New Delhi: Carbon Credits (CC) are earned by reducing harmful emissions. They can then be sold in international markets.
If a firm has an emission cap of three tonne, but emits five tonne, it can meet the target cap by buying two CCs from the market. Western companies, which are required to maintain a cap on emissions, buy credits.
The flexible international market aims to motivate private industry to cut pollution. One of the world's largest CC suppliers, Indian CC trade has big potential.
"We have 350 projects in India right now. That’s roughly around 300 million carbon credits. If you take an average price of Euro 5 they are going to transact, its Euro 1.5 billion that we are seeing and these are projects that are cleared by the host nation. An equal number of projects are coming through, so we see 3 billion of credits coming through in the market," said MD EcoSecurities in India Pranav Nahar.
Companies typically have to spend between Rs 25-50 lakh on project submissions and Rs 25 and 50 lakh for project validation. That's a huge capex for small businesses. The UK government has invested Rs 5.4 crore in a pilot project in Rajasthan.
"We chose Rajasthan as the pilot region in India because of its SME population and the benefits it could have in businesses in that area," said Natalie Bain, Head Of Inward Investment, British Deputy High Commission.
Carbon Credits, like any other financial instrument, are expected to have a futures and spot market. The price is dependent on the demand-supply situation. For companies that viewed environmental compliance as an additional expense, this should now be profitable.
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