Carbon credit and how you can make

money from it
Carbon dioxide, the most important greenhouse gas produced by combustion of fuels, has
become a cause of global panic as its concentration in the Earth's atmosphere has been rising
alarmingly.

This devil, however, is now turning into a product that helps people, countries, consultants,
traders, corporations and even farmers earn billions of rupees. This was an unimaginable
trading opportunity not more than a decade ago.

Carbon credits are a part of international emission trading norms. They incentivise companies
or countries that emit less carbon. The total annual emissions are capped and the market
allocates a monetary value to any shortfall through trading. Businesses can exchange, buy or
sell carbon credits in international markets at the prevailing market price.

India and China are likely to emerge as the biggest sellers and Europe is going to be the
biggest buyers of carbon credits.

Last year global carbon credit trading was estimated at $5 billion, with India's contribution at
around $1 billion. India is one of the countries that have 'credits' for emitting less carbon.
India and China have surplus credit to offer to countries that have a deficit.

India has generated some 30 million carbon credits and has roughly another 140 million to
push into the world market. Waste disposal units, plantation companies, chemical plants and
municipal corporations can sell the carbon credits and make money.

Carbon, like any other commodity, has begun to be traded on India's Multi Commodity
Exchange since last the fortnight. MCX has become first exchange in Asia to trade carbon
credits.

So how do you trade in carbon credits? Who can trade in them, and at what price? Joseph
Massey, Deputy Managing Director, MCX, spoke to Managing Editor Sheela Bhatt to
explain the futures trading in carbon, and related issues.

What is carbon credit?

As nations have progressed we have been emitting carbon, or gases which result in warming
of the globe. Some decades ago a debate started on how to reduce the emission of harmful
gases that contributes to the greenhouse effect that causes global warming. So, countries
came together and signed an agreement named the Kyoto Protocol.

The Kyoto Protocol has created a mechanism under which countries that have been emitting
more carbon and other gases (greenhouse gases include ozone, carbon dioxide, methane,
nitrous oxide and even water vapour) have voluntarily decided that they will bring down the
level of carbon they are emitting to the levels of early 1990s.
Developed countries, mostly European, had said that they will bring down the level in the
period from 2008 to 2012. In 2008, these developed countries have decided on different
norms to bring down the level of emission fixed for their companies and factories.

A company has two ways to reduce emissions. One, it can reduce the GHG (greenhouse
gases) by adopting new technology or improving upon the existing technology to attain the
new norms for emission of gases. Or it can tie up with developing nations and help them set
up new technology that is eco-friendly, thereby helping developing country or its companies
'earn' credits.

India, China and some other Asian countries have the advantage because they are developing
countries. Any company, factories or farm owner in India can get linked to United Nations
Framework Convention on Climate Change and know the 'standard' level of carbon emission
allowed for its outfit or activity. The extent to which I am emitting less carbon (as per
standard fixed by UNFCCC) I get credited in a developing country. This is called carbon
credit.

These credits are bought over by the companies of developed countries -- mostly Europeans
-- because the United States has not signed the Kyoto Protocol.

How does it work in real life?

Assume that British Petroleum is running a plant in the United Kingdom. Say, that it is
emitting more gases than the accepted norms of the UNFCCC. It can tie up with its own
subsidiary in, say, India or China under the Clean Development Mechanism. It can buy the
'carbon credit' by making Indian or Chinese plant more eco-savvy with the help of technology
transfer. It can tie up with any other company like Indian Oil [ Get Quote ], or anybody else,
in the open market.

In December 2008, an audit will be done of their efforts to reduce gases and their actual level
of emission. China and India are ensuring that new technologies for energy savings are
adopted so that they become entitled for more carbon credits. They are selling their credits to
their counterparts in Europe. This is how a market for carbon credit is created.

Every year European companies are required to meet certain norms, beginning 2008. By
2012, they will achieve the required standard of carbon emission. So, in the coming five years
there will be a lot of carbon credit deals.

What is Clean Development Mechanism?

Under the CDM you can cut the deal for carbon credit. Under the UNFCCC, charter any
company from the developed world can tie up with a company in the developing country that
is a signatory to the Kyoto Protocol. These companies in developing countries must adopt
newer technologies, emitting lesser gases, and save energy.

Only a portion of the total earnings of carbon credits of the company can be transferred to the
company of the developed countries under CDM. There is a fixed quota on buying of credit
by companies in Europe.
How does MCX trade carbon credits?

This entire process was not understood well by many. Those who knew about the possibility
of earning profits, adopted new technologies, saved credits and sold it to improve their
bottomline.

Many companies did not apply to get credit even though they had new technologies. Some
companies used management consultancies to make their plan greener to emit less GHG.
These management consultancies then scouted for buyers to sell carbon credits. It was a
bilateral deal.

