Global Warming & Wind Fall gains for Indian Companies [Draft no 1]
Every dark cloud has a silver lining. Similarly threatening Global Warming phenomenon has thrown up new opportunities in the form of ‘Carbon Trading’. The Kyoto Protocol, which was adopted in 1997 to reduce greenhouse gases that cause global warming, came into force in 2005. The protocol has been ratified by 175 countries, including those in the European Union, Japan, Canada and Russia (USA is a notable non signatory). Something that began as an effort to drive away greenhouse gases from the atmosphere has paved the way for a business opportunity.
Under Kyoto Protocol Governments are separated into two general categories: developed countries, referred to as Annex I countries and developing countries, referred to as Non-Annex I countries. As of November 2007, 174 parties have ratified the protocol. Of these, 36 developed countries (plus the EU as a party in its own right) have accepted greenhouse gas emission reduction obligations and are required to reduce greenhouse gas emissions to the levels specified for each of them in the treaty (representing over 61.6% of emissions from Annex I countries). One hundred and thirty-seven (137) developing countries have ratified the protocol, includingBrazil, China and India, but have no obligation beyond monitoring and reporting emissions but mat but may participate in the Clean Development Mechanism(CDM).
The Protocol’s three main tools for helping Annex I countries to reach these targets efficiently are:
1. international emissions trading between countries with targets;
2. joint implementation of emissions-reducing projects; and the
3. Clean Development Mechanism (CDM). The CDM allows Annex-I countries to invest in emissions reductions in developing nations rather than directly reduce emissions at home.
Non-Annex I countries do not have legally binding targets to reduce or limit their greenhouse gas emissions during the first commitment period. , but when a greenhouse gas emission reduction project (a "Greenhouse Gas Project") is implemented in these countries, that Greenhouse Gas Project will receive Carbon Credit which can be sold to Annex I buyers.
So any company from Non-Annex I countries can use technology to reduce Green House Gas emission and pocket equivalent Carbon Credit. Carbon credits are measured in units of certified emission reductions (CERs). Each CER is equivalent to one ton of carbon dioxide reduction.. The carbon credit then can be sold directly to other companies, who expect their emissions to exceed their quota (their Assigned Allocation Units, AAUs or 'allowances' for short). Typically, they will purchase credits directly from another party with excess allowances, from a broker, from a JI/CDM developer, or on an exchange. Now how much a CER can fetch? CER price range varies but after discounts one CER can fetch anything between t Euro 8-10.
India being a developing country qualifies to be a host country for CDM projects. The Institute for Global Environmental Strategies estimates the potential for CDM projects in India to be about 300 million tonnes of CO{-2} equivalent, which includes 90 million tonnes from renewable energy sources alone.With Indian economic growth based mainly on energy from fossil fuels such as coal, there is considerable potential for reducing greenhouse gases and for CDM projects and there by earning Carbon Credits, which is going to bolster their bottom line. Broadly, projects that contribute to credible and sustained reduction in GHG emissions qualify as CDM projects. The following broad categories of projects have been recognized as CDM projects.
a) Renewable Energy Projects (Solar Power, Wind Power, Biomass based power,
small hydel etc);
b) Fuel substitution ( e.g. coal to oil to gas to hydrogen in Power Plants, Manufacturing Process Industries, automobiles etc);
c) Energy Efficiency improvement and waste heat utilization projects;
d) Other project activities that reduce anthropogenic emissions by sources;
e) Carbon sequestration projects (Forestry etc.);
f) Management of methane emissions from municipal landfills;
g) Management of methane emissions from agriculture and cattle manure management; and
h) Fuel shift from liquid fuel to CNG/LPG in the transport sector.
One example would highlight the case –
The UNFCCC issued 1.83 million CERs to SRF Ltd in February 2006 for its HFC-23 thermal oxidation plant. Following this there was a surge in its net profit in the third quarter (December 2006) due to an inflow of Rs 122.28 crore from the sale of CERs. This was nearly 27 per cent of the total income that year.
Some other listed Indian companies are already reaping sizeable profits through Certified Emission Reduction (CER) deals.
Tata Sponge Iron Ltd got a CDM certificate from the UN for its waste heat recovery project in Orissa. The company expects to reduce 3,17,624 tonnes of carbon dioxide over a 10-year period. JSW Steel’s plant in Karnataka has got clearance for its carbon credit project and is expected to earn 7.67 million CERs over the next 10 years.
Mumbai-based Grasim Industries, a cement major, for instance, have started to burn waste sludge from chemical companies instead of coal to fire its cement kilns to earn Carbon Credits. This enhances bottom line first by reducing expenditure on fuel and second by windfall earning from trading of Carbon Credits. [Source Lvemint.com]
Jindal Group’s flagship, JSW Steel, made Rs 112 crore through its CDM projects by using waste heat and gases from its steel factory to power a 100-MW electricity unit. The Mumbai-based company received 1.35 million certified emission reductions (CERs) from a special UN body that oversees carbon-free production. According to Sheshagiri Rao, JSW Steel’s finance director, the company will be looking at earning an additional 14 million CERs over the next 10 years. JSW Energy, another company in the same group, also earned 4 million CERs worth Rs 330 crore in the past two years.
Gujarat Fluorochemicals (GFCL) makes HFC-22, a gas used in refrigeration units. HFC-23, a by-product and a greenhouse gas, is considered even more harmful than carbon dioxide. GFCL burns HFC-23 before it leaks into the atmosphere. This has earned it 6.5 million CERs.
The Karnataka-based Subhash Kabini Power Corporation Ltd (SKPCL) has registered its project to develop the 20 MW Kabini Hydro Electric Power (KHEP) project on the existing Kabini Dam in Mysore.It expects to generate 44,968 certified emission reductions (CERs) per annum.
The Tamil Nadu-based Raghu Rama Energy Ltd has registered its project on biomass-based power generation and expects to generate 66,821 CERs per annum. It has tied up with Swedish Energy Agency as its buyer of carbon credits. Other registered projects include those of Gujarat Ambuja Cement, Oswal Woollen Mills, Nahar Spinning Mills, Sai Spurthi Power (P) Ltd and a biogas programme based out of Bagepalli. Also registered are bagasse-based cogen project of Shree Renuka Sugar, Kalpataru Power Transmission's electricity generation from mustard crop residues in Rajasthan, 5-MW Dehar Grid Project at Himachal Pradesh by Astha Projects and Hyderabad based-Clarion Power Corporation Ltd 12MW (gross) renewable sources biomass project.
Gujarat Ambuja Cement, Birla Corporation Ltd, Balrampur Chini Mills, Tata Steel and JK Cement are also eyeing additional profits through the CER route by 2012. Reliance Energy already has energy efficiency and process development CDM projects and is now looking at natural gas-based power plants.
[Draft version]
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