Close on the heels of the social stock exchange, the government has announced its intent of setting up a stock exchange for a domestic- regulated carbon credit trading market, and the major stock exchange for agricultural commodities – the NCDEX (National Commodity and Derivates Exchange) has initiated preliminary discussions on the modalities for the carbon credit market, including futures market.
First things first : what is a carbon credit (CC). As per the recent government notification, a CC can be issued by any project or entity that saves on emissions. This would include enterprises in the field of renewable energy, sustainable agriculture and energy optimization. These credits can be purchased by an entity which is a net emitter of carbons( typically coal based power projects, auto makers, logistics companies). This in turn makes it possible for the CC owner to emit a certain amount of carbon dioxide (CO2) or other greenhouse gases GHG. One credit is equivalent to one ton of CO2 or a similar amount of GHG.
The next issue which comes up is about the likely monetization of all the CCs which will be available for exchange. As per estimates made by National Stock Exchange (different from the NCDEX), the initial back-of-the-envelope calculations are expected to be approximately $150 million. Another Indian bourse, the India Energy Exchange has also announced plans to explore business opportunities in this sector.
Thirdly, there is the issue of forward contracts in CCs. This is a derivative in which the parties in an exchange transaction agree to trade an underlying asset at a specific date for a specific price. Companies may use this as a risk mitigation strategy by adding these to their portfolio. This will also ensure a transparent price discovery mechanism.
Last, but not the least, we have to look at the implications for a state like Uttarakhand. This is a state with abundant forest reserves, renewable energy sources as well as a well-developed protocol for growing organic crops. There is an immediate need to set up a multi stakeholder committee, perhaps under the aegis of the NTPC Public Policy chair at Doon University to take stock of the situation and recommend the next steps in this direction.
