CARBON CONTRACT TRADING IN INDIA

Carbon trading, or carbon offsetting, is a way to balance or compensate for carbon emissions in one geographical place, with a reduction in emissions in another. Since it doesnt matter where Greenhouse Gases (GHG) are emitted, as their effect on climate change is global, reducing emissions in any other country is as effective as doing so locally. Carbon emissions refers to carbon dioxide (CO), and are a form of GHG, as is methane and nitrous oxide, but for most of us it is easier to think in terms of carbon emissions. Carbon offsetting reduces emissions with a minimum of effort and cost. Offsetting means paying someone else to reduce CO in the atmosphere on our behalf. In that way we pay for the damage we are causing and the money stimulates the development of green technologies.

 This was an idea presented in response to the Kyoto Protocol that involves the trading of greenhouse gas (GHG) emission rights between nations. For example, if Country A exceeds its capacity of GHG and Country B has a surplus of capacity, a monetary agreement could be made that would see Country A pay Country B for the right to use its surplus capacity. The Kyoto Protocol presents nations with the challenge of reducing greenhouse gases and storing more carbon. A nation that finds it hard to meet its target of reducing GHG could pay another nation to reduce emissions by an appropriate quantity.

What is a Carbon Credit?

Carbon reduction projects throughout the world create a tradable carbon credit for every tonne of carbon dioxide equivalent (CO-e) that is stopped from entering our atmosphere. When you buy a credit, it is then retired so it cant be sold again the credit will be recorded against your name, meaning that you have stopped one tonne of CO-e that otherwise would have entered the atmosphere. There are many different kinds of carbon credits. Certified carbon credits are created by government approved abatement projects. These include projects such as harnessing landfill gas, reforestation and sequestration, and electricity consumption reduction.

 Carbon Offset Credits

Carbon trading aims to prevent increases in environmental carbon dioxide by offsetting carbon-emitting activities with carbon-conserving activities. A nation or business entity that has reduced its carbon emissions significantly below a set level may sell the offset as carbon credits to another entity that has yet to reduce its carbon emissions to the required level.

Application
An entity that receives money in exchange for its carbon credits will then use the money to launch or support a project intended to reduce carbon emissions, increasing the overall positive impact on the environment. Carbon trading allows entities that cannot directly reduce their own carbon emissions to contribute to others efforts, making an indirect but measurable impact on carbon dioxide reduction. In one hypothetical example of carbon trading, an energy company might buy carbon credits that will pay for the construction and operation of a commercial wind turbine.

Advantages

Example

 Carbon trading is the name given to the exchange of emission permits. This transition may take place within the economy or may take the form of international transition. There are two types of carbon trading namely emission trading and offset trading. Carbon trading is a new mechanism designed to allow firms that fail to meet the emission standards set by the 1997 Kyoto protocol, to buy credits from other firms that meet their target The Kyoto Protocol also envisaged carbon credit trade between countries with carbon sinks i.e. planted forests and other that produce higher level of pollution. Each Auuex-I has been assigned fixed amount in Kyoto protocol agreement. This amount is actually the amount of emission which is to be reduced by the concerned country.

 Such fixed amount implies that the country is permitted to emit the remaining amount. This emission allowance is actually one kind of carbon credit. The total amount of allowance is then subdivided into certain units. The units are expressed in terms of carbon equivalent. Each unit gives the owner the right to emit one metric tone of carbon dioxide or other equivalent green house gases. Another variant of carbon credit is to be earned by a country by investing some amount in such project, known as carbon projects which will emit lesser amount of green house gas in the atmosphere. The exchange of first variant of carbon credit is known as emission trading or cap-and trade whereas exchange of second variant of carbon credit is termed as offset trading. It is one of the ways through which countries can meet their obligation under the Kyoto Protocol.

 The world's only mandatory carbon trading programme is the European Union. Emissions Trading Scheme, created in conjunction with the Kyoto Protocol, it took effect in 2005, and it caps the amount of large installations, such as power plants and factories in the European Union countries. Global carbon trading has gained momentum. The world watch Institute drawing from various studies, places the value of the trade at about 60 billion dollars in 2007. Asian countries are biggest sellers and western countries are biggest buyers.

