The global Clean Development Mechanism (CDM) is set to look up. The Certified Emission Reduction (CERs) credits issued under CDM would double by 2010, says new research by IDEAcarbon, a carbon rating agency. CERs are issued by the United Nations Framework Convention on Climate Change (UNFCCC) to projects in developing counties for reducing the emission of planet warming greenhouse gases (GHG). Reduction of one tonne of carbon dioxide per year earns one CER.
Its in contrast to this year when CERs are expected to drop from 137.8 to 118-135 million tonne of CO2 equivalent over 2008. KPMG’s associate director Arun Kumar explains, “It’s because the emissions of GHG in carbon intensive industries in industrialised countries have fallen due to drop in industrial output during the economic slowdown.” For example, the fall in EUs GHG emissions by 1.3% in 2008 over 2007 has been partly attributed to the economic slowdown by the European Environment Agency.
Now the signs that global economic recovery may have begun with countries like Germany and France coming out of recession promise to recharge the market. Even US Clean Energy and Security Bill, which is pending approval by the Senate, provides for offsetting up to 1.5 billion tonne of carbon annually. CER prices have already started firming up even though at Euro 13 or $18.50, they are lower than what they were a year ago (Euro 20 or $28.50).
Says Ashutosh Pandey, practice head, Emergent Ventures India (EVI), “The prices should stay in this range for the next couple of months till the outcome of the UN Climate Change Conference in Copenhagen in December is known.” The conference is expected to negotiate on the emission reduction targets of industrialised countries under the Kyoto Protocol of the UNFCCC.
It’s industrialised countries that drive the CDM market by buying credits in developing countries like India to meet their emission reduction targets. Developing countries like India don’t have any binding emission commitments under the Kyoto Protocol. India is a buyer’s market. The country had a 4% market share in terms of volumes, having transacted 15.8 million CERs in 2008, according to State & Trends of the Carbon Market 2009 published by the World Bank.
Up to March 17, 2009, the UNFCCC executive board had registered 398 Indian CDM projects. These projects have secured an investment of Rs 1,51,397 crore ($30 billion). Another 828 projects approved by India at the national level are awaiting the UNFCCC approval. If all these projects are cleared by the UNFCCC, they can generate 573 million CERs and an inflow of $5.73 billion at a conservative price of $10 per CER by 2012, according to the ministry of environment & forests. Besides, these projects have the potential to reduce 10% of the countrys GHG emissions annually. Most of these CDM projects fall under the category of energy efficiency, fuel switching, industrial processes, municipal solid waste and renewable energy. India also wants forestry management to be considered for carbon credits. Its estimated that forests offset 11.23% of India’s GHGs.
India is expected to continue to be the second-biggest CDM market because of the low magnitude and intensity of its emissions. China is the leader with 453 projects approved by UNFCCC. Indias per capita CO2 emission at 1.16 tonne is lower than that of the US (19.78), Russia (12.00), Japan (9.78) and China (4.58). In absolute terms, China (6,017 tonne), US (5,902 tonne) and Russia (1,704 tonne) are ahead of India (1,293 tonne), according to US Energy Information Administration.
More importantly, India’s emissions are projected to be low even in the future. Indias per capita GHG emissions in 2030-31 would be lower than the per capita global GHG emissions in 2005, according to the recently released study, Indias GHG Emissions Profile: Results of Five Climate Modelling Studies.
In fact, Indias per capita emissions in 2020 are projected to be below those of industrialised countries even if they go for 25-40% emission cuts as recommended by the IPCC to keep the temperature rise below 2 degree since pre-industrial times to avert the worst impacts of climate change. EVIs Pandey says, The big difference between the emissions of industrialised countries and India is an opportunity for India to trade more CERs. It should also help vis–vis competition since India has already emerged as the best CDM country, according to Point Carbon Research.
Besides, recent steps like launching two missions under the National Action Plan on Climate Change are also expected to broaden and deepen the carbon market in the country. While the National Solar Mission is committed to generate 20,000 mw by 2020, the National Mission on Enhanced Energy Efficiency seeks to open up a Rs 75,000-crore market in trading of energy efficiency certificates. KPMG’s Kumar says, “Both these missions open up big avenues for expanding the CDM market in India. But it depends on how soon the projects are rolled out because the first commitment phase of the Kyoto Protocol ends in 2012.” The post-Kyoto status of CDM will be decided by the outcome at the climate change conference in Copenhagen.
Source: The Financial Express
Published on 08 September 2009