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Greenbacks waft in with greenhouse
gases
By Indrajit Basu
The Kyoto Protocol, which has finally come
into being after about seven years of intense
international negotiations, holds out immense
possibilities for India. As India is not required
to reduce emission of greenhouse gases under the
protocol, which basically is a mandate for only
acknowledged "industrialized", and thus highly
polluting, nations, the country could well be one
of the largest beneficiaries in term of dollars.
The protocol brings into force a clean
development mechanism (CDM) wherein developed
nations - the so-called "Annex I" countries - will
be able to trade part of their commitment of
reducing greenhouse gasses by buying green energy
credits, called certified emission reductions
(CERs), from projects in developing countries like
India - non-Annex I countries - that do not have
their own Kyoto emission targets.
"India
has developed more CDM methodologies and project
proposals than any other country," says a study by
the UN Conference on Trade and Development
(UNCTAD), adding, "Brazil, China and India have
the greatest potential for the new mechanism."
According to Indian industry sources, India has
emerged as the largest supplier of projects
followed by Brazil (China is expected to enter the
market soon), and could soon command over 10% of
the global CER trade.
Adopted in Kyoto,
Japan in December 1997, this protocol of the
United Nations Framework Convention on Climate
Change (UNFCCC) puts binding commitments on 36
developed countries (the industrialized countries
and the countries with economies in transition) to
reduce their overall greenhouse gas emissions,
individually or jointly, by at least 5% below 1990
levels in the first commitment period of
2008-2012. These countries account for about 30%
of total carbon emissions.
Consequently,
carbon has become a tradable commodity. One ton of
carbon dioxide reduced through a CDM project, when
certified by a designated entity, becomes a
tradable CER. Revenue from CERs can form part of a
project's annual cash flow, equity, or debt. The
protocol therefore, paves the way for an entirely
new form of international commerce by way of
carbon trading. Many believe that the emerging
business revolving around the trading of harmful
gas emission reduction credits will be much bigger
than most other commodities on the market today.
The protocol provides three flexibility
mechanisms for meeting emission reduction targets:
joint implementation, international emissions
trading and the CDM. Of these, the CDM is of
interest to developing countries as it assists
them in achieving sustainable development while
assisting Annex I parties in achieving compliance
with their emission reduction commitments.
According to Delhi-based The Energy and
Resource Institute (TERI), not only does India
have a very high potential for CDM supply, there
is also considerable vibrancy in CDM project
development. Industry sources estimate that around
150 CDM project documents have been designed in
India, of which over 50 projects have been cleared
by the government. Some of these have finalized
carbon credit sale deals with international buyers
and many are in advanced stages of validation and
registration with the UNFCCC.
"Actual
trading hasn't started yet but forward contracts
have," says Ajay Mathur, industry expert and
president and chief executive officer of Senergy
Global Pvt Ltd. According to him, there are about
10 odd players who have already sold CERs to the
World Bank. CDM project development in India is
facilitated largely by consultants and funded by
the private sector itself. Some projects have also
been developed with donors, such as Canada,
Germany, Japan, the United Kingdom, the World
Bank, the United Nations Development Program and
the European Union.
"India has the highest
number of industry sectors that have adopted
methods to reduce carbon emissions in the
atmosphere by using non-fossil fuel. These range
from cement, steel, biomass power, bagasse
cogeneration, municipal solid waste to energy and
municipal water pumping to natural gas power,"
says TERI. Among the projects selected under Annex
I government tenders and carbon funds, the largest
number of projects are from India.
Small
wonder then that Indian CDM investors expect a
good portion of the carbon trading dollars to flow
into the country. "It is expected that between now
and 2012, there would be a reduction of 2.5
billion tons of carbon emissions," says Mathur.
"And India is expected to contribute 850 million
tons of this. At the current rate of US$6 per ton,
that's a lot of money."
Even if one
considers the TERI projection, which is more
conservative, India still stands to pocket quite a
bit of global greenbacks resulting from carbon
trading. "India's share of the international CDM
market, as estimated by the National Strategy
Study - a World Bank project for CDM
implementation in India - could be at least 10%,
earning revenues of up to $100 million per year,"
says TERI.
Although UNCTAD feels that
along with India, China and Brazil could enjoy
dominant positions in future carbon trading, TERI
says India will be number one. "India became the
number one country from the CDM investors'
perspective as per the survey results of Point
Carbon during April 2004, and continued to hold
the position as of December 2004 [countries are
rated and ranked on the basis of institutional
conditions, investment climate, and project status
and potential]," says TERI. That is largely due to
a combination of a few factors - not existent yet
in China and Brazil - such as "enhanced awareness
among stakeholders, increased private-sector
engagement, streamlined national approval
procedures and the presence of several
international donor-supported CDM activities".
TERI also points out that a strong human resource
base and services sector make the country an ideal
host for CDM projects.
In terms of
technologies, the Indian CDM project portfolio is
currently dominated by small-scale projects,
mainly from the renewable energy sector. "This is
in contrast to the international scenario where
HFC [hydrofluorocarbon] decomposition and landfill
gas to energy projects accounted for 49% of the
total emissions reduction volume contracted in
2003-04," says TERI.
Clean energy, the
real profit
But according to Mathur,
perhaps the biggest benefit for a country like India does not
lie in financial gains that the protocol brings in
its wake. A much bigger intangible benefit is that
it will allow an additional source of revenue for
clean energy projects that were not viable
earlier. "Now it will make business sense for
investors to put in their money in clean energy
projects like biomass, cogeneration, renewable
energy, recycling of municipal waste for power
generation and other such projects," he says.
Mathur says clean energy technologies,
such as wind, biomass, or waste utilization face
major commercialization challenges because of
their comparatively higher development costs. "Yet
they provide the same service - electricity - as
provided by other technologies, and do so at a
higher cost to the user. The Kyoto Protocol and
CDM provide us with a tool to reward the
performance of clean-energy technologies," he
says.
The Kyoto list
The
following are the "Annex I" countries that have
been assigned an emission reduction target by the
Kyoto Protocol:
Australia**, Austria,
Belgium, Bulgaria*, Canada, Croatia*, Czech
Republic*, Denmark, Estonia*, Finland, France,
Germany, Greece, Hungary*, Iceland, Ireland,
Italy, Japan, Latvia*, Liechenstein, Lithuania*,
Luxembourg, Monaco, Netherlands, New Zealand,
Norway, Poland*, Portugal, Romania*, Russian
Federation*, Slovakia*, Slovenia*, Spain, Sweden,
Switzerland, Ukraine*, United Kingdom, United
States of America**
*Countries that are
undergoing the process of transition to a market
economy
**The US and Australia have declared
their intention not to ratify the Kyoto Protocol,
and therefore will not adopt Kyoto emission
reduction targets
Indrajit Basu
is a Kolkata-based
equity-analyst-turned-journalist with more than 12
years of experience in business/finance and
technology journalism. Besides writing for Asia
Times Online, he also writes for US-based
publications, as well as IT companies.
(Copyright 2005 Asia Times Online Ltd.
All rights reserved. Please contact us for
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