Study of carbon credits markets in India and identifying suitable financial products

Abstract

The need for reducing the emission of the GHG gas has led to the implementation of Kyoto’s Protocol.The various signatories of the protocol had been classified considering the stage of economic development- Annex I (developed or industrialized countries), Developing countries.There are various mechanisms so as facilitate the process of carbon credit sharing and trading.Various markets already exist for the trading of carbon credits.Developing countries are not obliged under the protocol to reduce the level of emission with immediate effect but the longer term objective of the committee to bring these countries also as suitable under the convention. Developing countries can participate in the mechanism through Clean Development Mechanism (CDM). Various projects are undertaken with the help of Annex- I countries to reduces the level of GHG emission. There is a great potential of such projects, and they are further studied in the report.Initiatives need to be taken to adopt project under the CDM realm and also exist a need to accelerate these projects further.The development of the proposal, approval, and verification of these project are fully the responsibility of the host countries. Thus small-scale projects are not much financially viable.Presently more large-scale projects are under consideration.The complete risk because of failure of the project lies with the host countries ( i.e. developing countries).The accounting and monitoring systems are quite stringent.There is also need for fair and judgmental approval of these projects or not the mechanism completely fails to achieve its objective. This report attempts to study the present market and further scope of carbon credit trade in India.The trade opportunities are evaluated from the perspective of the various parties involved such as a trader, banks, Government bodies and others. Also, this report suggests some basic products which can be used for trading of CERs. The carbon credit market is definitely a nascent market in India, and there exists tremendous scope in the same.