The Hindu Business Line : Demand for Indian carbon credits may be hit

Demand for carbon credits generated from Indian companies may go down with the United Nations recently allowing purchase of carbon credits from Central and East European countries, fear experts in the sector. Carbon emission reductions from Central and East European economies may be priced relatively lower than those from Indian projects as these countries already have a potential bank of carbon credits, owing to some 40 per cent reduction in emission of greenhouse gases compared with the 1990 levels. These credits are also referred to as hot air credits, as they are gained at no cost.

These emission reductions came about because since the 1990, the industrial economies of most countries in the former Soviet Union have collapsed. During 2008 - 2012, Russia and Ukraine will have a significant amount of excess allowances of about 800-1,000 million tonnes of carbon dioxide per year, says an ICF Consulting study.

The United Nations (UN) recently launched a new mechanism to generate significant reductions in such emissions in Central and East European transition economies through a system of carbon credits acquired by developed countries. Under the joint implementation (JI) mechanism, launched by the UN Framework Convention on Climate Change (UNFCCC), developed countries can acquire credits from emission-reducing projects in other industrialised countries, in particular Central and Eastern Europe, allowing them to meet their commitments under the Kyoto Protocol.

CLEAR TERMS AWAITED

While it was known that the JI mechanism would be in place, the exact procedures within the mechanism would decide the extent of competition that these carbon credits would generate.

The UN is yet to come out with the exact procedure of carbon trading for such projects. Issues such as whether hot air can be traded or not, whether credits from old projects would be traded, the time period for which developed countries can use these credits, the exact verification process, are yet to be spelt out in clear terms, say experts.

"We are waiting for details on the announcement. We can work out the exact impact on Indian carbon credit market only after we can get these details," said Mr Sudipta Das, Partner, Ernst & Young, when contacted by Business Line.

"It (the move) raises the fears of hot air entering the market. Joint implementation rules are likely to be simpler than that of CDM making it easier for projects not of good quality also enter the supply stream," said Dr Ram Babu from CO2e, the UK-based firm offering brokerage services in carbon trading market.

"There is going to be competition for Indian projects," said Mr Robert Taylor, Director, Agrinergy.