Carbon Credit Market in India: A Missed Opportunity

Abstract

Climate change is a major concern. Global warming is the most systemic and long-run threat to environmental health. Rising levels of development and the race for modernization in all parts of the world has contributed severely to alarming levels of air pollution. This has eventually lead to global warming and climate change. The problems resulting from high levels of air pollution are widely recognized all over the world. Environmentalists and economists are now working towards climate change and global warming with a focus on developing legal tools and regulatory frameworks. This will help move societies toward energy sustainability in order to protect the ecosphere by rising sea levels and varying weather patterns. Carbon dioxide (CO2) is one of the most strong and harmful greenhouse gas produced by ignition of fuels. Its concentration has been rising alarmingly in the atmosphere, and is a big cause of global panic. Under the Kyoto Protocol (1997; 2005), a mechanism of trading carbon was introduced as one of the solutions to the perilous problem of increasing levels of air pollution globally. Carbon Emission Reductions (CERs), then emerged as a commodity in the international derivative trading market. It was a new commodity to be traded in India. The trading of CERs started in the month of April, 2008 on the Multi Commodity Exchange (MCX) in India and ended in November 2011. Present study examines the variables that impacted the price of Indian carbon credits in international market. The study formulates an empirical relationship between the CER spot market and the macroeconomic factors that regulate the spot price of  carbon credits viz. crude oil prices, natural gas prices and exchange rate of rupee (?) against the dollar ($). The results show a significant relationship between CER spot prices and natural gas prices. Whereas, crude oil prices and the exchange rate do not impact CER spot prices significantly. The study also concludes that the collapse of the market was due to the extinct demand of Indian credits in the international market. Largely, it is considered as a missed opportunity for India.