MCX launches carbon credit trading

Becomes first in Asia to begin futures trading in the commodity.

The Multi Commodity Exchange (MCX), the country's largest commodity bourse, on Monday launched futures trading in carbon credits, one of the fastest emerging intangible commodities in developing countries, including India.

MCX will offer five contracts running up to 2012. It will trade carbon credits of 200 tonnes unit each that will expire on December 15 every year, the bourse said in a statement

On Monday, the total volume of trade for the December 2008 contract was 9,600 tonnes while open interest stood at 8,000 tonnes. The tick size has been fixed at Re 0.50 a tonne, while the exchange has decided to facilitate delivery on the expiry of the respective contracts.

The initiative makes MCX Asia's first commodity exchange to launch carbon credit trading.

This is the second intangible commodity launched for trade on MCX after natural gas.

"The launch of carbon credits is significant as global warming has resulted into errant climate behaviour and hence economic powers have started reducing carbon credit from the environment immediately. They have also started thinking seriously of reducing carbon dioxide emission. Consequently, more and more countries are adhering to global carbon emission norms," said Joseph Massey, deputy managing director, MCX.

Carbon credits are generated by enterprises in the developing world by using cleaner technologies , thereby saving on energy consumption. This consequently reduces their greenhouse gas emissions.

For each tonne of carbon dioxide emission reduced, an organisation receives a carbon emission certificate, which it can sell, either immediately or through a futures market, just like any other commodity. Carbon trading is carried out under a United Nations-mandated international convention on climate change.

Under the Kyoto Protocol, carbon credits, or carbon emission reduction certificates, are issued by the Clean Development Mechanism Executive Board, the highest international body to issue credits and register projects.

With a view to launch carbon credits, MCX entered into a strategic alliance with the Chicago Climate Exchange (CCX) in September 2005. With India being the major supplier of carbon credits, the launch of the futures trading is expected to ensure better price discovery of carbon credits, besides covering risks associated with buying and selling.

Last year, carbon credits worth approximately $5 billion were traded in which India contributed to $1 billion (Rs 40,000 crore).

"India is one amongst the global leaders having already generated close to 30 million carbon credits and has roughly another 140 million in the pipeline for sale, making it one of the largest beneficiaries in the carbon credit trade. The launch has provided a platform for Indian companies to be able to benefit from the adoption of cleaner technologies," Joint Managing Director Lamon Rutten said.