momentum of revenues netted from carbon trading projects is
anything to go by, India Inc could net some serious money from it.
This momentum is expected to increase with large PSUs like ONGC, IOC and
SAIL getting ready to launch large projects in this area. “PSUs with their
scale should provide a significant impetus to this movement in India,” says
Sudipta Das, partner, Ernst&Young India.
Over the last one year, Indian companies have already netted Rs 1,500
crore in carbon trading revenues, according to estimates available with
Ernst&Young. This is not all. The value of the accumulated stock of carbon
emission reduction (CER) units in India is estimated at approximately Rs
4,500 crore. Only China and Brazil are ahead of India at this point of time
in accumulating CERs. A CER is just like a dollar as far as carbon trading
markets are concerned; it is the basic unit of trading. Each time a company,
through its actions like using lesser or cleaner fuel, reduces the emission
of one tonne of carbon dioxide, it accumulates a CER. It can then sell this
CER for a price — € 12 per CER at present — to another company in another
part of the world that might want to reduce the emissions, but is unable to
do so for some reason.
In India, companies like Tamilnadu Newsprint and Paper and Gujarat
Flurochemicals have taken a lead in developing projects to reduce emissions
and accumulate CERs. A project — called a clean development mechanism (CDM)
project in enviro-speak — in this context can be something as simple as
planting more trees to something more complex such as adopting a new
manufacturing process or a waste disposal process. The trouble is that such
projects are not easy to set up. “The process of getting the approvals,
registration and then implementation is a very rigorous one,” says Mr Das.
Getting the senior management to back such projects is also quite difficult.
On an average a project can cost anywhere between Rs 10 lakh and Rs 40
lakh. To get approvals, such projects should at least deliver more than what
it costs the company to raise funds for its own use. “With the CDM benefits
becoming apparent and significant, we are witnessing a large number of
companies undertaking investments in emission reduction projects,” says
Bharti Gupta Ramola, executive director, PricewaterhouseCoopers. Consider
the example of ONGC. In another week or so it should get necessary approvals
to launch 14 projects that will bring it a sackful of CERs in the future.
“These projects will do away with the gas flaring, increase energy
efficiency and increase waste heat recovery,” says AB Chakraborty, GM,
alternate energy & carbon credit, ONGC.
The company believes it will be able to generate a return of 12% through
cost savings, not counting any money that comes through selling the CERs
that these projects will generate. But ONGC’s cost of funds is 14.5%. So on
the face of it the projects deliver less return than what ONGC needs. Things
begin to look better once the CDM revenues get factored in. “We expect to
generate close to 6m CERs over a period of 10 years once the projects are
implemented,” says Mr Chakraborty.
Using the prevailing price of Rs 720 per CER, ONGC stands to make Rs 432
crore over a 10-year period. Once this cash inflow gets factored in, the
project return clears the target rate of return and becomes easy for the
company to justify it to the shareholders. No wonder then that ONGC has
already identified 18 more projects to start once the first 14 get underway.
IOC too has identified five to six projects to kick-start its programme.
SAIL is also said to be in the process of identifying projects that it can
start.
On your mark
ONGC, IOC, SAIL are getting ready to launch large projects
Profit part
Rewards for reducing emission of greenhouse gases. One credit (CER) is
equivalent to 1 tonne of CO2 reduced.
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