Green money

The hot new opportunity for making money seems to be trading in carbon. The prices of carbon credits in the international market have trebled in recent months, and companies able to sell them (like Shri Ram Fibres) have seen their share price skyrocket as a result.

Carbon prices have gone up in part because of the soaring prices for oil and gas, and in part because of the run-up to the forthcoming meeting of the UN Framework Convention on Climate Change (UNFCCC) in Montreal in November.

Though trading in carbon began a couple of years ago, its prices had remained subdued and failed to generate much interest among Indian companies.

But both prices as well as traded volumes have shot up, especially in the London market, which has become the hub for carbon trading.

About 2 million tonnes of carbon are estimated to have been traded in July at a total transaction value of around £40 million (over Rs 300 crore). The world has had greenbacks for more than 200 years; now it also has green money.

This novel market for a new commodity is the result of the Kyoto agreement on climate change, inked in 1997. This mandated 37 developed countries to slash their emission of six harmful greenhouse gases (GHGs), including carbon dioxide, to below the 1990 levels.

Simultaneously, it mooted the concept of sale and purchase of emission reduction credits, calculated in terms of carbon, to provide an incentive to companies to do their bit in mitigating environmental damage.

For this, it set up a clean development mechanism (CDM) executive board to validate the projects entitled to participate in carbon trading and certify carbon emission reduction.

Though this protocol applied to all developed economies, barring those like the US which are not signatories, only the European countries have opted to implement it with sincerity.

They have already estimated carbon emissions from about 15,000 installations in selected industries and have fixed their GHG emission reduction targets.

Under this system, if a firm improves its energy efficiency and reduces emissions below its allocated allowance, it earns carbon credits that it can sell for cash.

Conversely, if it is unable to do so, it can buy carbon credits from others, or pay the stipulated fine for every excess tonne of carbon dioxide emitted.

The recent spurt in global carbon prices is due largely to the approaching UNFCCC meeting, where developed countries will have to report their achievements on this front, and partly because of the soaring oil and gas prices.

Companies are forced to buy allowances because alternative fuels, like coal, produce almost double the amount of carbon.

Where India is concerned, though the opportunities for cashing in on carbon credits are immense, awareness of the opportunity is still limited.

So far, only 90-odd projects are said to have been approved by the environment ministry's national CDM authority, paving the way for their getting into this business.

These are engaged primarily in the production of cement and steel and generation of biomass-based or hydel power. Surely, a large number of other enterprises, including all the public sector hydel power projects, can gainfully exploit this opportunity.

Many enterprises technically entitled for CDM status belong to the small and medium categories, and cannot perhaps deal in this trade individually, leave alone bargain for a good price.

Some mechanism needs to be evolved to enable them to pool their carbon reduction credits and become big enough players to tap the expanding global carbon bazaar.