Next big investment theme

Everyone is always asking one question with respect to the stock markets ?. Where should I invest so that my money grows manifold in the next 10-15 years ? While, I am no great investor I have tried to look at the opportunities ahead and tried to identify one theme that I think will start getting more attention than what is getting today and will eventually lead to focus by all the companies is green house gas emission and the concept of carbon credits.

The concept of carbon credits came into existence as a result of increasing awareness of the need for pollution control cause d by the emission of the green house gases cause by industrialization. It was formalized in the Kyoto Protocol, an international agreement between 169 countries. Carbon credits are certificates awarded to countries that are successful in reducing emissions of the greenhouse gages.

For trading purposes, one credit is considered equivalent to one tonne of CO2 emissions. Such a credit can be sold in the international market at the prevailing market price. The carbon credits can be traded like stocks and bonds in stock exchanges. There are currently two exchanges for carbon credits: the Chicago Climate Exchange and the European Climate Exchange.

Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. This means that compensating for producing greenhouse emission gases will add to the cost of business and will become like other inputs such as raw materials or labor. Let us taken an example where a factory produces 20000 tonnes of greenhouse emissions in a year. Let us say that the government then enacts a law that limits the maximum emissions a business in that industry can have. So the factory is given a quota of say 16000 tonnes. The factory either reduces its emissions to 16000 tonnes or is required to purchase carbon credits to offset the excess. In this case the offset being 4000 tonnes.

A business would therefore buy the carbon credits in an open market from organizations that have been approved as being able to sell legitimate carbon credits. One seller might be a company that will plant ‘X’ number of trees for every carbon credit you buy from them. So, in this case a business might pollute a tonne, but is essentially now paying to another group to go out and plant trees which will, say, draw a tonne of carbon dioxide from the atmosphere.

As emission levels are predicted to keep rising over time, it is envisioned that the number of companies wanting/needing to buy more credits will increase, which will push the market price up and encourage more groups to undertake environmentally friendly activities that create for them carbon credits to sell. Another model is that companies that use below their quota can sell their excess as 'carbon credits'.

So what does it mean for Indian business and what opportunity does it present ?. Companies such as Aviation, Car manufacturing, Metals, Conventional form of energy etc will have to pay for the gases that they will produce in the long term while companies that are into production of energy in non conventional methods such as wind, solar will start to gain. I for one believe that Suzlon Energy is one the companies that will benefit in the long term because of this and will be a good stock to buy for a long term. So go ahead and keep accumulating this company on a continuous basis.