Double whammy: Make money while reducing pollution

CFI and SFI are financial products popular in developed regions like the US and Europe. Developed countries have tough pollution norms for industrial units and petroleum companies, which are adhered to strictly. If a company flouts the norms, it is forced to fund other companies, which are reducing pollution at their factories. If a company called XYZ Ltd accumulates more points or credits for reducing pollution, it can sell these units to another company — which is polluting more — anywhere in the world.

CFI and SFI have come as a blessing for Indian manufacturing companies. Due to lack of a trading platform in our country, Indian companies till now were dealing with foreign companies directly. Now with MCX providing the trading platform there can be a better price discovery for the credits acccumulated by the Indian companies.

For instance, the credits or Certified Emission Reductions (CERs), are products of the Kyoto Protocol, which aims to reduce carbon dioxide and other greenhouse gas emissions from 2008. The mini-CFI and SFI futures trading that MCX is planning to launch are very similar to CERs.

Analysts say India and Brazil — Kyoto Protocol signatories — are already leading suppliers of CERs traded on forward contract basis in Europe.

Four of the 12 companies certified to sell their emission cuts are from India. Indian companies currently supply more than 30 per cent of the (traded) CERs. With more companies from steel, sugar and utilities sectors jumping into the fray, they could generate 500-600 million CERs or nearly a quarter of a global traded total of 2.5 billion units by 2012.

‘‘At BPCL, we always take extra care to prevent pollution at our refineries. For instance, the sulphur dioxide emission at our Mumbai refinary is just 13 tonnes per day. We are undertaking various modernisation project to reduce the emission level further to 10-12 tonnes,’’ says Mukesh Rohatgi, director, refineries, BPCL.

The National Clean Development Mechanism Authority (NCDMA), the regulatory authority in India, has given the host country approval — the first step in securing United Nations Framework Convention on Climate Change (UNFCCC) clearance — for 94 proposals from different firms and would clear another 40 proposals soon. Firms with NCDMA approval include Tata Steel Ltd, JSW Steel Ltd, Balrampur Chini Mills Ltd and Dhampur Sugar Mills Ltd, Indo Gulf Fertilisers Ltd and GACL.

‘‘We will be kicking off the trading as and when we receive the required regulatory approvals. Currently, MCX is the only exchange in India which offers these environment products,’’ says Jignesh Shah, MD & CEO, MCX.