 India is considered a major supplier of certified emission reductions because of the largest number of projects registered with the clean development mechanism. More than a hundred projects from India have been issued CERs for a total of 25 million. India has also taken a highly proactive approach to CDM from the very beginning and playing a major role in the design of the mechanism and its modalities. India also ranks first in registration of CDM projects followed by Brazil, Mexico and China. About 740 million CERs are expected from registered projects till 2012. The large scale CDM development in India is due to the fact that the country is endowed with skilled human resources to handle this task. The growing Indian economy and its diverse sectors offer huge potential for emission reduction. Most of the CDM projects in renewable energy sector. The energy efficiency and industrial process were other sector. However, the average six of the CDM projects from India is 3000-5000 CERS per annum per project. India has also offered the largest number of CDM projects so far to the CDM Executive Board.

CDM PROJECT TYPES

Carbon Credits are sold to entities in Annex-I countries, like power utilities, who have emission reduction targets to achieve & find it cheaper to buy offsetting certificate rather than do a clean-up in their backyard. Type of projects, which are being applied for CDM and which can be of valuable potential, are: Energy efficiency projects Increasing building efficiency (Concept of Green Building/LEED Rating), eg. Technopolis Building Kolkata Increasing commercial/industrial energy efficiency (Renovation & Modernization of old power plants) Fuel switching from more carbon intensive fuels to less carbon intensive fuels; and Also includes re-powering, upgrading instrumentation, controls, and/or equipment Transport Improvements in vehicle fuel efficiency by the introduction of new technologies Changes in vehicles and/or fuel type, for example, switch to electric cars or fuel cell vehicles (CNG/Bio fuels) Switch of transport mode, e.g. changing to less carbon intensive means of transport like trains (Metro in Delhi); and Reducing the frequency of the transport activity

 Methane recovery Animal waste methane recovery & utilization Installing an anaerobic digester & utilizing methane to produce energy Coal mine methane recovery Collection & utilization of fugitive methane from coal mining; Capture of biogas Landfill methane recovery and utilization Capture & utilization of fugitive gas from gas pipelines; Methane collection and utilization from sewage/industrial waste treatment facilities Industrial process changes Any industrial process change resulting in the reduction of any category greenhouse gas emissions

 Cogeneration Use of waste heat from electric generation, such as exhaust from gas turbines, for industrial purposes or heating (e.g. Distillery-Molasses) Agricultural sector Energy efficiency improvements or switching to less carbon intensive energy sources for water pumps (irrigation) Methane reductions in rice cultivation Reducing animal waste or using produced animal waste for energy generation (see also under methane recovery) and Any other changes in an agricultural practices resulting in reduction of any category of greenhouse gas emissions

 Emissions trading is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. The development of a carbon project that provides a reduction in Greenhouse Gas emissions is a way by which participating entities may generate tradeable carbon credits. Say a company in India can prove it has prevented the emission of x-tonnes of carbon, it can sell this much amount of points (or carbon credits) to a company in say, the US which has been emitting carbons. The World Bank has built itself a role in this market as a referee, broker and macro-manager of international fund flows. A central authority (in our case CDM India, an authority under the Ministry of Environment and Forests) sets a limit or cap on the amount of a pollutant that can be emitted in a country. Companies or other groups that emit the pollutant are given credits (CERs Certified Emission Reductions) or allowances which represent the right to emit a specific amount. The total amount of credits cannot exceed the cap, limiting total emissions to that level. Companies that pollute beyond their allowances must buy credits from those who pollute less than their allowances or face heavy penalties. This transfer is referred to as a trade. In effect, the buyer is being fined for polluting, while the seller is being rewarded for having reduced emissions. Thus companies that can easily reduce emissions will do so and those for which it is harder will buy credits which reduce greenhouse gasses at the lowest possible cost to society. Countries which have companies having higher credits will enable them to sell the credits in the international market.

