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July 2 (Bloomberg) — India’s top earners of United Nations carbon credits, including tire-maker SRF Ltd., may see revenue fall after a panel recommended a probe that could bring them fewer tradable permits than expected, analysts said.
SRF, Gujarat Fluorochemicals Ltd., Navin Fluorine International Ltd. and Chemplast Sanmar Ltd. earn credits for projects limiting emissions of gases called hydrofluorocarbons or HFCs used in refrigerators and air-conditioners.
A UN panel yesterday suggested an investigation after reviewing 22 HFC projects worldwide. The current carbon credit system may give incentives to produce more HFCs than necessary, displace more efficient entrants and extend the life of old plants, according to the panel’s findings on the UN website.
“There’s no doubt” that UN carbon credits are a significant source of revenue for these companies, said Ashish Sethia, lead analyst at Bloomberg New Energy Finance in New Delhi. “There’s obviously a risk that these projects might be able to get less credits.”
The panel recommended reconsidering a cap on such projects, which determines how many credits companies are eligible to earn. An alternative benchmark suggested would reduce the number of permits that the Indian companies could earn by as much as 50 percent, said Anmol Singh Jaggi, director of Gensol Consultants Pvt. in Ahmedabad, which advises and brokers carbon projects.
“It’s a subtle warning telling these projects, ‘beware this is coming.’ SRF, Gujarat Fluorochemicals and Navin Fluorine are going to be massively impacted by this,” Jaggi said.
SRF Chief Executive Roop Salotra declined to comment when contacted on his mobile phone.
SRF Credits
SRF’s refrigerant factory in northwestern Rajasthan state gets credits for burning and destroying HFC-23, a byproduct and potent greenhouse gas that was previously released into the air. HFC-23 can trap 11,700 times more heat per molecule than carbon dioxide and linger in the atmosphere for as long as 260 years, according to the U.S. Environmental Protection Agency.
The UN is set to award SRF as many as 16 million Certified Emission Reductions on top of the 16.5 million received since January 2006, according to data compiled by Bloomberg. That’s more than any other Indian project to 2012.
SRF sold 3.48 billion rupees ($74 million) of carbon credits compared with the group’s pretax income of 2.46 billion rupees, according to the company’s annual report for the year ending March 31, 2009, the most recent available.
“If you remove their revenue from carbon credits, it’s a major chunk of their cash flows,” Harish Subramanian, a Mumbai- based analyst with Tower Capital & Securities Pvt., said by telephone. “Most of their profits were from carbon credits.”
Indian Projects
India is the biggest generator of credits after China in the UN Clean Development Mechanism, the world’s second-largest carbon market. HFC projects account for 60 percent of India’s carbon credits to date, according to data compiled by Bloomberg.
Indian HFC projects may earn 5.06 million credits per year instead of an expected 10.6 million, based on what the panel is suggesting, Gensol’s Jaggi said.
The four Indian companies with HFC projects had a combined revenue of 51.2 billion rupees last year, according to Bloomberg data. In comparison, the 49.2 million credits they’ve won since 2006 may be worth 640 million euros ($800 million), based on yesterday’s closing price of 13.01 euros for 2012 futures for UN offsets.
Chemplast Chairman P.S. Jayaraman, Deepak Asher, vice president at Gujarat Fluorochemicals, and P. Roychowdhury, vice president at Navin Fluorine, didn’t respond to e-mails and phone calls requesting comment.
Spreads Widen
The discount of UN credits to European Union offset permits widened today after the panel’s findings. The spread for 2012 contracts, traded as a separate product, gained 0.9 percent to 3.32 euros a metric ton as of 8:46 a.m. on London’s European Climate Exchange, compared with 3.29 euros yesterday.
HFCs gained favor in the 1970s as an alternative to chlorofluorocarbons, or CFCs, which scientists linked to depletion of the ozone layer. While HFCs don’t interfere as much with the earth’s shield against damaging sunrays, they trap heat and contribute to global warming.
–Editors: John Chacko, Abhay Singh.
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