NCDEX to commence carbon trading on April 10

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Mumbai, Apr 2 (UNI) The National Commodities and Derivatives Exchange Limited (NCDEX) will commence trading in future contracts of Certified Emission Reduction (CERs), the first of its kind in the developing world.

Commonly called Carbon credit, CERs are issued under the United Nations Framework Convention on Climate Change.

Currently, carbon credit trading in India is carried through bilateral arrangements and the trading platform would enable buyers and sellers of CERs to do price discovery and hedge their price risk on NCDEX.

Briefing mediapersons on CER trading platform, NCDEX Managing Director P H Ravikuamr said that India is a net seller of CER to the international buyers. Bilateral trades in carbon tend to be opaque and are highly customised, entailing huge transaction costs and are marred with counter party risks. In the absence of a price discovery mechanism,sellers neither have information on the optimal value of their CERs,nor are they able to get the desired value for CERs.

Carbon market is one of the fastest growing markets, which is highly volatile. International investors in offset products discount CERs, coming from various sectors, regions and companies in India, on the basis of perceived risk in actual delivery of CERs under the Clean Development Mechanism (CDM) process He said, initially NCDEX would offer a product for contracts ending December 2008. Within the next few months, more options would be available.

Each trading lot would have 500 CERs and according to current estimates, Indian companies would have 400 million CERs between 2008 and 2012, he said.

He said, unlike China where CER was concentrated on large projects, India derived CERs through a large number of small and medium projects.

He said there is an increasing tendency in Indian project proponents to develop their independent projects without prior Emission Reduction Purchase Agreements with parties from the developed countries and sell CERs as and when prices are favourable. However, in doing so, they are exposed to the international price movement for which they need to hedge their positions. NCDEX Contracts would aim to remove these inefficiencies in the carbon market.

The NCDEX platform would be the fifth in the world. Elsewhere, carbon future contracts are traded on nordpool, European Climate Exchange-ICE, European Energy Exchange-Eurex and NYMEX's green exchange.


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