The Hindu Business Line : Cos mulling forward sales of carbon credits

The uncertainty over prices of carbon credits is prompting more Indian companies to enter into forward contracts and hedging their risks as against selling them on the spot market. Some of these companies include Dalmia Group, Gujarat State Energy Generation and Jindal Steel.

In the first four months of 2008, the prices of Indian Certified Emission Reductions (CERs) have slid to 15-16 per cent of the European Union (EU) prices (€15.55-16.07). However, last year in March, the prices of CERs were being traded at 77 per cent of the EU prices (€13). This climbed to as high as 84 per cent of the EU prices (€16.07) in October 2007.

Kyoto Protocol

However, there remains high scepticism whether the prices would rise or crash post-2012, when the Kyoto Protocol, the treaty regulating the carbon emission reduction ,would have to be ratified again. “Till now we have been selling it in the spot market. Post-2012, more imports can be allowed if there is a general agreement in the Kyoto, resulting in prices going up with increased demand,” said Mr Suresh Iyer, Deputy General Manager, Jindal.

“But, with the economies of the CIS countries on a downslide, if their industries shut down, then prices would come down. So we are evaluating entering into forward contracts.” The company was issued its first set of CERs equivalent to 1.3 million in August 2007 worth Rs 110 crore.

For 2007 calendar year, the company estimates to receive 0.75 million CERs for using gas-based power instead of coal.

The Dalmia Group, which received CERs both for its cement and sugar plant projects, is also adopting a wait-and-watch approach. The company’s blended cement project registered around two years ago would help the company garner 60,000 CERs per annum. In the case of power generated by its sugar plant, the company estimates to accumulate 47,000 CERs.

“Prices are volatile. But in the case renewable projects, such as our sugar project we believe that quality of CERs is much better with tightened supply,” said Mr Pankaj Rastogi, Assistant Executive Director for the sugar business, Dalmia Group. However, he said that for the cement project, the prices may not be high and, hence, the company was studying the various possible options to mitigate risks.

Cantor CO2e, a carbon trading brokerage firm, cites that companies are increasingly looking at entering into forward contracts.

“With companies executing projects by building in revenues from sale of CERs, there is a pressure on operations team to get returns on investment. So companies which want fixed revenue over ten years period are considering forward contracts,” said Dr Ram Babu, Managing Director, Cantor C02e India.

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