 There are a number of international markets -- most notably the EU, with its European Union Greenhouse Gas Emission Trading Scheme (EU ETS) that began its operations on 1 January 2005. Companies which accumulate CERs sell them there in this market to interested buyers. The international market for CERs has crossed the $30 bn mark in 2006, largely driven by the trading of EUA (European Union Allowances). EUA are the equivalent of CERs (Certified Emission Reductions). China is the largest seller in the CDM market with about 61% share, followed by India with 12% share. So far, India approved about 513 (as of April 2007) projects with a potential to generate about 355 mn CERs (Certified Emission Reductions). Each CER can trade for anywhere between $6 and $16 in the international market.

CARBON CREDITS A MARKET OF THE 21st CENTURY

With growing concerns among nations to curb pollution levels while maintaining the growth in their economic activities, the emission trading (ET) industry has come to life. And, with the increasing ratification of Kyoto Protocol (KP) by countries and rising social accountability of polluting industries in the developed nations, the carbon emissions trading is likely to emerge as a multibillion-dollar market in global emissions trading. The recent surge in carbon credits trading activities in Europe is an indication of how the emissions trading industry is going to pan out in the years to come. What is a carbon credit? Simply put, one carbon credit is equivalent to one tonne of carbon dioxide or its equivalent greenhouse gas (GHG). Carbon credits are Entitlement Certificates issued by the United Nations Framework Convention on Climate Change (UNFCCC) to the implementers of the approved Clean Development Mechanism (CDM) projects. The potential buyers of carbon credits shall be corporates in various Annexure I countries that need to meet the compliance prevailing in their countries as per the Kyoto Protocol or those investors who would like buy the credits and with the expectation of selling them at a higher price during the KP phase (2008-12). The extension of KP shall be ratified by the current signatories of KP in their future meetings essentially to curb GHG emissions into the environment.

Sources of demand & supply

Emerging carbon credit markets offer enormous opportunities for the upcoming manufacturing/public utility projects to employ a range of energy saving devices or any other mechanisms or technology to reduce GHG emissions and earn carbon credits to be sold at a price. The carbon credits can be either generated by project participants who acquire carbon credits through implementation of CDM in Non Annexure I countries or through Joint Implementation (JI) in Annexure I countries or supplied into the market by those who got surplus allowances with them. The buyers of carbon credits are principally from Annexure I countries. They are: Especially European nations, as currently European Union Emission Trading Scheme (EU ETS) is the most active market; Other markets include Japan, Canada, New Zealand, etc. The major sources of supply are Non-Annexure I countries such as India, China, and Brazil.

Trading In Carbon Credits

Emissions trading (ET) is a mechanism that enables countries with legally binding emissions targets to buy and sell emissions allowances among themselves. Currently, futures contracts in carbon credits are actively traded in the European exchanges. In fact, many companies actively participate in the futures market to manage the price risks associated with trading in carbon credits and other related risks such as project risk, policy risk, etc. Keeping in view the various risks associated with carbon credits, trading in futures contracts in carbon allowances has now become a reality in Europe with burgeoning volumes. Currently, project participants, public utilities, manufacturing entities, brokers, banks, and others actively participate in futures trading in environment-related instruments.

Price influencing factors

In Non-Annexure B countries (the developing countries) across the world, CER prices are influenced by various factors including EUA prices, crude oil prices, electricity, coal, natural gas, the level of economic activities across Annexure I countries, among others Some of the major price influencing factors: Supply-demand mismatch Policy issues Crude oil prices Coal prices CO2 emissions Weather/Fuel prices European Union Allowances (EUAs) prices Foreign exchange fluctuations Global economic growth

Risks associated with carbon credits

There are market- and policy-related risks for CER (certified emission reduction)producers, including the supply-side risks starting from the DNA approval risk to the CER issuance risk in a complete CDM approval cycle. Apart from these risks there are a host of other risks from both the supply and demand sides that the real market players confront with. Most CDM projects by their very nature take a long time to generate the CERs and hence, face the aforesaid risks in large proportion, which if not hedged would lead to reduced realization. Under such a situation, the realization of CER generators at times may not even cover the investment put in to generate the CERs and thus, has the potential of even making a CDM project unviable in the long term. Given the long gestation period of CDM projects and the risks involved, it is rather inevitable that they pre-sell their potential credits in the futures market (preferably a domestic futures market, to avoid forex risk attached to participation in a foreign exchange) and thereby, cover their probable downside in the physical market.

