The CDM is a market-based financial instrument that allows industrialised countries to invest in developing country projects and acquire GHG emission reduction credits.

G.K. Nair

Kochi, June 3

THE Asian Development Bank will help India to efficiently undertake clean development mechanism (CDM) projects to cut back on greenhouse gases (GHGs) emissions, through a technical assistance grant approved for $7 lakh (around Rs 3 crore).

The technical assistance, financed by the Government of Canada, and administered through ADB's Renewable Energy, Energy Efficiency and Climate Change Programme, will support various stakeholders in specific CDM sectors and selected areas to strengthen India's overall position as one of the key players in the evolving international carbon market, according to an official release.

"India has the potential to play a major role in the global CDM market, as significant potential for GHG reduction at relatively low marginal abatement costs is available across various sectors that are growing rapidly," according to Mr Ashok Sarkar, an ADB Energy Specialist.

The Kyoto Protocol sets binding targets for industrialised countries for the reduction of GHG emissions that would lower the risk of global climate change. The CDM is a market-based financial instrument set up under the Kyoto Protocol that allows industrialised countries to invest in developing country projects and acquire GHG emission reduction credits, or carbon credits, that they can then use to meet their GHG emission reduction targets under the protocol.

A CDM facility was also set up in ADB in September 2003 to provide technical and administrative assistance to eligible projects in parallel with project identification and loan processing, and to help in transactions with potential buyers of carbon credits generated by such projects.

"CDM gives India an opportunity to follow the path of sustainable development by providing access to additional resources for helping accelerate the adoption of technologies that reduce GHG emissions. A developed domestic CDM capacity could ensure India's effective participation in the global carbon market."

Although India is the world's sixth largest emitter of global GHGs, it accounts for only three per cent of the total GHG emissions. Its per capita emissions are one-fifth of the global average.

In December 2003, the Government of India ratified the Kyoto Protocol and established the National Clean Development Mechanism Authority (NCDMA), which has policy development, regulatory, and promotional roles to create a competitive CDM market.

About 80 projects have been approved by the NCDMA and about 200 other CDM projects are estimated to be in various phases of preparation in the Indian CDM market.

However, as CDM is a new field that is evolving constantly, knowledge of best practices remains limited, and the level of awareness and understanding of CDM projects in both the public and private sector remains low, especially at the State and municipality level, leading to limited financing available and high transaction costs.

The assistance will follow a "learning-by-doing" approach, developing real CDM activities alongside training activities for governmental and regulatory entities, and project developers. It will also help mainstream CDM into the domestic financial and insurance sector through training and by helping design the structure of a project financing fund that could effectively capture the financial benefits from CDM projects.

Experiences will be disseminated among other ADB developing member countries facing similar challenges in their CDM markets.

The Centre will contribute $2 lakh toward the technical assistance's total cost of $9 lakh. The Ministry of Environment and Forests is the executing agency and is due for completion in November 2006.

(This article was published in the Business Line print edition dated June 4, 2005)
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