Carbon Credit Prices Seen At 7 - 9 Euros A Unit

Mr Robert Taylog, Consultant, Agrinergy of the UK, says that his firm is currently working with 50 companies in India in sugar, cement and sponge iron sectors.

Excerpts from an exclusive interview with Mr Robert Taylor:

How many companies are you working with and across which sectors?
At the moment we are working in India with 50 companies. The main sectors that we are focussing on are sugar, sponge iron and cement. We have done a couple of deals and we have secured a couple of contracts. I think the trend we find in the market at the moment is that most people have seen these high European prices and are willing to hold on to their carbon credits and sell them at a later date.

How exactly are the prices moving in that market and do you see these contracts going close to the highs that some of these benchmark contracts struck recently?
I think the prices are on the upside. We don't have the mechanism to reduce risk of delivery from CDM projects into European emission trading schemes. I don't think prices will ever make 20, 22 euros as we are seeing in Europe at the moment and my feeling is that we will settle somewhere between 8 and 12, but that is my guess at this moment. However, there are certain instances where people would want to contract forward and they may want upfront payment and as a general risk management strategy, I think that it is advisable for people to look to secure some price going forward. As it is a regulated market, at the end of the day we don't know what turn the regulation may take.

Give us a sense of the deals you struck in terms of the size of the project, the credit size and give us a sense of the band these projects have been struck at?
The average size for us is around 50,000 carbon credits a year. So we have one project that has been registered just recently, JCT, a renewable energy project. That was struck at the lower end of the current range of prices but it did involve an upfront payment. So in those instances, we do see slightly lower prices. But I would say that generally now if we are looking to sell carbon credits on a forward basis, we are looking at a price of around 7 to 9 euros depending on the risk that the seller is willing to take.
I think one must bear in mind that when we talk about prices there aren't really one standard price in the market. There is a range of prices dependant on the risks involved in the contract.

If you were to break up the carbon credit, how much of that you think India would garner because we understand China is competitive as well in that space?
The Minister of Environment said recently that India has 203 projects that it has approved and they will generate 195 million tonnes of carbon credits. I mean globally what we are seeing at UN level is that 125 million tonnes of carbon credits will be generated from the projects that have been registered and in the UN pipeline, which will not include all the CDM projects that India has approved, we are looking at 575 million tonnes of carbon credits. So India at the moment plays a significant role. I think that we had a very positive regulatory environment in this country from the Designated National Authorities (DNA) the Ministry of Environment, which helped India, move quickly. China and Brazil will come into this market longer term, mainly China with a lot of HFC projects, with a lot of coal mine methane projects and they are going to really push a large volume of carbon credits.

Could you give us some names of some of the companies in various sectors that you are working with by gas, cement or sugar?
In the sugar sector, the project we registered is a Shree Renuka Sugars and we are working now and hope to register Rajshri Sugars and Chemicals in the South and there are number of other factories in UP that we are working with. In cement sector, we are working with Gujarat Ambuja and ACC and a lot of smaller sponge iron plants in Raipur and in Chhattisgarh and we see quiet a good potential within that sector.

Anything from the power project side?
We don't as of now, we have spoken to a number of power companies, but we have not done any contracts for them. I think what happens is that everybody tends to focus on sectors and specifically the gas co-generation where it is relatively easy and then one or two other sectors. We haven't got time to do energy efficiency projects. We believe there is a huge opportunity for power companies here in India and it takes a little more time for people to figure out exactly what the potential is within the sector.

You think you would do 40-50 deals in 2006 more or less?
I would hope to make 40-50 deals and may be I will come back in a year to tell you how many we have done. I mean that the potential is still there within India. There are a number of sectors that we haven't yet touched. So I would hope we can do 40 or 50.

Corporate Biggies Warm Up To Carbon Credit Trade

MUMBAI: THE carbon credit trade is entering the big league, with large Indian business houses jumping onto the bandwagon. After small- and mid-sized companies, it’s now the turn of the Birlas and the Ambanis to explore options of cashing in on efficient production technologies to boost profitability, as polluting foreign companies rush to meet international deadlines starting next year. The trend could witness the entry of India’s Exim Bank as a key player in facilitating trading in carbon credits.

