NCDEX, foreign bourses may tie up for common carbon platform

After a consensus is arrived at, of which NCDEX is hopeful of within six months, a guideline will be prepared which would be sent to the regulators of the participating countries for approval. After the approval, participants would be able to buy and sell carbon emission reductions (CER).simultaneously.

Experts believe that the participation would increase by leaps and bounds once the delivery norms are eased.

Significantly, after the common delivery platform is ready, even the intention unmatching contracts would together for global auction. Global trading and delivery will not only increase trading transparency but also help sellers get better prices.

This will compel CER consumers to improve efficiency, thereby minimising emissions.

"Talks are in advanced stages with exchanges which facilitate trading in carbon products, including CERs, European Allowances, NOx and SO2. But, we are also keen to talk with those exchanges that are not offering trade for such products and has the potential," said Narendra Rathore, vice-president, NCDEX.

The domestic exchange launched futures contract in CER - a clean development mechanism (CDM) product - about three weeks ago for delivery in December 2008. The contract has contributed a turnover of about Rs 200 crore to the exchange's daily volumes so far. Annual contracts for delivery in December 2009, 2010, 2011 and 2012 are likely to be launched in four to six weeks.

At present, Nordpool, the European Climate Exchange (ECX), the European Energy Exchange and NYMEX's Green Exchange are markets leaders in CER trading.

The exchange is also studying the potential for voluntary emission reductions (VER), which are currently traded on ECX. However, the launch of VERs would depend upon the success of CERs. "Although the initial response is good, we are waiting for market acceptance as changes, if any, required in the subsequent contracts happen," said Rathode.

Importantly, delivery will take place only when buyers and sellers declare their intention, as the existing contract on the NCDEX platform is intention matching. Intention matching is a type of contract where in trades are executed only when the buyer's intention matches with that of a seller.

Once, the common delivery platform is ready, even regular contracts will be considered for global auction.

Since India has not given a commitment for reducing emission under any international forum, domestic entities are eligible for trading only in CERs and VERs as carbon credits.

After China, India is the largest supplier of CERs. India will account for 14.69 per cent of the expected annual number of CERs from the registered projects under the United Nations Framework Convention on Climate Change (UNFCCC).

Out of the 978 projects that have been registered, 332 projects are from India. About 543 projects are in the pipeline and at various stages of validation or registration. By 2012, the projects from India are expected to yield around 400 million CERs.