However, the price to sell carbon credits at was not available on a public platform. The price
range people were getting used to was about Euro 15 or maybe less per tonne of carbon.
Today, one tonne of carbon credit fetches around Euro 22. It is traded on the European
Climate Exchange. Therefore, you emit one tonne less and you get Euro 22. Emit less and
increase/add to your profit.

We at the MCX decided to trade carbon credits because we are in to futures trading. Let
people judge if they want to hold on to their accumulated carbon credits or sell them now.

MCX is the futures exchange. People here are getting price signals for the carbon for the
delivery in next five years. Our exchange is only for Indians and Indian companies. Every
year, in the month of December, the contract expires and at that time people who have bought
or sold carbon will have to give or take delivery. They can fulfill the deal prior to December
too, but most people will wait until December because that is the time to meet the norms in
Europe.

Say, if the Indian buyer thinks that the current price is low for him he will wait before selling
his credits. The Indian government has not fixed any norms nor has it made it compulsory to
reduce carbon emissions to a certain level. So, people who are coming to buy from Indians
are actually financial investors. They are thinking that if the Europeans are unable to meet
their target of reducing the emission levels by 2009 or 2010 or 2012, then the demand for the
carbon will increase and then they may make more money.

So investors are willing to buy now to sell later. There is a huge requirement of carbon credits
in Europe before 2012. Only those Indian companies that meet the UNFCCC norms and take
up new technologies will be entitled to sell carbon credits.

There are parameters set and detailed audit is done before you get the entitlement to sell the
credit. In India, already 300 to 400 companies have carbon credits after meeting UNFCCC
norms. Till MCX came along, these companies were not getting best-suited price. Some were
getting Euro 15 and some were getting Euro 18 through bilateral agreements. When the
contract expires in December, it is expected that prices will be firm up then.

On MCX we already have power, energy and metal companies who are trading. These
companies are high-energy consuming companies. They need better technology to emit less
carbon.
Is this market also good for the small investors?

These carbon credits are with the large manufacturing companies who are adopting UNFCCC
norms. Retail investors can come in the market and buy the contract if they think the market
of carbon is going to firm up. Like any other asset they can buy these too. It is kept in the
form of an electronic certificate.

We are keeping the registry and the ownership will travel from the original owner to the next
buyer. In the short-term, large investors are likely to come and later we expect banks to get
into the market too. This business is a function of money, and someone will have to hold on
to these big transactions to sell at the appropriate time.

Isn't it bit dubious to allow polluters in Europe to buy carbon credit and get away with
it?

It is incorrect to say that because under UNFCCC the polluters cannot buy 100 per cent of the
carbon credits they are required to reduce. Say, out of 100 per cent they have to induce 75 per
cent locally by various means in their own country. They can buy only 25 per cent of carbon
credits from developing countries.

Tell us what's the flip side of your business?

Like in the case of any other asset, its price is determined by a function of demand and
supply. Now, norms are known and on that basis European companies will meet the target
between December 2008 and 2012. People are wondering how much credit will be available
in market at that time. To what extent would norms be met by European companies. . .

As December gets closer, it is possible that some government might tinker with these norms a
little if the targets could not be met. If these norms are changed, prices can go through a
correction. But, as of now, there is a very transparent mechanism in which the norms for the
next five years have been fixed.

Governments have become signatories to the Kyoto Protocol and they have set the norms to
reduce the level of carbon emission. Already companies are on way to meeting their target.

Other than this, it's a question of having correct information. How much will be the demand
for carbon credit some years from now? How much will the supply be? It is a safe market
because it is a matter of having more information on the extent of demand and supply of
carbon credit market.
Tell me about yourself??

My full name is Venkat Rao Vemula and I am from a village near Ongole.I have done my schooling
and +2 in ongole and for Engineering I came to Hyderabad.So, in this span of 22 yrs,I have brought
up in country side,in towns and in city, which has given me an opportunity to come across different
sets of people .

He might ask what’s the difference between ppl in cities and in villages??

ANS:-people in village are much straight forward and curious about each and every thing but incase
of cities it is not the case.In case of helping nature Villagers have an upper hand..,that is what I have
experienced ...

You can keep a back up example here

One good thing about me is the way I handle myself and I can put forward it as one of my strengths

I would like to mention one of my experiences here..

Eg:- Satyam Job Case,

During my B.tech final yr.,I was the first one in my class who got placed but in a matter of months
things turned out away from me.,and this was the time in my life which taught me how to handle
Odds and to be optimistic.

Then I have learnt We can’t control things beyond our control and better focused on those which are
in you control

Coming to my family details My father is a Farmer and mother is a home-maker and I have 3 elder
sisters and all of them got married

And coming to my interestsI love to play cricket and watching movies.