The high aspirations that the Indian
green energy-based companies had nurtured for generating additional
resources through carbon trading have begun to fade. Their Chinese
counterparts have out-smarted them by wooing away customers, largely
from the European Union (EU), and forcing them to search for new buyers
and even opt for lower prices. Though India, on paper, is still the
second largest seller of carbon credits, its market share, reckoned in
2007 at an abysmal 6 per cent, looks insignificant when compared with
the 73 per cent market share enjoyed by China. The global carbon market
in 2007 grew, significantly, to $64 billion from around $33 billion in
the previous year. The World Bank report on the "state and trends of
the carbon market 2008", which has unveiled these facts, has also
indicated that it is the third consecutive year that China has retained
its numero uno status while India has been faring indifferently in
terms of transacted volumes of certified emission reductions (CERs)
which are traded globally under the clean development mechanism (CDM)
mooted under the United Nations Framework Convention on Climate Change
(UNFCCC). What indeed should make the country and, more so, the
potential CER sellers, sit up is that though nearly one-third of the
total CDM projects registered with the UNFCCC are from India, the
buyers prefer to source their requirement from China rather than India.
One reason for this could be that China has gone in for large-sized
companies generating CERs in bulk, which the large buyers prefer, while
the Indian companies are usually small sellers without any bargaining
power. Besides, the Indian sellers do not really understand the
complexities of this highly volatile market in a novel intangible
commodity. Nor do they usually opt for hedging their risks through
options trading on the global commodities exchanges. The local
exchanges, in any case, are not yet allowed to offer options trading.
Moreover, the country has not yet been able to decide whether CERs are
goods or services and whether their sales abroad should be treated as
exports of goods or services.
Such issues, obviously, need to be addressed without any loss of time
because the carbon market may not remain the same for long. It is now
being increasingly realised that this mode of CDM is neither an
efficient way of ensuring reduction in the emission of
environment-unfriendly greenhouse gases (GHGs) nor is it helping in
achieving the goal of reversing the process of global warming and
climate change to the desired level. It can, at best, be viewed as a
politically convenient and cost-effective way out, conceived by the
rich countries to let their industry continue to pollute the
environment even while meeting the mandatory emission reduction
obligations by buying the carbon credits from the poor countries. No
wonder then that while the value of the traded carbon has nearly
doubled in the past one year, the actual GHGs emission reduction has
been just about 7 per cent. Even the European Union (EU), which
accounts for nearly two-thirds of the global carbon market, has seen
through it. Consequently, the EU has mooted a proposal in the ongoing
talks on drawing up a successor to the Kyoto Protocol on climate
change, which is expiring in 2012. The proposal seeks to put a cap on
CER purchases from India and China unless these countries also take on
mandatory sector-specific energy-efficiency targets. Though India and
other developing countries, relying heavily on coal and conventional
fuels for their economic development, are unlikely to accede to this
demand, the going is bound to get tough for them. So the best course
for India Inc., especially the small CDM companies, is to make the best
of the present opportunity by pooling together their CERs to attract
big buyers. This approach can help them even in the future to adapt to
whatever new form the carbon trading takes under the post-Kyoto pact on
climate change.
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