Potential participants in carbon credits trading are as below

Hedgers Producers Intermediaries in spot markets Ultimate buyers Investors Arbitragers Portfolio managers Diverse participants with wide participation objectives Commodity financers Funding agencies Corporates having risk exposure in energy products

India as a potential supplier

India, being one of the leading generators of CERs through CDM, has a large scope in emissions trading. Analysts forecast that its trading in carbon credits would touch US$ 100 billion by 2010. Currently, the total registered CDM projects are more than 300, almost 1/3rd of the total CDM projects registered with the UNFCCC. The total issued CERs with India as a host country till now stand at 34,101,315 (around 34 million), again around 1/3rd of the total CERs issued by the UNFCCC. In value terms (INR), it could be running into thousands of crores. Further, there has been a surge in number of registered projects in India. In 2007, a total of 160 new projects were registered with the UNFCCC indicating that more than half of all registered projects in India happened last year. It is expected that with increasing awareness this would go further up in the future. The number of expected annual CERs in India is hovering around 28 million and considering that each of these CERs is sold for around 15 euros, on an average, the expected value is going to be around Rs 2,500 crore.

Various industries that have scope of generation of CERs

Agriculture Energy ( renewable & non-renewable sources) Manufacturing Fugitive emissions from fuels (solid, oil and gas) Metal production Mining and mineral production Chemicals Afforestation & reforestation

The role of MCX

With MCX keen to play a major role on the emission front by extending its platform to add carbon credits to its existing basket of commodities with regard to commodities futures trading, the existing and potential suppliers of carbon credits in India have geared up to generate more carbon credits from their existing and ongoing projects to be sold in the international markets. With India supposed to be a major supplier of carbon credits, the tie-up between the two exchanges is expected to ensure better price discovery of carbon credits, besides covering risks associated with buying and selling.

Advantages of an MCX carbon contract In India, currently only bilateral deals and trading through
intermediaries are widely prevalent leading to sellers being denied fair prices for their carbon credits. Advantages that the MCX platform offers are: Sellers and intermediaries can hedge against price risk; Advance selling could help projects generate liquidity and thereby, reduce costs of implementation; There is no counterparty risk as the Exchange guarantees the trade; The price discovery on the Exchange platform ensures a fair price for both the buyer and the seller; Players are brought to a single platform, thus, eliminating the laborious process of identifying either buyers or sellers with enough credibility; and The MCX futures floor gives an immediate reference price. At present, there is no transparency related to prices in the Indian carbon credit market, which has kept sellers at the receiving end with no bargaining power.

CARBON CREDIT IN INDIA

The concept of carbon credits evolved from the Kyoto Protocol Treaty under the UNFCCC (United Nations Framework Convention on Climate Change). 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 vapor) have voluntarily decided that they will bring down the level of carbon they are emitting to the levels of early 1990s. The treaty requires the industrialized countries to reduce their collective emissions of greenhouse gases by 5.2 percent (compared to the year 1990) by 2012. The treaty was negotiated in Kyoto, Japan, in December 1997, and the agreement came into force on February 16, 2005. 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. 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. A carbon credit is a tradable certificate or permit representing the right to emit one ton of carbon dioxide or carbon dioxide equivalent (CO2-e).

 Three Flexibility Mechanisms: As part of the agreement, three flexibility mechanisms were developed to help developed countries meet their emission reduction targets namely, Clean Development Mechanism (CDM), Joint Implementation (JI) and International Emission Trading (IET). Of these, JI and IET are executable amongst developed countries while CDM is between developed and developing countries. It is a mechanism allowing industrialized countries with a greenhouse gas reduction commitment to invest in emissionreducing projects in developing countries. Clean Development Mechanism Explained: The Clean Development Mechanism (CDM), defined in Article 12 of the Protocol, allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (Annex B Party) to implement an emission-reduction project in developing countries.

Carbon Trading in India:

Indian industries were able to cash in on the sudden boom in the carbon market making it a preferred location for carbon credit buyers. It is expected that India will gain at least $5 billion to $10 billion from carbon trading (Rs 22,500 crore to Rs 45,000 crore) over a period of time. Also India is one of the largest beneficiaries of the total world carbon trade through the Clean Development Mechanism claiming about 31 per cent (CDM).

