Financial Daily from THE HINDU group of publications
Wednesday, Jun 22, 2005
Corporate - Environment
India Inc eyes high earnings from carbon trading
New Delhi , June 21
MANY Indian companies are eyeing earnings up to several billion dollars by 2012 by adopting projects that reduce the emission of greenhouse gases (GHGs).
Ninety such projects, which have obtained Government clearance, could reduce over 120 million tonnes (mt) of Certified Emission Reductions (CERs) by 2012. Each CER stands for one tonne of carbon dioxide reduction and can be traded on global exchanges.
While officials declined to share the estimated investment that the companies expect, these projects have a potential to earn euro 2.486 billion at the prevailing rate of euro 20.72 per tonne of CER (on June 17) in the European carbon trading exchanges.
The projects are primarily from sectors such as cement, iron and steel, power that includes biomass cogeneration, and hydro and wind energy projects, according to the data submitted by project proponents to the Environment Ministry. The companies include Gujarat Ambuja Cement, Jindal Vijayanagar Steel, Indian Rayon & Industries, Triveni Engineering, Balrampur Chini Mills, SRF Ltd, Gujarat Fluorochemicals, Birla Corporation Ltd, DCM Shriram Consolidated Ltd, Oswal Woolen Mills, Tata Steel, Usha Martin Ltd, JK Cement, Birla Cement and Kalpataru Power Transmission Ltd (KPTL) among others.
The value of CERs has fluctuated and has seen an overall upward trend during the past few months. According to the Norway-based research firm, Point Carbon that tracks European exchanges, on April 19, each CER was trading at euro 17.4.
The National CDM Authority at the Environment Ministry has cleared about 90 projects for enabling the companies to seek investments under the Clean Development Mechanism (CDM). However, these projects need to get the United Nations Framework Convention on Climate Change (UNFCCC) clearance to trade their CERs.
Out of these 90 projects that have been given the `host country approval,' enabling the project proponents to seek funds by trading carbon credits, two projects have been cleared by UNFCCC. As on date, nine projects have received UNFCCC approvals three from Honduras, two from India, and one each from Bolivia, Bhutan, Republic of Korea and Brazil.
The lag between domestic and UN clearance is due to several reasons. "The process, internationally, has just started. There are just nine such approvals worldwide as it is. Validation of each new method followed by the project takes place at different stages. Thus, at the UNFCCC, getting a clearance would take longer if the projects do not conform to one of the 22-25 approved methodologies," said Dr Vivek Kumar, Research Associate, Centre for Global Environment Research, The Energy and Resources Institute. "India gives the host country approval on parameters like sustainability and increased GHG reduction and does not insist on approved methodologies. Moreover, the Government does not charge any fees," added Ms Naman Gupta, Environment Specialist, CDM, GTZ (German Technical Corporation).
Many of the projects have not been brought to the UNFCCC. Thus, these projects could end up getting clearances within due course, added Ms Gupta.
The latest Indian project to be cleared by the UNFCCC is a biomass project in Rajasthan by KPTL. The project, expected to reduce an equivalent of about 31,374 tonnes of carbon dioxide a year , was approved or `registered' by the CDM Executive Board on May 23. When contacted, KPTL officials declined to divulge financial details of the project. The first project to be cleared was that of Gujarat Fluorochemicals.
The UFCCC designed CDM to achieve cost-effective GHG mitigation for industrialised countries. The Kyoto Protocol, that came into force on February 16, 2005, makes it obligatory for 37 developed countries to reduce their emissions of six harmful GHGs, including carbon dioxide. They can do this through a combination of direct domestic action and by investing in developing countries that reduce these emission levels.
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