Indian firms shy away from trading carbon credits -- siliconindia news bureau

Bangalore: India is the second largest generator of environment friendly projects for carbon emission reductions, but still the Indian companies hesitate to generate monetary benefits through trade. India comes after China in terms of generating low carbon credit by introducing low polluting technologies.




Indian domestic firms, including the public and private hold back over 90 percent of such credits, as they are timid about the uncertainties in the global carbon market. Indian companies are expected to invest $30 billion in around 1,470 projects to generate 610 million Certified Emission Reduction (CER) applications, as India has cleared a large number of such applications.

"Indian companies are holding on to their CERs because they feel they would fetch them better prices later. The lack of interest in future contracts is also primarily due to the small size of most projects," said an environment ministry official.

"Since the carbon revenues from small projects are comparatively low, companies are not really depending upon that incentive to upgrade themselves. In future, we are expecting domestic firms to come up with bigger projects and the situation could change," he added.

"Perhaps Indian sellers believe the price always goes up, which was not the case last year. They have tended to hold their CERs and sell them on the spot market or not sell them at all," said Josh Carmody, Expert, Asian Development Bank.

The experts say that this hesitation to engage in forward transactions or sell their entire carbon credits in global carbon trading markets has made the firms more vulnerable to price fluctuations.

"It is difficult to predict the impact of holding back CER transactions. In recent times, the price for carbon credit has gone down for multiple reasons, the major ones being the recession linked production cuts in the developed nations and less dependency on coal due to relatively lower oil prices," said Dipankar Ghosh, Climate Change Expert, Ernst and Young.

The impact of holding the CER sales is unpredictable as it depends on the direction of the market movement, added Ghosh. There could be additional losses because of waiting if the prices fall further. He asserts that would the price increase be enough for compensating for the delay in carbon revenue earning.

Only eight of the 68 Indian projects entered into transaction contracts with foreign trading partners to sell carbon credits which will be generated in the future. These firms got clearance for carbon credit during the year by an international committee set up under United Nations Framework Convention on Climate Change. On the other hand, China mandates a foreign partner for all its projects.

The current trading mechanism will continue till in 2012 and will be reviewed in the United Nations meet in Copenhagen. This brings out a low confidence among the experts regarding demand push in carbon market in the near future, leading to a decline in project sanctions.