Issues pertaining to risks of climate change and effects of global warming today have a conspicuous presence in the international agenda and the recent Copenhagen Summit validates it. The longevity of suitable environmental conditions has now become imperative for sustainable development of any country. Kyoto Protocol was one such step taken by the international community to achieve stabilization of greenhouse gas concentrations in the atmosphere. The protocol provided a ‘cap and trade’ system, which enforced national caps on emission levels. Under Article 17, emission quota was declared as a tradable commodity, thus giving rise to the creation of carbon exchange market.
The burgeoning carbon trade market has grown to $126bn in 2008, doubling from its 2007 value and nearly 12 times the value in 2005. One of the ways by which big conglomerates are able to accrue profits from this industry is by filing patents. The increasing volume of business in the carbon market has stimulated innovations to develop ways for insuring profits and sustainable development from this new commodity. These companies secure patent rights to protect their technologies and business model in various countries and are thereby able to enjoy long-term benefits. An analysis of the number of patents filed between 1997 and 2008 in relation to commercial aspect of greenhouse gas emission found that companies are devising new ways to quantify carbon credit, manage emission allowance, broker credit etc. These innovations not only help the companies in building sustainable business models but also help in establishing a “first mover” advantage in carbon credit system.
From 1997 to 2008, there has been a constant growth of patent filings in the domain of emission measurement and monitoring, with the top filers including Toshiba, Hitachi, ABB, and GE, signifying a rise in environmental concerns among large corporations along with using it as a business opportunity for further aggrandizement of profits. For example, Cantor CO2e, a carbon trading company, has sought protection to quantify tradable residential emission reductions in United States. Innovators across countries are integrating cutting edge information technology to quantify, transact and monitor emissions. Such innovations are protected and further promoted by securing patents for the new technologies.
It is a well noted fact that for any agreement on environment to be enforceable technological support is imperative. To reduce carbon emissions by 80% from 1990 levels, which is the goal for 2050 for developed countries, major scientific breakthrough would be required to devise alternatives to otherwise used energy producing fuels. Patents for discoveries would provide the much needed leverage to yield new technologies that would help in achieving the objective of the Copenhagen Summit.
Although carbon trading today is in a nascent stage, a lot of countries are waking up to its advantages. For example, Japan Power Exchange is to start carbon credit trading and CCX has closed its deal for first emissions exchange in China. In India too, the Multi Commodity Exchange (MCX) recently launched futures trading in carbon credits. This should enable an efficient price discovery mechanism for Carbon Emission Receipts (CERs) for Indian participants in the market. Commoditization of emission carbon credit would not only help in reducing emissions but also create a market beneficial to developing countries.
Carbon trading is a unique opportunity wherein the main business motive of garnering profits can be achieved and simultaneously environment can be protected. Patents provide the much needed protection to the new technologies devised in this domain and also help in funding other similar nature activities. Today the industry is rapidly moving ahead of established methods of emissions control, such as direct taxation or regulation, by creating a marketplace for carbon credits and giving impetus to research and development activities in the domain. Patents in this scenario will not only fuel research and development but would also make it possible for the companies to continue with this business project for a long period of time. We live in an extremely dynamic world that is governed by social, economic, environment and technological forces. Only when they all work in complete harmony we would be able to achieve objectives set by government planning.
The author is CFO and Head of Management Services for India at CPA Global, a firm that specialises in intellectual property management and provides outsourced legal support services