The Hindu Business Line : Enabling environment key to carbon reduction projects: FICCI survey

Study pointers
Carbon market up against hurdles like information gap, technical know-how.
Need for capacity building within cos, in Govt, among others.
More Indian entities needed as verification-validation agencies for CDM projects.

Our Bureau

New Delhi, Nov. 18 Fluctuating certified emission reduction (CER) prices, delivery risk, risk of timing, and currency risk are the major obstacles perceived by Indian companies regarding Clean Development Mechanism (CDM) projects, according to a survey conducted by industry body FICCI.

Each CER represents one tonne reduction of carbon dioxide emission. Indian companies that get CERs from the UN through a certification process can sell them internationally to buyers from developed countries that are mandated to meet green house gas reduction norms set under the Kyoto protocol.

The FICCI survey on ‘Risks and Barriers to Clean Development Mechanism (CDM) projects in India’, conducted across 50 companies from 17 industry sectors, underlines the need to create an enabling environment for carbon reduction projects.

Major risks

Over 46 per cent of the respondents feel that the risk posed by fluctuating CER prices is the major one in the CDM process, said a FICCI statement.

Delivery and timing risk come a close second (33 per cent of the respondents’ views), since there are several factors that can affect the actual delivery of carbon credits. The projected number of CERs delivered for any project could vary between the project proposal stage and the CER delivery stage.

Equally important is the risk of timing. The long time required by the overall CDM project cycle, which is a multilateral process, results in delays in the delivery of CERs and receipt of payment, stated the industry body.

The respondents also point to the long approval process at the international level for CDM projects. Forex fluctuations also affect the CDM earnings as the CER buyers usually trade in euros and dollars.

Impediments

While Indian industry has responded strongly and positively to the CDM, the carbon market in India is up against institutional, financial and technical impediments such as information gap, lack of capacity building and technical know-how, high transaction costs, and absence of guarantees from financial institutions (FIs) and funding organisations, according to the survey.

Despite several awareness-building initiatives on CDM across the country, over 66 per cent of the respondents feel that there is a huge information gap related to CDM projects. Industry has pointed to the need for capacity building at different levels — within companies, at the Government level, at the level of third-party verifiers and validators of projects, and at the international approval stage (CDM Executive Board under the UN which registers and issues carbon credits).

The FICCI survey also brings out the industry’s need for the creation of Indian entities that could serve as verification and validation agencies for CDM projects. Currently, third-party verification and validation is done by foreign companies, which have set up offices in India, with only five such agencies operating in India.

Sectors covered

The industry sectors covered by the survey include: cement; thermal power generation and distributions units; iron and steel; power; oil and gas (upstream and downstream); textiles and synthetics; chemicals and fertilisers; mining; hotels; pulp and paper; sugar; distillery and bottling; food/FMCG; manufacturing; trading; renewable energy (wind and hydro); and poultry.

The respondents have called for a policy that clearly spells out that the revenue earned from carbon credits be treated as export earnings and stressed the need for defining a CDM-friendly legal and regulatory framework.

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