India is considered one of the largest beneficiaries in carbon credit trade, accounting for about $5bn, or 31%, of the total world carbon trade through the Clean Development Mechanism. In what could be the first such public disclosure, a senior Aditya Birla group executive said Grasim Industries is talking to various international companies, while a Reliance Industries official privately admitted that India’s largest private refiner and petrochemicals maker is negotiating with European firms to explore ways of selling credits earned through tight emission controls. Carbon credits are certificates issued to companies that reduce their greenhouse gas emissions. These credits are then sold to companies who cannot fulfil the protocol norms. “We’re talking to several companies and are close to striking a deal soon,” Grasim director DD Rathi told ET, without elaborating on the financial size. Of late, there has been some hectic activity seen on this front. Chemical firm SRF has already sold 2.5m units of carbon credits to two European agencies for Rs 250 crore. Recently, refrigerant maker and mid-sized company Gujarat Fluorochemicals said it expects revenue of about Rs 500 crore over the next 6-7 years through the sale of carbon credits. News of the carbon credit sale lifted the stock of the company by 19% last month, at a time when the broader sensex grew by only 8%. According to a Reliance Industries official, the company sees “potential growth in this space and is currently talking to a European company”. But there were no financial details. A Reliance Industries spokesperson declined to comment. It’s estimated that 60-70% of emission is through fuel combustion in industries such as cement, steel, textiles and fertilisers. Some gases like hydrofluorocarbons, methane and nitrous oxide are released as by-products of industrial processes which affect the ozone layer. Cement maker Gujarat Ambuja and fertiliser major Tata Chemicals are also learnt to be studying options in this space. One credit is equal to one tonne of carbon dioxide in the international carbon credit market. Carbon credit units are currently trading at $15-20 per unit. Apart from manufacturing companies, Indian financial institutions are also taking a plunge here. A senior Exim Bank executive said the bank had approached the ministry of environment and forests for permission as a nodal player in enabling carbon credit trades. Apart from the European sale, SRF, the first mover, has put another 8m tonnes of greenhouse gas credits up for sale. The firm has appointed EDF Trading of France, Barclays Capital, Climate Change Capital Carbon Fund, ICE Cap (UK), KFW (Germany), Shell Trading and Solvey as partners for the project. SRF has also struck deals with Dutch/Shell and ICECAP to sell 5,00,000 carbon credits each. The Kyoto Protocol that aims to reduce greenhouse gas emission by 5.2%, to below 1990 levels by ’12, is a voluntary treaty signed by some 141 countries, including the European Union, Japan and Canada. However, the US, which accounts for one-third of the total greenhouse gas emission, is yet to sign the treaty. The penalty for non-compliance in the first phase is E40 per tonne of carbon dioxide equivalent. In the second phase, the penalty will be hiked to E100 per tonne of CO2. Developed countries have to spend nearly $300-500 for every tonne reduction in carbon dioxide, as against $10-25 by developing countries. In countries such as India, greenhouse gas emission is much below the target fixed by the Kyoto Protocol and hence, excluded from reduction norms of emission. On the contrary, they are entitled to sell surplus credits to developed countries.

As of April 8, ’06, actually certified emissions for Indian companies added up to 7.6m tonnes of carbon dioxide equivalent a year. Of these, 3.8 MT was by SRF, whose project was formally cleared on December 24, ’05, and another 3 MT by Gujarat Fluorochemicals, on March 8, ’05. Asia and Latin America are other key sellers of carbon credit in the international market. India, Brazil and Chile together account for 58% of carbon credit. India is the largest producer of carbon credit and highest in country ratings.

Defination - Global Warming

The Planet is Heating Up—and Fast

Glaciers are melting, sea levels are rising, cloud forests are drying, and wildlife is scrambling to keep pace. It's becoming clear that humans have caused most of the past century's warming by releasing heat-trapping gases as we power our modern lives. Called greenhouse gases, their levels are higher now than in the last 650,000 years.

We call the result global warming, but it is causing a set of changes to the Earth's climate, or long-term weather patterns, that varies from place to place. As the Earth spins each day, the new heat swirls with it, picking up moisture over the oceans, rising here, settling there. It's changing the rhythms of climate that all living things have come to rely upon.

What will we do to slow this warming? How will we cope with the changes we've already set into motion? While we struggle to figure it all out, the face of the Earth as we know it—coasts, forests, farms and snow-capped mountains—hangs in the balance.

Greenhouse Effect

The "greenhouse effect" is the warming that happens when certain gases in Earth's atmosphere trap heat. These gases let in light but keep heat from escaping, like the glass walls of a greenhouse.

First, sunlight shines onto the Earth's surface, where it is absorbed and then radiates back into the atmosphere as heat. In the atmosphere, “greenhouse” gases trap some of this heat, and the rest escapes into space. The more greenhouse gases are in the atmosphere, the more heat gets trapped.

