Saturday, May 25, 2013
An Overview Of Carbon Trading In India And Its Legal Aspect
Posted by
Green Yatra
at
7:15 PM
The companies in the
developed world are required to meet certain carbon emission target set by
their respective government. However if these companies are not able to meet
their emission targets, they have an alternative of purchasing these carbon
credits from the market i.e. from someone who is successful in meeting these
targets and who has a surplus of these credits. This process is known as carbon
trading. Carbon trading is also very advantageous for the companies of the
developing world as it provides monetary gains in exchange of carbon credits
which help these companies to purchase or change their technology. This change
in technology eventually helps the companies to reduce carbon emission.
Need for Carbon
Trading and Clean Development Mechanism
The need for carbon trading was felt when it
was realized that the industries have been the biggest polluter of green house
gases which has resulted in global warming. A lot of effort was put in by the
NGOs and other institutions to bring the attention of the world towards the
problem of global warming. But this issue was not taken very seriously as a
result of which nothing much was done in this regard. Thus it was realized that
the only way to get the attention of the world towards these problems was by
attaching some financial incentive to it. As a result the concept of Carbon
trading was introduced.
Clean Development
Mechanism
The Clean Development Mechanism (CDM), defined
in Article 12 of the Protocol, allows a country with an
emission-reduction or emission-limitation commitment under the Kyoto Protocol
(Annex B Party) to implement an emission-reduction project in developing
countries.
Carbon Trading in
India
Indian industries were able to cash in on the
sudden boom in the carbon market making it a preferred location for carbon
credit buyers. It is expected that India will gain at least $5 billion to $10
billion from carbon trading (Rs 22,500 crore to Rs 45,000 crore) over a period of
time. Also India is one of the largest beneficiaries of the total world carbon
trade through the Clean Development Mechanism claiming about 31 per cent
(CDM).
India’s carbon market
is one of the fastest growing markets in the world and has already generated
approximately 30 million carbon credits, the second highest transacted volumes
in the world. The carbon trading market in India is growing faster than even
information technology, bio technology and BPO sectors. Nearly 850 projects
with an investment of Rs 650,000 million are in the pipeline. Carbon is also
now being traded on India’s Multi Commodity Exchange. It is the first exchange
in Asia to trade carbon credits.
Examples
of Carbon trading in India
Jindal Vijaynagar Steel
The Jindal Vijaynagar Steel has recently
declared that by the next ten years it will be ready to sell $225 million worth
of saved carbon. This was made possible since their steel plant uses the Corex
furnace technology which prevents 15 million tonnes of carbon from being
discharged into the atmosphere.
Powerguda in Andhra
Pradesh
The village in Andhra Pradesh was selling 147
tonnes equivalent of saved carbon dioxide credits. The company has made a claim
of having saved 147 MT of CO2. This was done by extracting bio-diesel from 4500
Pongamia trees in their village.
Handia Forest in
Madhya Pradesh
In Madhya Pradesh, it is estimated that 95
very poor rural villages would jointly earn at least US$300,000 every year from
carbon payments by restoring 10,000 hectares of degraded community forests.
Legal aspect of Carbon
Trading in India
The Multi Commodity exchange started future
trading on January 2008 after Government of India recognized carbon credit as
commodities on 4th January. The National Commodity and Derivative Exchange by a
notification and with due approval from Forward Market Commision (FMC) launched
Carbon Credit future contact whose aim was to provide transparency to markets
and help the producers to earn remuneration out of the enviourment projects.
Carbon credit in India
is traded on NCDEX only as a future contract. Futures contract is a
standardized contract between two parties to buy or sell a specified asset of
standardized quantity and quality at a specified future date at a price agreed
today (the futures price). The contracts are traded on a future exchange. These
types of contracts are only applicable to goods which are in the form of
movable property other than actionable claims, money and securities. . Forward
contracts in India are governed by the Indian Contract Act, 1872.
Under the present
provision of the Forward Contracts Regulation Act, the trading of forward
contracts will be considered as void as no physical delivery is issued against
these contracts. To rectify this The Forward Contracts (Regulation) Amendment
Bill 2006 was introduced in the Indian Parliament. The Union Cabinet on January
25, 2008 approved the ordinance for amending the Forward Contracts (Regulation)
Act, 1952. This ordinance has to be passed by the Parliament and is expected to
come up for consideration this year. This Bill also amends the definition of
‘forward contract’ to include ‘commodity derivatives’. Currently the definition
only covers ‘goods’ that are physically deliverable. However a government
notification on January 4th paved the way for future trading in CER by bringing
carbon credit under the tradable commodities.
Value Added Tax
The government of Delhi in a recent
notification has declared that the Certified Emission Reductions (or 'Carbon
Credits' as we know) are to be considered as goods and thus their sale is
liable to value added tax in the State. The Commissioner of Trade and Taxes has
declared that the nature and aspects of Carbon credits have to be examined and
tested against the definition of goods to arrive at the conclusion that carbon
credit are no different from ordinary commodities bought and sold in the market
and thus a sale transaction of carbon credit would attract value added tax on
sale.
Conclusion
Even though India is the largest beneficiary of carbon trading
and carbon credits are traded on the MCX, it still does not have a proper
policy for trading of carbons in the market. As a result the Centre has been
asked by The National Commodity and Derivatives Exchange Limited (NCDEX) to put
in place a proper policy framework for allowing trading of certified emission
reductions (CERs), carbon credit, in the market. Also, India has huge number of
carbon credits sellers but under the present Indian law, the buyers based in
European market are not permitted to enter the market. To increase the market
for carbon trading Forward Contracts (Regulation) Amendment Bill has been
introduced in the Parliament. This amendment would also help the traders and
farmers to utilize NCDEX as a platform for trading of carbon credits. However,
to unleash the true potential of carbon trading in India, it is important that
a special statue be created for this purpose as the Indian Contracts Act is not
enough to govern the contractual issues relating to carbon credits.
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I know of a retail chain that has completely switched to solar energy for its lighting needs in rural India, can they claim carbon credit ??
ReplyDeleteYes of course
ReplyDeletenice information about taxes it may be helpful in stock trading also ........
ReplyDeleteStock future tips
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ReplyDeletecommodity tips
ReplyDeleteThis is really an awesome article. Thank you for sharing this.It is worth reading for everyone.
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