NCDEX to launch carbon credit futures on April 10

Mumbai: The National Commodity and Derivatives Exchange Ltd (NCDEX) will start futures trading in carbon credit or certified emission reduction issued under the UN Framework Convention on climate change, on its platform on April 10, a senior official of the bourse said.

Buyers and sellers of the contract will be able to hedge their price risks on the exchange, NCDEX said. Currently, India's carbon market is limited to bilateral trading where Indians are net sellers to the international buyers.

NCDEX is the country's second-biggest commodity bourse by trade turnover. Intercontinental Exchange Inc and Goldman Sachs Investments (Mauritius) Ltd hold 8 per cent and 7 per cent respectively in the exchange.

Rival Multi Commodity Exchange of India (MCX), which launched the country's first carbon credit futures in January, is planning to launch a trading platform for primary CERs (certified emission reductions).

MCX is expected to seek approval of the Forward Markets Commission (FMC) for commencing trading in primary CERs. This would bring in liquidity to carbon credit trading in India.

Carbon credits are issued to firms in the developing world for using cleaner technologies that help reduce greenhouse gas emissions. For reduction of each tonne of carbon dioxide emission, the firms get one CER or carbon credit. This can be sold, either immediately or through a futures market, just like any other commodity.

Carbon market is not just the fastest growing market but also one of the most volatile markets.

International investors in offset projects discount CERs coming from various sectors, regions and companies in India on the basis of perceived risk of default in actual delivery of CERs under the CDM process, access of the seller to alternate markets, size of the project, level of desperation and holding capacity of the seller, the quality of source of CERs etc.

The market for trading in carbon emissions is estimated to be between $60 billion and $70 billion annually.

India is among the global leaders having generated close to 30 million carbon credits and roughly another 140 million in the pipeline for sale, making it one of the largest beneficiaries in the carbon credit trade.