Indian firms drop carbon trading plans in favor of renewable projects

The declining value of carbon credits is prompting some major Indian companies to spend money on renewable energy projects instead of preventing pollution.

The Kyoto Protocol awards carbon credits for projects that reduce pollution in developing countries. Companies can finance their projects by selling credits to polluters on international markets. Due to the economic slowdown, credit values have declined by 50 percent.

Indian companies are now turning towards renewable energy projects for a better return on their investments.

SG Choudhary, the chief sustainability officer of Mumbai-based chemical manufacturer Tata Chemicals told The Times of India that it has no plans to sell its 53,204 carbon credits.

"At present, it is not feasible to sell carbon credits as prices have dropped,'' he told the paper, noting that Tata Chemicals will focus on renewable energy projects for now.

Critics of carbon trading schemes highlight this situation as further evidence that carbon credits are too susceptible to economic fluctuations and as such aren't the best way to regulate carbon emissions. The E.U.’s carbon trading system has also seen a drop in credit prices as demand has declined. Critics say that, without a minimum and maximum limit, the unstable price of carbon weakens the system’s ability to regulate emissions.

Maharashtra, India-based clean energy producer Ispat Energy and Mumbai, India-based Green Ventures International are also moving away from carbon credit projects at this time, according to The Economic Times. Ispat Energy delayed the start of operations at its Rs 500 crore ($97 million) glass furnace, gas-based power plant. Green Ventures now plans to invest around 80 percent of its $300 million India Carbon Fund into renewable assets such as hydro projects in India and Nepal.

Many of the projects are seeking credits under the Kyoto Protocol’s Clean Development Mechanism (CDM), which allows industrialized countries to invest in projects in developing countries in place of more expensive emission reductions in their own country. The CDM awards investing companies with carbon credits, which can be sold to finance their projects. A carbon emission reduction (CER) credit represents the removal of one ton of carbon dioxide or its equivalent green-house gas from the atmosphere.

The CDM issued 47,482 CERs to ISA Power for its 8 MW biomass plant in the state of Chhattisgarh in central India and 7,507 CERs to Germany for a 4.5 MW hydroelectric power plant in Himachal Pradesh in northern India. CDM also issued 2,056 CERs to the United Kingdom for paper mill energy-efficiency improvements at ITC Paperboards & Specialty Papers in Andhra Pradesh, about 300 km from Hyderabad (see Europe gains carbon credits with India projects).

Continued drop in the price of carbon credits could affect companies such as Chennai, India-based Orient Green Power, which raised $55 million in November 2008 to acquire 550 megawatts worth of hydro, biomass, wind, biogas and co-generation projects in India. The company planned to fund its projects in part by the sale of 5,000 CERs a year (see Orient Green Power gets $55M for Indian renewables).

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