Indias carbon market is one of the fastest growing markets in the world and has already generated approximately 30 million carbon credits, the second highest transacted volumes in the world. The carbon trading market in India is growing faster than even information technology, bio technology and BPO sectors. Nearly 850 projects with an investment of Rs 650,000 million are in the pipeline. Carbon is also now being traded on Indias Multi Commodity Exchange. It is the first exchange in Asia to trade carbon credits. India being a developing country has no emission targets to be followed. However, she can enter into CDM projects. 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.

Legal aspect of Carbon Trading in India: Commodity exchange started future trading on January 2008 after The Multi

Government of India recognized carbon credit as commodities on 4th January. The National Commodity and Derivative Exchange by a notification and with due approval from Forward Market Commission (FMC) launched Carbon Credit future contact whose aim was to provide transparency to markets and help the producers to earn remuneration out of the environment projects. Carbon credit in India is traded on NCDEX only as a future contract. Futures contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality at a specified future date at a price agreed today (the futures price). The contracts are traded on a future exchange. These types of contracts are only applicable to goods which are in the form of movable property other than actionable claims, money and securities. . Forward contracts in India are governed by the Indian Contract Act, 1872. Under the present provision of the Forward Contracts Regulation Act, the trading of forward contracts will be considered as void as no physical delivery is issued against these contracts. To rectify this The Forward Contracts (Regulation) Amendment Bill 2006 was introduced in the Indian Parliament. The Union Cabinet on January 25, 2008 approved the ordinance for amending the Forward Contracts (Regulation) Act, 1952. This ordinance has to be passed by the Parliament and is expected to come up for consideration this year. This Bill also amends the definition of forward contract to include commodity derivatives. Currently the definition only covers goods that are physically deliverable. However a government notification on January 4th paved the way for future trading in CER by bringing carbon credit under the tradable commodities.

Value Added Tax

The government of Delhi in a recent notification has declared that the Certified Emission Reductions (or 'Carbon Credits' as we know) are to be considered as goods and thus their sale is liable to value added tax in the State. The Commissioner of Trade and Taxes has declared that the nature and aspects of Carbon credits have to be examined and tested against the definition of goods to arrive at the conclusion that carbon credit are no different from ordinary commodities bought and sold in the market and thus a sale transaction of carbon credit would attract value added tax on sale.

Trading of CERS: As a welcome scenario, India now has two Commodity exchanges trading in Carbon Credits. This means that Indian Companies can now get a better trading platform and price for CERs generated. Multi Commodity Exchange (MCX), Indias largest commodity exchange, has launched futures trading in carbon credits. The initiative makes it Asia's first-ever commodity exchange and among the select few along with the Chicago Climate Exchange (CCE) and the European Climate Exchange to offer trades in carbon credits. The Indian exchange also expects its tie-up with CCX which will enable Indian firms to get better prices for their carbon credits and better integrate the Indian market with the global markets to foster best practices in emissions trading. On 11th April 2008, National Commodity and Derivatives Exchange (NCDEX) also has started futures contract in Carbon Trading for delivery in December 2008. MCX is the futures exchange. People here are getting price signals for the carbon for the delivery in next five years. The 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. 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 who are actually financial investors. They are thinking that if the Europeans are unable to meet their target of reducing the emission levels by 2009, 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.

How does MCX trade carbon credits?

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.

 MCX decided to trade carbon credits because they are in to futures trading. People can 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. This 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.

