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3 Dr. Om Prakash Sharma

The document discusses carbon credits in India. It explains that carbon credits are a new currency where one credit equals one ton of CO2. India has a large opportunity in carbon trading and could account for 25% of the global carbon trade which is estimated to reach $200 billion by 2014. India has cornered over half the global certified carbon credits and companies in India have earned over $1.5 billion from selling carbon credits to other countries. The document also discusses carbon finance, carbon credits and financial statements, and opportunities for carbon credits projects in India.

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30 views4 pages

3 Dr. Om Prakash Sharma

The document discusses carbon credits in India. It explains that carbon credits are a new currency where one credit equals one ton of CO2. India has a large opportunity in carbon trading and could account for 25% of the global carbon trade which is estimated to reach $200 billion by 2014. India has cornered over half the global certified carbon credits and companies in India have earned over $1.5 billion from selling carbon credits to other countries. The document also discusses carbon finance, carbon credits and financial statements, and opportunities for carbon credits projects in India.

Uploaded by

Ravi Modi
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Inspira- Journal of Modern Management & Entrepreneurship 19

Volume 02, No. 03, July, 2012, pp.19-22

Carbon Credits in India

Dr. Om Prakash Sharma∗


Dr. Anish Yadav∗∗

There is a great opportunity awaiting India in Carbon trading which is


estimated to go up to $200 billion by 2014. In the new regime, the country could
emerge as one of the largest beneficiaries accounting for 25 per cent of the total world
carbon trade, says a recent World Bank report. The countries like US, Germany, Japan
and China are likely to be the biggest buyer of carbon credits which are beneficial for
India to a great extent.
The Indian market is extremely receptive to Clean Development Mechanism
(CDM). Having cornered more than half of the global total in tradable certified
emission reduction (CERs), India’s dominance in carbon trading under the clean
development mechanism (CDM) of the United Nations Framework Convention on
Climate Change (UNFCCC) is beginning to influence business dynamics in the
country. India Inc pocketed Rs 1,500 cores in the year 2005 just by selling carbon
credits to developed-country clients. Various projects would create up to 306 million
tradable CERs. Analysts claim if more companies absorb clean technologies, total
CERs with India registered 114 from India, the highest for any country. India’s
average annual CERs stand at 12.6% of 11.5 million. Hence, Municipal Solid Waste
(MSW) dumping grounds can be a huge prospect for CDM projects in India. These
types of projects would not only be beneficial for the Government bodies and
stakeholders but also for general public.
Day by day the cycle of climate on earth is changing. Global warming has led
to season shifting, changing landscapes, rising sea levels, increased risk of drought
and floods, stronger storms, increase in heat related illness and diseases all over the
world. This warming is largely the result of emission of carbon dioxide and other
Greenhouse Gases (GHG’s) from human activities including industrial processes,
fossil fuel combustion, and changes in land use, such as deforestation etc. To protect
ourselves, our economy, and our land from the adverse effects of climate change, we
must reduce emissions of carbon dioxide and other greenhouse gases. To achieve this
goal the concept of clean Development Mechanism (CDM) has come into vogue as a
part of Kyoto Protocol.
The Kyoto meeting of 1997 deemed that as each country. Produces Carbon
Dioxide, it must also be able to contain that CO2. This eventually led to Countries
looking at the companies on their soil to uphold the Kyoto protocol. A company has
two ways to reduce emission.

∗
Lecturer in Business Administration, Govt. Bangur P.G. College, Didwana, Rajasthan
∗∗
Assistant Professor (Commerce), Govt. College, Ateli (Haryana)
20 Inspira- Journal of Modern Management & Entrepreneurship : July , 2012

(i) It can reduce the greenhouse gases by adopting new technology or improving
upon the existing technology to attain the new norms for emission of gases.
(ii) It can purchase “absorption ability” from another nation, thereby helping
developing country or its companies “earn” credits.
The carbon credit is this new currency and one carbon credit is equal to one
tone of CO2 and is called a CO2e (CO2 equivalent). Costs are between us $10-40 per
credit. Many industrial countries (~36) (but not the US) have agreed to reduce
greenhouse gas emissions over time, they can do so, in part, by financing “clean
development” projects in the developing world.
Research Methodology
Objectives
The objective of this paper is to identify the versatile facets relating to carbon
credit in India and developing countries. We have narrowed down the scope of this
paper to three main concerns relating to carbon credit viz. carbon credit for
companies, carbon finance and carbon credit and credit and financial
valuation/statements.
Scope and Limitations
The scope of this paper is limited to the identification and study of the major
issues concerning carbon credit and financial valuation.
Mode of Citation
A uniform mode of citation is used throughout the paper.
Sources of Data
This paper is based on researched work compiled from numerous articles,
working papers, statistical data and case law.
SECTION -1
What are Carbon Credits in Companies?
Typically, buyers of carbon credits are companies in the United States or the
European Union who want to reduce their greenhouse gas emissions, either
voluntarily (in the United States) or because their emissions are regulated (In the
European Union). Instead of directly cutting their own emissions, these companies
choose to buy credits, usually from a bank, a company or a nonprofit concern. These
are usually located in the developing world- usually a country that has come up with
a less expensive way to check the manufacture and spread greenhouse gases. So, for
instance, big brands in the US or industrial companies in the European Union offset
their emission by financing the capture of methane gas at chicken farms in India or
landfills in Mexico, by underwriting wind farms in Sri Lanka, or by paying refrigerant
and fertilizer plants in China to trap their industrial gases.
SECTION -2
Carbon Finance-Big Money Involved
Last year traders bought and sold about $ 60 billion worth of emission
allowance, mostly in Europe and Japan, where governments regulation regulate
greenhouse gases. If, as expected, regulation comes to the U.S. the country’s carbon-
trading market is expected to be worth $1 trillion annually by 2020. No wonder the
major investment banks, utilities, industrials, and hedge funds- among them GE,
Goldman Sachs, J.P. Morgan chase, and AES-are rushing into the business of carbon
Carbon Credits in India 21

