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Y.C. Deveshwar (62) Chairman, ITC Ltd

The game changer
Once pilloried for its dirty operations, ITC sequesters almost twice as much carbon as it generates, including India's only forestry project - the size of Mumbai and Delhi combined - generating carbon credits and raw material for clean paper factories.

Ishani Chattopadhyay grimaces as she recalls nights in dodgy small-town hotels with paper-thin walls and budget flights to meetings across India during the summer of 2005. Armed with a laptop, her wits and about Rs 1,300 a day, she struggled to make executives understand how companies could make money from, well, hot air.

"Even explaining to my own family and friends what I did was a tedious task," says Chattopadhyay (34), the amiable CEO of Arctic Holdings, an ironic name for a company that makes its money off the Earth's warming. "My family thought I was selling something dubious, called carbon."

As a 19-day summit to save the planet from environmental catastrophe unfolds in Copenhagen, Denmark, Chattopadhyay is reaping the benefits of being a climate-change entrepreneur. With business dealings across Australia and India, the MBA from London

It does sound dubious, this new economy. At its core, it is indeed about hot air. As industries, cars, logging and farming release gases that warm the earth, the global effort to cut emissions - and save the earth from flood, drought, and, maybe, human annihilation - has created a new currency: The carbon credit.It works like this: One tonne of carbon saved = one carbon offset or credit (official term: Certified Emission Reduction) = eight to 13 Euros (Rs 557 to Rs 905) at current prices

Chattopadhyay, like uncounted thousands in India, is part of a little-known economic boom called the low-carbon economy. Within four years, the business of cutting Indian emissions of carbon and its gaseous relatives, and so generating carbon credits that can be sold to the European Union and Japan, has gone from zero to $ 5billion (Rs 23,350 crore). That outstrips, by many thousand per cent, the soaring growth curves of the software and telecom industries.

Like most booms, the low-carbon sector has big names, visionaries, regulators, inspectors, traders, financiers, wannabes and shysters. Like most booms, there are serious questions about its longevity.

Unlike most booms, the low-carbon economy is not a free market. It was forged in the idealistic fires of the Kyoto Protocol, the 1997 agreement according to which the West (except the US and Australia) agreed to cut carbon emissions. The carbon credit is an important tool, not just to let the West reach its emission targets, but encourage developing countries to use cleaner technology. This isn’t easy. Before a project can produce a carbon credit, it must be registered with the Indian government, cleared by internationally certified inspectors and finally the United Nations (UN), a process that can take two years.

"It is very important for us to ensure that a project going through the system sticks to the requirements and principles of the Kyoto Protocol," says Shivananda Shetty (41), a Director and 20-year-veteran with SGS India Pvt Ltd, a subsidiary of SGS worldwide, a century old Geneva-headquartered group that started out certifying foodgrain shipments in ancient steamships. SGS is now one of the world's largest validators of carbon credits.

Almost all Indian validators are subsidiaries of western companies. Given their quasi-official aura, a wink and a bribe won’t get you far - though there are accusations that some projects are cleared when they should not. Of 1,476 Indian carbon-reduction projects with the UN, 41 have been rejected and 152 were terminated, either by the Indian government or by the project operator, UN records reveal.

"We at the ministry have cleared $6 billion (Rs 28,000 crore) worth of (carbon-reduction) projects," says India's Environment Minister Jairam Ramesh, as he talks to HT on a smoggy Delhi afternoon. "The potential is huge." The carbon-chopping projects are varied: From factories run by the Tatas and Birlas to the world’s largest solar-cooking system at India’s richest temple, Tirupati, Andhra Pradesh.

"This is the first parallel that anyone draws," says Singapore-based N. Yuvaraj Dinesh Babu (39), CEO of IDEACarbon, an agency that rates carbon-reduction projects, much like real-world financial instruments. "But no," says Babu, an M.Tech from Tamil Nadu's Bharatidasan University, "You cannot draw parallels." He cites the fragility of the artificial carbon market, which will collapse if its regulations are not renewed at Copenhagen or beyond.

Companies may initially cash in their credits, but the most prudent realise that real profits, vision and a chance to say, 'I'm saving the world', will expand the low-carbon economy.

That vision is strongly evident at the Rs 23,500 crore ITC Ltd (formerly the colonial Imperial Tobacco Company), one of India's top 10 conglomerates. It's known for its cigarettes and paper factories, not exactly green products. " Paper was a loss-making affair, and it reached such a point (in the 1990s) that the majority view of the board was, 'let's get rid of this business'," recalls Chairman Y.C. Deveshwar (62), at his house in Delhi's sylvan Golf Links. He led a revival that brought back profits, transformed manufacturing, infused social responsibility and created eight projects generating carbon credits. This includes windmills, Kolkata's five-star ITC Sonar (the world's first hotel to get carbon credits), and India's only forest that earns carbon credits.

In Andhra Pradesh, ITC helps local tribals farm a renewable forest - as large as Delhi and Mumbai combined - of fast-growing trees like eucalyptus and silver oak for its paper mills. ITC sank more than Rs 100 crore into Andhra, providing greenhouses, scientists and laboratories to the effort.

"Once you give a signal in your company that these are the values you follow, then people come up with not short-term, quick-buck solutions but robust, long-term options," says Deveshwar. He leans forward and smiles, "I've learned that the future arrives very early." In the next two years, half of ITC's energy will come from renewable sources of power, up from a third today.

The official Indian stance is not to jeopardise industrial growth by accepting emission cuts. It's a shaky position. So, at South Delhi's Bureau of Energy Efficiency (BEE), housed in a Soviet-style 1970s government building of dank, stinky corridors and leaky, energy-guzzling air-conditioners, they are finalising plans to rate fuel-efficient automobiles and urging 714 energy hungry factories in nine sectors to pare energy needs, so the world can - belatedly - see India means business. The plan: Companies that cannot reduce electricity use can buy energy credits from others that can.

"When there is no market, you create a market - that's how the low-carbon economy works," explains Pramod Deo (60), Chairperson of the Central Electricity Regulatory Authority (CERC), readying a plan for renewable energy credits. By April 1, 2010, you could buy both these credits from share-market-like national registries.

Out in the brave, new world of hot-air entrepreneurs, they believe the real boom will come when the US agrees to be part of a global agreement to cut emissions. "The US market could create offsets (credits) about three times the current demand from Europe and Japan," says Pranav Nahar (30), a trader of carbon credits. Only a third of India's 400 million carbon credits have been traded, says Nahar. The rest hold out for higher prices.

Like shares, carbon credits can see spot, forward and mixed trades, and buyers range from the government of Norway to financial-service giants such as Morgan Stanley to various hedge funds. Carbon traders operate like merchant and investment bankers, getting a retainer fee plus a cut of the transaction value.

Like most booms, the low-carbon economy even has a gray market (see examples alongside). Environmentally conscious American companies (remember, the US isn't part of the official carbon economy) and individuals buy voluntary emission reductions (VERs), unofficial carbon credits. With jitters over Copenhagen, the gray market has crashed. You can pick up a credit for 15 cents (Rs 7).

As you read this, two brothers are preparing to generate VERs by selling clean-burning bricks made from pine needles, bought from village women in Uttaranchal. The market for these credits: European air travellers who want to cut their carbon footprint.