16 April 2012

Pure-play carbon credit companies in crisis

The crash in carbon credit prices globally has served a crushing blow to companies operating in this space in India. Firms, whose business models were based purely on profit from sale of carbon credits, have either closed down or substantially downsized their operations

Namrata Singh | The Times of India | Apr 16, 201

A carbon credit is a type of a tradable greenhouse gas emission reduction unit issued to projects under the Kyoto Protocol. One carbon credit is equivalent to one tonne of carbon dioxide (CO2) mitigated. A consultant or a trader usually earns a profit from the sale of carbon credits by a manufacturer. With prices falling from around 10-12 euros per unit six-eight months ago to 3-4 euros today, the consultants' profits have slumped by one-fourth. This has forced some of these companies to down shutters.

Sources said companies which have been impacted by this include Noble India, whose India carbon credit desk was closed down, and Gensol Consultants which has restructured and downsized its operations. "The entire team had to go through a lot of pain during these turbulent times. We have downsized and restructured our operations. But, thankfully, our venture capital partner has supported us through this," said Anmol Singh Jaggi, director, Gensol Consultants, which is now in the process of raising further money for its solar and power trading business.

However, consultancies which had a more diverse portfolio in sustainability have managed to survive. Sudipta Das, partner (climate change and sustainability), E&Y, said the impact of the price crash on the firm was not large enough because carbon credits form a small part of the firm's sustainability division.

"There was an initial rush for registering projects under the CDM (clean development mechanism) executive board to get carbon credits, but it was only when a number of applications from India were turned down that firms started facing the heat. Many have either folded up or substantially downsized their operations," said Arvind Sharma, head (climate change and sustainability services practice), KPMG India.

According to Krish Krishnan, CEO, Green Ventures International, one of the trends that have emerged is that a lot of consultants that were operating in the pure-play CDM space have diversified into allied segments like renewable energy and energy efficiency.

Many small and medium players are even looking at business opportunities outside India in least developed countries.
However, the sentiment is unlikely to improve with worst-case scenarios being presented by certain industry reports that state carbon credits could be tending towards an unthinkable "zero" level. "The mindset of Indian companies has changed dramatically. Earlier, they were not even prepared to sell their carbon credit at 15 euros, and now they have given open mandates to sell whenever the price comes to 4 euros," said P Ram Babu, CEO, General Carbon Advisory Services.

Only a few years ago, a rosy picture was being painted around the carbon credit market. As against the forecast that the business of advisory and consultancy could touch Rs 500 crore in ten years on the back of a strong carbon credit pipeline, the industry today is not even talking about reaching the halfway mark yet.

Copyright © 2012 Bennett, Coleman & Co. Ltd. All rights reserved

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