Carbon credit revenues likely to fall after 2012: Fitch

Indian companies are expected to face a decline in revenue from certified emission reductions (CER) / carbon credits after 2012.

In a new report, CER Revenues Likely to Fall Post-2012 Fitch Ratings said, CER prices have fallen recently due to several factors - the ongoing eurozone debt crisis; potentially lower acceptance of CERs after 2012; and the lower probability of developed and industrialised countries agreeing to binding commitments after the first commitment period of the Kyoto Protocol ending December 2012.

The Kyoto Protocol has been supporting measures to combat climate change in developing countries through carbon trading schemes such as the clean development mechanism (CDM) since it came into effect in 2005.

As of 15 October 2011, around 21 per cent of the CDM projects registered have been from India and 46 per cent from China with the two countries together accounting for around 74 per cent of the CERs issued (China 58 per cent, India 16 per cent).

Fitch estimates that, as of 15 October 2011, these CERs have added over Rs70 billion to the revenues of Indian companies.

Companies in sectors such as metals, sugar, industrial gases, chemicals, paper and others have taken advantage of the funds from CER, though chemical companies have been the main beneficiaries of CER revenues.

Many chemical manufacturers such as SRF Limited ('Fitch AA(ind)'/Stable), Gujarat Flurochemicals Ltd., Chemplast Sanmar Limited ('Fitch BBB-(ind)'/Stable), Navin Fluorine International Limited have used these revenues to fund their capital expenditure for expansion and diversification into new business activities.

Fitch expects the Seventeenth Conference of Parties (COP 17) in Durban in November-December 2011 to provide some clarity on climate change mitigation mechanisms.