Carbon credit & Indian industry


Carbon credits are certificates issued to countries that reduce their emission of GHG (greenhouse gases)

Trading in carbon credits:

In India, GHG emission is much below the target fixed by the Kyoto Protocol and so, India is excluded from reduction of GHG emission. On the contrary, they are entitled to sell surplus credits to developed countries.

In addition India is one of the largest beneficiaries, claiming about 31% of the total world carbon trade through the clean development mechanism (CDM), which is expected to rake in at least $5-10 billion over a period of time.

A corporate company of India M/s Gujarat Fluro-Chemicals will Pocket Double Its turnover through Carbon Credits sales.
Global warming due to green house gases has opened a new avenue for Indian companies to make so much money that sometimes it is more than their annual turnover.

A recent sale of carbon credit by Gujarat Fluro-Chemicals has created waves in Europe and Japan where companies are desperate to reduce carbon emissions at their factories.

Low-profile Gujarat Flurochemicals , which runs the largest refrigerant plant in India, has a agreed to sell carbon credits worth Rs. 1,000 crore over the next three years to Noble Credits of Singapore. The deal will rake in Rs. 350 crore for GFL in the first year, sources said. The windfall is nearly double the company’s sales of Rs. 182 crore last year and more than 3.5 times its net profit of Rs. 96 crore.

An international agreement, known as the Kyoto Protocol, signed by 141 countries except the U.S and Australia, has set emission caps for developed countries for 2008-2012. Companies there can either reduce greenhouse emission to mandated levels every year or offset actual emissions by buying carbon credits from companies operating in developing countries that managed to reduce the level of carbon dioxide.

GFL’s transaction was also differently structured. It has promised to sell half of the carbon credits to Noble until 2012 at a minimum price of $10 a unit. It can buy up to 35% at the market price with a floor of $10 a unit. GFL will be free to sell the rest in the spot market.

GFL, which makes refrigerator coolant, accumulated the credits by burning waste gas by installing a thermal oxidizer at its Gujarat factory. GFL reduces close to 12,000 tons of greenhouse gases (Carbon dioxide) daily, which adds up to 6 million tons annually.

Eco Securities, a global carbon credit trader, says this translates into millions of carbon credits. To gain one carbon credit, a company has to reduce one ton of carbon dioxide emission.

Even though 70-80 projects have been registered at the United Nations for carbon credits in India, the Rs. 1,000 crore deal is a record. Other companies that have already sold their carbon credits include Kalpataru group, which runs a bio-mass based power project, and SRF which has a hydro fluro carbon plant.

Sources say each credit is sold at between $5 and $12 depending on risk factors, primarily guaranteed supply. Large companies get a better price compared to smaller ones. Currently one carbon credit trades at $10.

There are reasons for the mad rush for carbon credits. Governments in Europe, Canada and Japan (the three main signatories of the Kyoto Protocol) have set industrial greenhouse gas emissions limits, the costs of which reflect on their companies balance sheets.

They have to invest large sums in technologies and processes to stick to government directives on green house emissions. So they buy carbon credits to achieve their emission targets. Mostly credits are bought from countries like China and India.

India is the biggest supplier of carbon credits to the global market and to remain a leader in this market one should understand the global dynamics of the supply and demand. Indian companies are buying their time for a better value but China and Brazil are also coming up with big volumes therefore India should time their deals ‘well on time’.