The Hindu Business Line : Carbon credits: Europe finds Indian cos tough sellers

On the ground
Indian players either demanding higher prices, or reluctant to sell in futures market.
Domestic financial sector appears reluctant to securitise loans against potential carbon revenues.

Mamuni Das

New Delhi, Nov. 5 Major European buyers are unable to find Indian firms willing to sell carbon credits despite India being a global leader in clean development mechanism (CDM) projects.

This is because Indian players are either demanding higher prices for carbon credits or are reluctant to sell credits in the futures market.

For instance, Europe’s largest carbon credit buying company, RWE Power, wanted to buy carbon credits from the Indian projects almost two years ago (December 2005), but shifted focus to China since it received “more volumes of carbon credits” there.

And now, from the 30 million certified emission reductions (CERs) that the German firm has contracted till date, 25 million CERs are from China while it is yet to enter into any contract in India.

Each CER represents one tonne reduction of carbon dioxide emission.

“We are now focusing on India with an aim to diversify our portfolio,” Mr Hans-George Adam, Senior Manager Climate Protection, RWE Power told Business Line on the sidelines of India Carbon Market Conclave recently.

RWE has appointed two firms in India — GTZ International Service and Fitcher — to identify projects.

“The Indian market is well informed, language is not a barrier, and Indo-German business links are good,” he said, listing the positives for the Indian market.

Project size

Most of the Indian projects, however, are of small size while RWE is eyeing projects that should deliver at least 50,000 CERs per annum.

“Indian players are not in favour of forward selling and would rather enter the spot market,” Mr Adam said.

In China, meanwhile, RWE contracted 25,000 CERs through forward contracts with an average price per CER of below €10. The German power firm requires about 18 million CERs per annum till 2012.

“Since our total requirement is 90 million CERs by 2012, we would like to contract about 120 million CERs to secure the delivery risk,” Mr Adam said.

Domestic finance sector

Moreover, the domestic financial sector appears reluctant to securitise loans against potential carbon revenues. For instance, the German bank KfW, which entered into an MoU with IDBI in January 2007 to identify projects for buying carbon credits, is yet to enter into an agreement with any project owner.

For the identified projects, IDBI was to issue loans to firms securitising the loans against potential revenues that would have accrued to the company by selling the carbon credits to KfW.

KfW is about to close its €84 million carbon fund — it is yet to fund any Indian project. However, for its second €100 million fund with European Investment Bank, the firm hopes to get some Indian participation. “We hope to firm-up agreements with 4-5 Indian projects soon,” Mr Matthia Borner, Senior Project Manager, KfW Carbon Fund, said.

“The domestic financial institutions need to be made more aware so that they start recognising potential carbon revenues for companies,” Dr Prodipto Ghosh, Member, Prime Minister’s Council on Climate Change, said.