BE GREENER TO GET THE GREENBACK

Gaurie Mishra & Neha Kohli

IT ISN’T often small companies beat their big brothers hollow in exploiting a business opportunity. But India Inc’s Liliput brigade are doing just that by trading carbon credits to shore up their toplines as well as bottomlines. The idea is simple: Invest in eco-friendly technology, reduce greenhouse gas emissions and trade in the certified emission reduction (CER) units that one obtains in doing so. For smaller companies, it means mega bucks - there are cases where net profits have jumped as much as 300%. Significantly, around three-quarters of the registered clean development mechanism (CDM) projects from India is by smaller companies having a turnover of below Rs 1,000 crore. Big corporates such as Reliance, ONGC and A B Birla group have been late entrants and hold just about 30% of the registered CDM projects. An official of the Tata Energy Research Institute (TERI) says that considering India’s economic boom will be lead by small, emerging companies amid growing recognition that growth has to be environmentally sustainable, “we can only expect more and more small-scale units to add up CERs and make a moolah out of it”.

IMAGE IMPACT

Today, smaller Indian companies are looking for new markets abroad. They need access to technology, brands and a platform to sell their products. Often credibility comes in the way. With international presence being the norm of the day, carbon credits could add to the image of a company, as it is considered being responsible and eco-friendly. Needless to say, such an image helps in bagging export orders and helps get incentives in the host country as well. Says Deepak Asher, executive director of Gujarat Flouro Chemicals: “It is a win-win proposition. Host countries like India stand to gain through sustainable development and it also helps developing countries get more revenues. Companies across sectors and irrespective of their size also stand to gain.”

TOPLINE IMPACT

Of the six greenhouse gases, the largest carbon dioxide equivalent producer is HFC23, which is produced as a by-product in refrigerant gas-making. One tonne of HFC23 is equal to 11,700 tonnes of CO2. Medium-sized companies in India, such as SRF, Gujarat Flourochemicals etc., have registered their projects under the clean development mechanism. The carbon credits produced by these companies are in excess of their respective turnovers. Most recently, Navin Fluorine, another refrigerant-maker, will be able to sell over 2.8 million certified emission reductions (CERs) or carbon credits annually in the international market. At a conservative average price of $14 per credit revenue, the sale of CERs may fetch as much as $40 million or Rs 180 crore each year for the company for a period of 10 years. This is over 82% of the company’s total turnover of Rs 233 crore in fiscal 2005-06. Automotive tyre-maker Apollo Tyres has also managed to ramp up its bottomline by Rs 3 crore in the last one year. In sectors like cement manufacturing, co-generation in sugarcane mills, wind mill projects and recovery of waste heat at standalone units have, so far, been tapped by only smaller companies. Significant among the emerging firms in these sectors include Shree Cement, India Cement, J K Cement and Rajshree Cement. Other smaller CDM projects are by companies like Sai Engineering Foundation and Chambal Power. Other companies that have benefited are Gujarat Alkalies, Gujarat NRE Coke, JSW Holdings, Chemplast Sanmar, National Fertilisers, Torrent Power, MSP Steel and Balrampur Chini. They have either issued or are in the process of issuing CERs. Experts say the expected increase in the bottomline ranges anywhere from 39% to 173% for these companies.

FIRST-MOVER ADVANTAGE

Richard L Sandor, chairman and CEO of the Chicago Climate Exchange, recently told ET that India will “move quickly” in the future to capture a large part of the carbon credit market. “India’s future is significant. India continues to grow its economy at an impressive rate and one expects its CO2 emission to increase rapidly. At the same time, there is a tremendous recognition among Indian corporates on the need for environmentally-sustainable growth. Trading experience on platforms such as CCX and first-mover advantage will be attractive to many Indian corporates,” he said. CCX has tied up with TERI for India. “Significant amount of CDM will be produced in India. Some of the credits can be hedged in European markets and sold when the prices are good. On CCX, Indian corporates can join as liquidity providers and have the option to buy credits in the US, Brazil and China. Companies with subsidiaries in these countries can buy or sell credits on the respective exchanges,” Sandor added.

WHAT’S CARBON TRADING THE IDEA OF TRADE IN CERs

took shape after the signing of the Kyoto Protocol of the United Nations Framework Convention on Climate Change. It mandates GHG emission caps on industrialised countries, which have ratified it, but also allows them to buy a greener nation's GHG emission levels. Which means, a CER can be earned by reducing emissions through eco-friendly practices, or, in other words, a country with an emission cap can buy a CER from a developing country that doesn't face a cap. And that's where India comes into the picture as a seller of CERs under the (clean development mechanism) CDM of the legal framework of the protocol. CDM allows for company projects in developing countries, with no mandated emission reduction targets, to trade in CERs with countries that have such targets. One CER is equivalent to a reduction of one tonne of carbon.

source: The Economic Times