Indian Carbon Scenario

India, however, seems to be lagging behind in taking up trading in carbon credits owing to lack of a proper framework and regulatory measures. Under the provisions of the Forward Contracts (Regulation) Act, Indian commodity exchanges cannot trade in indices or intangibles, but only in goods that can be actually delivered. The act also does not permit foreign participation in commodity exchanges. This could hinder the carbon market in India as the bulk of the demand comes from overseas buyers. The act is being amended and is awaiting Parliament’s approval. Once the approval is through exchanges like MCX would be able to commence trading in carbon credits. MCX has sought approval from Forward Markets Commission to launch futures trading in carbon credits. MCX has already tied up with Chicago Climate Exchange and obtained licence from it to trade in carbon credits for the Asia Pacific region.

“Besides MCX, a few other exchanges have applied for approval to the Centre to trade in carbon credits,” said Srikanta K. Panigrahi, director-environment and forestry, Planning Commission. National Commodity and Derivatives Exchange is also awaiting government’s approval to launch trading in the intangible commodity. However, industry experts feel that with the carbon market still in its infancy, any carbon credit trading platform is likely to be illiquid until much greater volume of credits arrive on the market. “On the sellers side, liquidity will be good on the exchanges as India is the second largest generator of carbon credits in the world after China. However, liquidity on the buyers side will emerge only in 2008, when the market is established,” said an official at a national commodity exchange. Indian companies including SRF, Gujarat Fluorochemicals and Balrampur Chini have earned huge revenues from these credits over-the-counter and commodity exchanges are also looking to grab their share. India has the highest number of clean development mechanism projects registered with the carbon market regulator and has a potential of 20 billion certified emission reduction by 2012.