Carbon credits: Indian firms taking to voluntary offsets

Carbon credits: Indian firms taking to voluntary offsets

Acknowledging the growing risk of adverse climate change, several Indian companies, including Infosys Technologies Ltd, are taking cues from their counterparts in North America and buying voluntary offsets.

These carbon credits are purchased by companies that want to reduce their greenhouse gas emissions even though they are not mandated to do so. They are unlike credits that companies in certain developed economies, such as those in the European Union, have to mandatorily buy under the Clean Development Mechanism (CDM) developed under the Kyoto Protocol.

While some experts say Indian companies are doing this to improve their image, others maintain that it could be in anticipation of emission reduction commitments that India may agree to accept.

As reported in Mint on Tuesday, developing nations are coming under pressure from several international institutions, including the United Nations Development Progra-mme, to accept emission cuts.

“There is a lot of movement in voluntary markets globally, mainly for companies who want to showcase their corporate social responsibility. Though still at a nascent stage in India, it will definitely pick up," said Ashutosh Pandey of Emergent Ventures Pvt. Ltd, which helps companies figure out their carbon footprints, or calculation of emissions. “If the top 500 companies in India agree to go carbon neutral, then we could see them buying something around 50-100 million VERs (voluntary emission reductions)."

“We have plans of going carbon neutral, however, we can’t give you concrete numbers," said a Jubilant Organosys Ltd official, who did not wish to be identified. “ACC Ltd and Ambuja Cements (Ltd) have also shown interest in the voluntary market," said a carbon market consultant who did not wish to be identified. Both companies declined to comment. (Some shareholders in the family that owns Jubilant are also significant shareholders in HT Media Ltd, the publisher of Mint.)

Meanwhile, Infosys has told the Carbon Disclosure Project, a seven-year effort to ask companies around the world about climate change issues, that it would be looking to buy voluntary offsets in the near future. Repeated efforts to obtain additional comment from the IT firm were unsuccessful.

“We are holding a 1,500- people conference in November, which will be zero carbon. We are in the process of calculating the number of offsets we need to buy," said Geetika Dayal, executive director, The Indus Entrepreneurs (TiE), a global not-for-profit, which promotes entrepreneurship.

“Preparations for the Commonwealth Games in India are already on and we are trying our best to convince them to become a (carbon) neutral event as well," said Pandey. The Beijing Olympics and the next Fifa World Cup will?also?be zero carbon events.

Under the Kyoto Protocol, India does not have any reduction target for emissions. Therefore, Indian companies that agree to contain their emissions, do so voluntarily.

The first step to becoming carbon neutral is to etch a carbon footprint. Thereafter, companies can either reduce their emissions by increased efficiency in processes or by buying VERs from other companies which have done so.

TiE, said Dayal, will try to reduce its emissions as much as possible by controlling paper consumption and travel, in addition to planting trees. To make up the balance, it will buy offsets, she added.

“Many companies are doing this for a greener image, but there is nothing wrong with doing so, especially because India doesn’t have any mandatory targets," said R.K. Pachauri, head of the Intergovernmental Panel on Climate Change. “Businesses usually do that only under commitment pressure."

Globally, large brands such as Dell, Delta Airlines, Google, Yahoo, Nike and HSBC have already announced their plans to go zero carbon. According to a report by New Carbon Finance and The Ecosystem Marketplace, the information providers on international carbon markets, between 2005 and 2006, the over-the-counter voluntary offset market grew 200%.

Another World Bank report on carbon markets—State and Trends of the Carbon Market 2007—says that some estimates peg the size of the voluntary market to be 400 million tonnes (mt) of carbon dioxide (CO2) by 2010, which is almost as big as the CDM market developed under the Kyoto Protocol. In 2006 though, the voluntary retail segment accounted for only about 20mt of CO2.

Though most of the credits from the voluntary segment are right now purchased by firms in North America, this could change in the coming year.

“As many Indian companies are expanding globally, they are becoming more aware of the risks through climate change and that is reflecting," said Shirish Sinha, head of Climate Change and Energy Programme, World Wildlife Fund, India. “Companies are realizing that they need to climate-proof their investments."

However, voluntary carbon offsets have also invited a lot of criticism.

“The credibility of the voluntary market is suspect. The CDM mechanism is very stringently regulated, monitored and verified. Offset projects which cannot make the cut at the CDM executive board usually go through the voluntary market after that. Which is why the price disparity as well. CERs (compulsary emission reductions) sell at approximately €15 (Rs851), whereas VERs are selling at €4-5," said Ram Babu, managing director, CantorCO2e India, a London-based firm that offers financial services to environmental and energy markets globally.

Pachauri concedes that voluntary offsets can sometimes be an eyewash. “While offsets in the company’s backyard are verifiable, others are not. Once you pay for the offsets, you can sleep at night, but you will never know how much emission is actually being controlled."

The World Bank report also says the major risk and constraint to this segment is the lack of a respected voluntary standard for emission reductions. As a result, it adds, it may well be that a tonne of CO2 offset sold in the voluntary market may not be worth as much.

“Nowadays many companies want to know how much they emit and they go for carbon footprinting, but when a price to offset them is given to them, they baulk," added Babu.

Critics, however, also add that some movement in the direction is better than none at all.

“This is not all bad and it really should not be so severely criticized in spite of its problems. Companies are also, meanwhile, getting used to a regime that might come," said Pachauri.