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Sunday, November 11, 2007

Wanted : Exchange for carbon credits

Now to the latest grouse.
India, a leading seller of carbon credits under the clean development mechanism (CDM) of the Kyoto protocol on climate change, does not have an internationally-linked domestic exchange for undertaking spot and futures trading in carbon credits. This, as can be imagined, is costing the Indian clean technology-based projects dearly. They are denied full financial benefits from this multi-billion dollar global business that is expanding rather briskly despite being viewed by some as not the ideal way to combat global warming.

In such a plan, a central authority (usually a government agency) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups that emit are required to hold an equivalent number of credits or allowances which represent the right to emit a specific amount. The total amount of credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emissions must buy credits from those who pollute less. The transfer of allowances is referred to as a trade. In effect, the buyer is being fined for polluting, while the seller is being rewarded for having reduced emissions. Thus, in theory, those that can easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society.

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