The global trade in carbon credits is growing rapidly. Despite complex and uncertain regulations, Indian companies, assisted by local and international law firms, have been fast to cash in on the opportunity. Raghavendra Verma reports from New Delhi

In September 2007 Tata Motors reaped a handsome reward from a sale. Nothing unusual there, one might imagine, except for the commodity on offer – air. Clean air to be precise. Tata was selling carbon credits it earned by using windmills to develop power. The auction on the Chicago Climate Futures Exchange was 13 times oversubscribed.

Carbon credits are derivative-like instruments introduced under the terms of the Kyoto Protocol to help curb global warming. They are designed to place an economic cost on carbon dioxide (CO2) emissions and create a system through which permitted emissions can be valued and distributed by market forces.

In developed countries, carbon credits are typically allocated by national authorities to corporations, which subsequently own the right to emit a certain quantity of carbon dioxide. However, in developing countries, like India, that have ratified the Kyoto Protocol, credits may be earned through activities that mitigate the impact of global warming. Carbon credits earned through such schemes are known as certified emission reductions (CERs).

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