Market for green

That Indian companies are making profits by selling carbon credits demonstrates an under-appreciated truth: markets can help you go green. These companies have made effective use of a market-based mechanism. The EU has set up a system on January 1, 2005 in which 12,000 industrial units have been given carbon emission permits. This covers 40 per cent of EU carbon dioxide emissions.

The EU has accepted binding emission targets and committed to reducing green house gas emissions by 8 per cent. It has distributed its targets among the 15 member states. If an industrial unit wants to emit more than its limit, it has to buy the permit to produce some extra CO2 at a market-determined price from a unit which is producing less CO2 than it is permitted to. If the cost of employing CO2-reducing technology is lower than the cost of the permit to produce extra CO2, every unit has the incentive to employ cleaner technology. CO2 permits are traded in the market. In this solution, overall emissions are controlled, but the market process is utilised to ensure that emission reductions are obtained from the factories where it is cheapest to reduce emissions.

Since India is not an industrial nation, under the Kyoto Protocol it does not have to reduce emissions until 2012. However, it can sell Carbon Emission Rights CERs. Indian companies are learning how to trade in CERs. The US, which produces 25 per cent of the world8217;s CO2, has until now not signed the Kyoto Protocol. Since it is costly to adopt clean technology, the US was worried that its companies would cease to be competitive. If and when the US is persuaded to sign the Kyoto Protocol, the opportunities for carbon trading for India will expand significantly.