| Sourced From DNAIndia.com |
Mumbai: Carbon credits were launched in India nearly two years ago, but the exchanges on which they were to be traded are faced with a rather unique problem: while there are plenty of entities willing to sell carbon credits, there are almost no buyers.
Under the current regulations, foreign entities are not allowed to trade on commodity exchanges. This has buyers going for the over-the-counter (OTC) alternatives, the risks notwithstanding, leaving the Multi Commodity Exchange (MCX) and the National Commodities and Derivatives Exchange (NCDEX) with illiquid markets.
“Most of the buyers are overseas and are not permitted to trade on the exchanges. This leads them to go directly to sellers or act through a broker. In both cases, there is counter-party risk, which is not the case with an exchange,” said Vijay Kumar, chief business officer, NCDEX.
Carbon credits such as a certified emission reduction (CER) allow those holding them to emit a fixed amount of green house gases. They are awarded to entities that have reduced the amount of emissions to a level below their quota. The system was put in place to provide an incentive for lesser pollution.
The average value of transactions on the NCDEX was Rs 15.75 crore when trading began in April 2008. Trades have been sporadic since then. The last trade on the exchange was on September 10, worth just Rs 4.7 lakh.
On the MCX, CER trading began in June last year with average volumes of Rs 19.04 crore. The last trade on the exchange took place on October 12, with four contracts totalling Rs 8.6 lakh.
The number of trades, too, has dwindled — on the NCDEX, from 2,541 in the first month to just one this September; on the MCX, from 6,254 in June 2008 to just one so far this month.
“Early volumes were driven by some speculative interest in the carbon credit market, which has gone down after the initial burst,” said an expert, preferring anonymity.
The disappointing figures belie India’s potential for use of carbon credits. The country has a large number of clean development mechanism (CDM) projects, which allow industrialised countries to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries.
“India is the second-largest country for supply of CERs and has the largest number of CDM projects. In India, while there are many sellers, the actual buyers who are using the OTC markets are prevented from using commodity exchanges. If international firms are allowed to trade on domestic exchanges, it will give a fillip to creating a liquid market,” said Vijay Kumar.
MCX officials were not available for comment. Experts feel the carbon credits market will grow to as much as $5 trillion if major countries such as the US sign the Kyoto Protocol, a treaty to reduce global warming.
Meanwhile, the exchanges are looking forward to the passage of the Forward Contracts (Regulation) Amendment Bill, which would both define the regulation on carbon credits trading and introduce options based on them. Analysts say the Bill, if passed, would allow for options in carbon credits, boosting overall volumes. The passage of the Bill had earlier been blocked by the Left parties, which were then a part of the government.
