Every cloud has a silver lining and here, in this gloom spread by the rising crude oil prices, one bright spark, which has emerged, is that of carbon credits.
Infact, on the recently launched carbon credit futures on the Indian commodity bourses, the valuation of carbon credits have gone up by over 10% in last one month. As crude oil is rising, many companies that trade in carbon credits have resorted to using cheaper fuel alternatives to reduce costs. They use coal instead of natural gas for power generation. As these increase emissions, the price of carbon credits is higher.
Carbon credits have two pronged advantages – firstly, it elevates the image of the company as being very socially responsible and secondly, carbon credits gets translated into money worth crore which adds on to the bottomlines. And the income derived from CERs is completely tax free.
India is the leader in the number of carbon credits issued so far and the number of clean development (CDM) projects registered with international CDM body. India has a market share of 32.01% in terms of total number of CERs issued, followed by China with a 20.21% share and Brazil at 12.65% share. 339 Indian companies have been registered with CDM for carbon credit trading. So the major companies that stand to benefit are – SKF, Gujarat Flurochemicals, Indian Acrylics, JSW Energy, JSW Steel, Shree Cement, RIL, Tata Chemicals, Tata Motors, Bharat Forge, Phillips Carbon being some of the prominent biggies that would benefit. (Take a look at the table given below)
India and China are likely to emerge as the biggest sellers and Europe is going to be the biggest buyers of carbon credits as USA has not signed the Kyoto Protocol and hence it cannot buy or sell. Today, carbon is being treated like any other commodity and the best part is that it is also now being traded on the Multi Commodity Exchange (MCX).
How this carbon credit market works is that typically, the companies in Europe, when they exceed the pollution norms, scout around for companies in the developing nations to buy carbon credits. This means that the companies in the developed country helps the company in the developing country to set up a new technology which is eco-friendly and in that way, it manages to earn carbon credits. The extent to which the emission gets lower, which means carbon dioxide emission gets lowered, as per standards fixed by UNFCC, the company gets credited in the developing country. This in a nutshell is how the carbon credit market works.
Today carbon credits are traded like any other commodity. There are buyers and sellers. Each carbon credit is sold at the rate of around Euro 22. It is traded on the European Climate Exchange. What this means is that for every one tonne less emission by a company, it will stand to gain Euro 22. These carbons can be held or sold now and being into future trading, one can also enter into contracts for a delivery to be taken in the next five years. Only those Indian companies that meet the UNFCCC norms and take up new technologies will be entitled to sell carbon credits.
The contracts expire every December and at that time, people who have bought or sold carbon will have to give or take delivery. They can take delivery even prior to December but that does not make sense as usually, December is the time of the year when European countries have to scout around for credits to meet the norms.
This platform to trade for the Indian companies is like a manna from the heaven as till now, they did not know whether the price which they were getting was fair or not. Transactions were made merely on bilateral agreement as there was no benchmark. But now, with this trading in MCX, companies, which were getting Euro15-18, now stand to gain over Euro 25.
So instead of tracking only companies that are into oil exploration, it would also be prudent to look at companies that have earned tonnes of carbon credit, which thanks to the rising crude prices and deadline of 2012 fast approaching, would reap a very rich harvest.
By Ruma Dubey (Source: sptulsian.com)
