Asian carbon markets may soon overshadow European exchanges

Asian carbon markets may soon overshadow European exchanges

New Delhi: India and China may join the league of carbon trading hot spots in a few years, along with Singapore, Sydney and Tokyo, that should soon make the grade, said Henry Derwent, president, International Emissions Trading Association, the largest organization of companies involved in the buying and selling of credits.

Over the next decade, European countries are likely to reduce their dependence on the Clean Development Mechanism (CDM) to achieve emission reductions. As of now, one of the countries not yet required to implement emission caps, India is also among the major beneficiaries of carbon trading programmes.

The Kyoto Protocol allows European countries to offset their greenhouse gas emissions by financing industries in developing countries such as India and China to adopt alternative, clean energy technologies. These offsets, measured as tonnes of carbon dioxide prevented from entering the atmosphere, are generated by developing country companies and bought by European companies, under the CDM.

Though precise figures are not available, India is one of the largest sources of carbon credits that are traded in European markets. According to the United Nations, India has 448 registered CDM projects as of August, second only to China’s 599.

These can be used to meet government-imposed caps, or be traded on specialized exchanges, or so-called carbon markets. It’s cheaper for European firms to do this, than completely retune their industries to make them cleaner.

India has the second largest number of emission reduction projects in the world, and is, therefore, vulnerable to the way global negotiations pan out on the future of CDM.

Another reason for Asia’s future prominence, said Derwent, was that several cities in Asia were already experimenting with small exchanges and were gaining valuable experience. Over the last two years, exchanges in Shanghai, Beijing and Tianjin had started trial trading of sulphur dioxide and chemical oxygen (major water pollutants), thereby laying the ground for trading in carbon.

India too has begun moving on setting up emission trading exchanges. The Prime Minister’s Office on 24 August cleared the Energy Efficiency Services Ltd, a corporate entity to be managed by the Bureau of Energy Efficiency, that will trade surplus emissions of domestic companies.

In spite of the global recession, the carbon credit market saw a massive boom. Transactions were worth $123 billion (Rs6 trillion) in 2008, almost double the $63 billion of credits traded in 2007, according to a World Bank report earlier this year.

“The carbon market will continue to grow till 2012 because of commitments by the European Union (EU). The years after that are uncertain. That’s because the EU, which has agreed to reduce emissions to 80% of 1990 levels by 2020, allows its companies only a limited number of offsets via CDM. This could see the action shifting to other countries," said Derwent.

Representatives from over 100 countries are meeting in Copenhagen in December to iron out a deal to allocate fresh, compulsory emission reduction targets to several developed countries as well as pressure countries such as the US, China and India to take on compulsory targets.

Experts say, however, that between 2012 and 2020, EU, which today buys 75% of carbon credits generated, will still be very important.

“For CDM to effectively survive beyond 2020, it’s very important for the US to enter the fray," said Albert Altarejos Magalang, member of the Philippine government body that vets local CDM projects. The US is still to pass into a law a climate Bill that proposes to cap the country’s emissions to 17% of its 2005 levels by 2020. If the US entered the fray, the carbon market could expand to as much as 40% of its present levels.