Scientists have known about the greenhouse effect since 1824, when Joseph Fourier calculated that the Earth would be much colder if it had no atmosphere. This greenhouse effect is what keeps the Earth's climate livable. Without it, the Earth's surface would be an average of about 60 degrees Fahrenheit cooler. In 1895, the Swedish chemist Svante Arrhenius discovered that humans could enhance the greenhouse effect by making carbon dioxide, a greenhouse gas. He kicked off 100 years of climate research that has given us a sophisticated understanding of global warming.

Levels of greenhouse gases (GHGs) have gone up and down over the Earth's history, but they have been fairly constant for the past few thousand years. Global average temperatures have stayed fairly constant over that time as well, until recently. Through the burning of fossil fuels and other GHG emissions, humans are enhancing the greenhouse effect and warming Earth.

Scientists often use the term "climate change" instead of global warming. This is because as the Earth's average temperature climbs, winds and ocean currents move heat around the globe in ways that can cool some areas, warm others, and change the amount of rain and snow falling. As a result, the climate changes differently in different areas.

Aren’t temperature changes natural?

The average global temperature and concentrations of carbon dioxide (one of the major greenhouse gases) have fluctuated on a cycle of hundreds of thousands of years as the Earth's position relative to the sun has varied. As a result, ice ages have come and gone.

However, for thousands of years now, emissions of GHGs to the atmosphere have been balanced out by GHGs that are naturally absorbed. As a result, GHG concentrations and temperature have been fairly stable. This stability has allowed human civilization to develop within a consistent climate.

Occasionally, other factors briefly influence global temperatures. Volcanic eruptions, for example, emit particles that temporarily cool the Earth's surface. But these have no lasting effect beyond a few years. Other cycles, such as El Niño, also work on fairly short and predictable cycles.

Now, humans have increased the amount of carbon dioxide in the atmosphere by more than a third since the industrial revolution. Changes this large have historically taken thousands of years, but are now happening over the course of decades.

Why is this a concern?

The rapid rise in greenhouse gases is a problem because it is changing the climate faster than some living things may be able to adapt. Also, a new and more unpredictable climate poses unique challenges to all life.

Historically, Earth's climate has regularly shifted back and forth between temperatures like those we see today and temperatures cold enough that large sheets of ice covered much of North America and Europe. The difference between average global temperatures today and during those ice ages is only about 5 degrees Celsius (9 degrees Fahrenheit), and these swings happen slowly, over hundreds of thousands of years.

Now, with concentrations of greenhouse gases rising, Earth's remaining ice sheets (such as Greenland and Antarctica) are starting to melt too. The extra water could potentially raise sea levels significantly.

As the mercury rises, the climate can change in unexpected ways. In addition to sea levels rising, weather can become more extreme. This means more intense major storms, more rain followed by longer and drier droughts (a challenge for growing crops), changes in the ranges in which plants and animals can live, and loss of water supplies that have historically come from glaciers.

Scientists are already seeing some of these changes occurring more quickly than they had expected. According to the Intergovernmental Panel on Climate Change, eleven of the twelve hottest years since thermometer readings became available occurred between 1995 and 2006.

Music on Global Warming

Message - Global Warming

Funny Side

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.

What is Carbon Trading?

As demand for carbon credits rises due to tighter compliance norms thereby pushing up prices, exchanges worldwide are eyeing an entry into the lucrative emissions trading market.

Carbon credits are ‘compliance commodities’ and can be traded along with any other commodities. At present, one carbon credit is estimated at ¤13-15 (Rs 747-861). Developed countries are bound by Kyoto Protocol to cut greenhouse gas emissions between 2008 and 2012, by at least 5 per cent of the 1990 level. One way of reducing emissions is by buying certified emission reductions or carbon credits of projects set up in developing countries.

A project, for instance, becomes eligible to sell one credit if it reduces 1 tn of greenhouse gas emission. The European Climate Exchange is planning to launch futures and options contracts of carbon credits in September, subject to regulatory approval.

Green Ventures

Green Ventures is an international environmental advisory company. The nature of our business is looking into world’s environmental and energy markets offering environmental advisory services, technology and transactional services to clients engaged in using energy and managing emissions across the world.

Green Ventures Advisors will serve to all of the world’s principal emissions markets including the Kyoto Markets (CDM, JI & European Emissions Trading), the USA compliance market and the voluntary carbon market.

We advice equity investment funds on carbon finance introduced investors to projects and structure forward sales to enable project developers to fund their investments. We help “Clean Tech” technology developers to manager their intellectual property to develop their licensing strategy and roll out their technologies throughout global network.