The Hindu Business Line : Carbon credits: It's advantage China

It's not just cheap Chinese goods that Indian firms have to compete with. China appears to be flooding the carbon trading market with certified emission reductions (CERs) or carbon credits, which are priced lower than those of Indian projects. This is because China has much higher volumes of CERs in the world market compared to India. Each CER represents one tonne of carbon dioxide emission reduction.

As per annual averages, China now accounts for 43 per cent of total CERs registered at the UN, while India accounts for 12.11 per cent. Chinese projects can reduce carbon dioxide emissions by about 36.66 million tonnes per year till 2012, while Indian projects would reduce about 10.17 million tonnes.

China has high volumes as it has a lot of industrial gas projects while India has just two of those now. "India has trapped the low hanging fruits like the biomass-based and small scale renewable energy projects, which give low CERs per project," said Mr Sudipta Das, Partner, Ernst and Young. Most of the Chinese projects are from huge, State-owned entities unlike in India, Mr Das added.

LOWER PRICES

Buyers agree that prices of CERs in China are usually lower than in India. Moreover, they also point out that it is relatively easier to enter into contracts with Chinese projects.

Prices of carbon credits in China werelower than that in India on an average, said Mr Nishant Bharadwaj, General Manager, IT Power. He added that prices of Indian CERs varied between 4 and 11 depending on the risks associated with the project, whereas the average CER price for Chinese projects is 7.

Agreeing with the view Mr Robert Taylor, Director, Agrinergy, said: "The prices of CERs in China are lower since China has a lot of high volume, lower abatement costs, industrial gas projects." Both IT Power and Agrienergy have carbon credit buying operations in both the countries. "Though there is no documentation that suggests so, Chinese projects' CERs are likely to be cheaper than Indian CERs given the sheer volumes of CERs generated by Chinese projects," said Mr Chintan Shah, General Manager, Senergy Global.

BUYERS' FOCUS

"Many international buyers are focussing more on China since they get the CER volume and price advantage there," said Mr Das. "International buyers are increasing operations in China as it is easier to enter into contracts there before registration at UN, whereas Indian projects usually have a tendency to register unilaterally and hold up their CERs hoping for higher prices," said Mr Bharadwaj.

"And as China is the market leader in terms of CER supply, we would expect it to be the price-setter for carbon credits," said Mr Taylor. Also, getting Chinese projects registered at the UN was is easier because the environment laws in China are not as strict as India's, said Mr Das. Projects driven by rules do not qualify as CDM projects.

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