If someone told you that a company intends to distribute about 400 cookstoves, each worth ₹1,600, you would think that either it is philanthropy or that the company’s management is crazy.

Well, it is neither. GHG Reduction Technologies Pvt Ltd is putting up a factory at Nashik, Maharashtra, to manufacture cookstoves that it plans to distribute to the rural poor (over several years) free of cost, with a solid business plan behind it.

Carbon credits

The company aims to get carbon credits for each cookstove given away, which, it reckons, will more than pay for the manufacturing cost of the cookstove.

All of this may sound odd, but the company’s promoters are no strangers to carbon markets. GHG Reduction Technologies has been promoted by Manish Dabkara, who has also promoted EKI Energy, a company that facilitates in carbon trading, and has several big names such as ReNew Power, Indian Oil Corporation and Indian Railways as its customers. EKI Energy came out with an IPO last year at a price of ₹102 a share; on Wednesday, EKI shares closed at ₹4,536.25.

Dabkara calculates that each cookstove will earn the company four carbon credits a year because they save a lot on fuelwood. And the prices of carbon credits (or offsets) are already going through the roof, even as negotiations are on to make rules under Article 6 of the Paris Agreement. Today, certain types of carbon offsets sell for as much as €60.

Whenever the rules are made, governments (mostly of developed countries) would start buying the offsets (called in the Paris Agreement as ‘internationally traded mitigation outcomes’ or ITMOs). They would form the ‘compliance market’, where offsets are purchased to meet a commitment. But the markets are not waiting for the Article 6 rules or governments providing demand. The voluntary market, comprising companies such as Google and Apple, have vowed to reduce their carbon footprint to meet their ‘net-zero’ commitments. These companies are taking steps to de-carbonise their operations, but there will always be residual emissions that will need to be offset, points out Sandeep Roy Choudhury, Head of Origination at VNV Advisory, Singapore.

Carbon footprint

But even corporate buying does not complete the story. Today, investors are buying offsets in the hope of selling for a profit to entities that will be obliged under various agreements to reduce their carbon footprint — this means speculation has entered the carbon markets. Many banks are buying offsets, says Roy Choudhury.

Carbon investors speculate that the demand for offsets will increase in the next few years because many entities will be obliged to buy them. For example, airlines operating international flights will have to offset any carbon emission from new aircraft they press into service by buying carbon credits under the ‘Carbon Offsetting and Reduction Scheme for International Aviation’ (alternatively, they can use biofuels for flying aircraft but buying offsets are easier). Other potential buyers are oil and gas companies.

In future, several such entities will enter the carbon market — speculators have caught a whiff of things to come.

So, what are carbon credit prices today? They vary widely, depending on the nature of the underlying project, but the credits generated in Europe, the ‘European Union Allowance’ or the EAU, are now quoting at over ₹60, more than twice the pre-pandemic levels. Earlier this month, California-based carbon exchange CBL announced that its carbon credit volume so far this year had crossed 100 million, up 384 per cent over the same period last year, which “reflects the rising demand from companies implementing net-zero programmes to achieve the Paris Agreement goals, as also the influx of corporates, financial institutions, offset project developers, and fund managers to the exchange’s transparent order book, robust price discovery, and deep liquidity”.

Supply, demand

GHG Reduction technologies Dabkara believes that the market will only grow, with more and more entities demanding offsets. That is why he is investing in the manufacture of cookstoves that he will give away free.

However, there are voices noting that companies like GHG Reduction Technologies could be taking a punt. Roy Choudhury fears that over time the supply of carbon offsets might outstrip demand.

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