Double whammy: Make money while reducing pollution

Companies can now make money for reducing pollution. Multi Commodity Exchange MCX of India has recently tied up with the Chicago Climate E...

Companies can now make money for reducing pollution. Multi Commodity Exchange MCX of India has recently tied up with the Chicago Climate Exchange CCE 8212; North America8217;s multi-sector marketplace for reducing and trading greenhouse gas GHG emissions 8212; for launching futures trading in environment products of European Climate Exchanges ECX, Carbon Financial Instrument CFI and Chicago Climate Futures Exchange8217;s CCFE Sulfur Financial Instrument SFI.

Both CFI and SFI future contracts will be listed and traded on MCX trading platform. As part of the agreement, MCX will list mini-sized versions of CFI and SFI futures contracts.

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 8212; which is polluting more 8212; 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 8212; Kyoto Protocol signatories 8212; 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.

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8216;8216;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,8217;8217; says Mukesh Rohatgi, director, refineries, BPCL.

The National Clean Development Mechanism Authority NCDMA, the regulatory authority in India, has given the host country approval 8212; the first step in securing United Nations Framework Convention on Climate Change UNFCCC clearance 8212; 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.

8216;8216;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,8217;8217; says Jignesh Shah, MD 038; CEO, MCX.