finance. India, along with other developing nations, is at an advantage as it can


implement approved clean development mechanism (CDM) projects for the purposed
of trading Certified Emission Reduction (CERs). It is not surprising that one third of
the total CDM projects registered with UNFCCC are from India. India’s carbon
credit’s trading is expected to reach $100 billion by 2010. As a result, India industry
managed to generate over 27 million carbon credits till date. Indian projects receive
further impetus by way of investments and finance from developed nations who are
potential buyers of CERs.
SECTION- 3
Carbon Credits and Finance Statements
Carbon credits inclusion on financial statements is guided by regulation of the
Chartered Accounting bodies and varies in every county- in certain countries it is not
mandatory to include such earning in the accounting statements. The United States is
still not under the Kyoto agreement and hence the buying is voluntary. That leaves
doors to carbon credits spending open debate as of now. However, the United States
Senate is trying to pass the Lieberman-Warner Senate bill 2191 which is called
America’s climate Security Act of 2007. If is enacted into law it will establish a carbon
credit system in the United States that will give the Environmental Protection Agency
(EPA) extraordinary enforcement powers, over this system, The accounting and
valuation scenario will also be reviewed and updated depending on the way carbon
credits spending is seen and worked into the bill. In India, being the “seller” country,
the situation is different. The Institute of Chartered Accountants of India (ICAI) is
currently working on accounting norms for carbon credits. According to ICAI,
companies who earn revenue by selling carbon will have to make their financial
statement under the new norms from April 1st ,2011. However, the new accounting
norm on this issue is yet to be notified by ICAI. It, thus, has to be seen whether CERs
are classified as a tradable commodity under the accounting norm.
Conclusion
There is a great opportunity awaiting India in Carbon trading which is
estimated to go up to $200 billion by 2014. In the new regime, the country could
emerge as one of the largest beneficiaries accounting for 25 per cent of the total world
carbon trade, says a recent World Bank report. The countries like US, Germany, Japan
and China are likely to be the biggest buyers of carbon credits which are beneficial for
India to a great extent.
The Indian market is extremely receptive to Clean Development Mechanism
(CMD). Having cornered more than half of the global total in tradable certified
emission reduction (CERs), India’s dominance in carbon trading under the clean
development mechanism (CMD) of the UNFCCC is beginning to influence business
dynamics in the country. India Inc pocketed Rs 1,500 cores in the year 2005 just by
selling carbon credits to developed-country clients. Various projects would create up
to 306 million tradable CERs. Analysts claim if more companies absorb clean
technologies, total CERs with India registered 114 from India, the highest for any
country. India’s average annual CERs stand at 12.6% of 11.5 million. Hence, MSW
dumping grounds can be a huge prospect for CDM projects in India. These types of
22 Inspira- Journal of Modern Management & Entrepreneurship : July , 2012

projects would not only be beneficial for the Government bodies and stakeholders but
also for general public.

References
1 Collins English Dictionary-Complete &Unabridged 10th Edition. Carbon credit.
William Collins Sons & Co. Ltd/ Harper Collins Publishers. 2009
2 Climate change glossary: Carbon credit. Environment Protection Authority Victoria 02-
09-2008
3 Making Kyoto work data: Policies, infrastructure. UNFCCC press briefing. 20-07-2011
4 Climate Change 2007 : Mitigation of Climate Change, Summary for Policymakers from
IPCC Fourth Assessment Report. Working Group III, IPCC.04-05-2007.
5 Kyoto Protocol Targets: UNFCCC Retrieved 25-01-2010
6 Kyoto Protocol Reference Manual on Accounting Of Emission and Assigned Amount.
7 EU climate change policies: Commission asks member states to fulfill their obligators.
EUROPA- Press Releases. 06-04-2006
8 Contor Co2e Launches First Internet CER Auction (Press release). Contor Co2e. 09-09-
2008
9 Kanter, James (20-06-2006): “Carbon trading, Where greed is green”. The New York
Times.
10 Nordhaus, “A Question of Balance- Weighing the Options on Global Warning
Policies”. Yale University Press.
11 UNFCCCCDM project database.
12 France and Italy seek to avoid EU carbon clash. Reuters Alert Net.

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