Financing Support in India:

Carbon Credits projects requires huge capital investment. Realizing the importance of carbon credits in India, The World Bank has entered into an agreement with Infrastructure Development Finance Company (IDFC), wherein IDFC will handle carbon finance operations in the country for various carbon finance facilities. The agreement initially earmarks a $10-million aid in World Bankmanaged carbon finance to IDFC-financed projects that meet all the required eligibility and due diligence standards. IDBI has set up a dedicated Carbon Credit desk, which provides all the services in the area of Clean Development Mechanism/Carbon Credit (CDM). In order to achieve this objective, IDBI has entered into formal arrangements with multi-lateral agencies and buyers of carbon credits like IFC, Washington, KfW, Germany and Sumitomo Corporation, Japan and reputed domestic technical experts like MITCON. HDFC Bank has signed an agreement with Cantor CO2E India Pvt Ltd and MITCON Consultancy Services Limited (MITCON) for providing carbon credit services. As part of the agreement, HDFC Bank will work with the two companies on awareness building, identifying and registering Clean Development Mechanism (CDM) and facilitating the buy or sell of carbon credits in the global market.

 Even though India is the largest beneficiary of carbon trading and carbon credits are traded on the MCX, it still does not have a proper policy for trading of carbons in the market. As a result the Centre has been asked by The National Commodity and Derivatives Exchange Limited (NCDEX) to put in place a proper policy framework for allowing trading of certified emission reductions (CERs), carbon credit, in the market. Also, India has huge number of carbon credits sellers but under the present Indian law, the buyers based in European market are not permitted to enter the market. To increase the market for carbon trading Forward Contracts (Regulation) Amendment Bill has been introduced in the Parliament. This amendment would also help the traders and farmers to utilize NCDEX as a platform for trading of carbon credits. However, to unleash the true potential of carbon trading in India, it is important that a special statue be created for this purpose as the Indian Contracts Act is not enough to govern the contractual issues relating to carbon credits. The carbon credits market will grow to as much as $5 trillion if major countries such as the United States sign up for binding cap emissions. India should be ready to take advantage of this growing global market. Post-2012 policies are expected to open many new gates for India to leverage the growing carbon market. The government bodies are also planning for a domestic energy efficiency cap-and-trade scheme.
The Indian economy strictly needs a regulator for the carbon market. The forward Contracts (Regulation) Amendment Bill, which would define the regulation on carbon credits trading and introduce options based on them, is the need of the hour. This will build confidence in the market, and trade volumes will be back on track for the Indian commodity exchanges.

EXAMPLES OF CARBON TRADING IN INDIA:

Jindal Vijaynagar Steel:
The Jindal Vijaynagar Steel has recently declared that by the next ten years it will be ready to sell $225 million worth of saved carbon. This was made possible since their steel plant uses the Corex furnace technology which prevents 15 million tonnes of carbon from being discharged into the atmosphere. Powerguda in Andhra Pradesh: The village in Andhra Pradesh was selling 147 tonnes equivalent of saved carbon dioxide credits. The company has made a claim of having saved 147 MT of CO2. This was done by extracting bio-diesel from 4500 Pongamia trees in their village.

Handia Forest in Madhya Pradesh: In Madhya Pradesh, it is estimated that 95 very poor rural villages would jointly earn at least US$300,000 every year from carbon payments by restoring 10,000 hectares of degraded community forests.

Delhi Metro Rail Corporation (Dmrc): It has become the first rail project in the world to earn carbon credits because of using regenerative braking system in its rolling stock. DMRC has earned the carbon credits by using regenerative braking system in its trains that reduces 30% electricity consumption. Whenever a train applies regenerative braking system, the released kinetic energy starts a machine known as converter-inverter that acts as an electricity generator, which supplies electrical energy back to the Over Head Electricity (OHE) lines. This regenerated electrical energy that is supplied back to the OHE that is used by other accelerating trains in the same service line. DMRC can claim 400,000 CERs for a 10-year crediting period beginning December 2007 when the project was registered by the UNFCCC. This translates to Rs 1.2 crore per year for 10 years.

India has the highest number of CDM projects registered and supplies the second highest number of Certified Emission Reduction units. Hence, India is already a strong supplier of Carbon Credits and can improve on it. The Union government has approved 550 projects complying the Kyoto Protocol to earn carbon credits, and 330 more are awaiting the government's approval. The Designated National Authority (DNA) has registered the approved projects with the United Nations Framework Convention on Climate Change (UNFCC). The other 330 projects are at the design document stage. DNV is an Oslo-based consultancy firm, accredited to the UNFCCC for conducting the third party verification of projects, which have adopted the clean development mechanism (CDM) to comply with the Kyoto Protocol.