Indian companies may face a decline in revenue from certified emission reductions (CER)/carbon credits post 2012, according to Fitch Ratings.

CER prices have fallen recently due to several factors: The ongoing eurozone debt crisis; potentially lower acceptance of CERs after 2012; and the lower probability of developed and industrialized countries agreeing to binding commitments after the first commitment period of the Kyoto Protocol (ending December 2012).

The Kyoto Protocol has been supporting measures to combat climate change in developing countries through carbon trading schemes such as the clean development mechanism (CDM) since it came into effect in 2005. As of 15 October 2011, around 21% of the CDM projects registered have been from India and 46% from China with the two countries together accounting for around 74% of the CERs issued (China 58%, India 16%). Fitch estimates that, as of 15 October 2011, these CERs have added over Rs 70 billion to the revenues of Indian companies.

Companies in sectors such as metals, sugar, industrial gases, chemicals, paper and others have taken advantage of the funds from CER, though chemical companies have been the main beneficiaries of CER revenues. Many chemical manufacturers such as SRF Limited (Fitch AA(ind)/Stable), Gujarat Flurochemicals Ltd., Chemplast Sanmar Limited (Fitch BBB-(ind)/Stable), Navin Fluorine International Limited have used these revenues to fund their capital expenditure for expansion and diversification into new business activities.