CDM: A Study of a Sustainable Growth Opportunity for India

Abstract

Kyoto Protocol (1997) has designed three market-based “flexible mechanismsâ€: Emissions Trading (ET), Joint Implementation (JI) and the Clean Development Mechanism (CDM). The CDM projects are developed in developing countries, assisted with technology and finance from investors of the industrialized countries who in return would get carbon credits called CER - for the reductions of Green house gas emission and can use those credits to meet their Kyoto target. Alternatively, project developers may generate emission reduction for sale in the international market. Three stakeholders are involved in the process, the industrialized country governments and companies who have undertaken emission reduction target, the developing countries where the CDM projects are developed and the global environment. The global environmental damages would get reduced by emission reduction of the CDM projects, no matter where the project is located. The developing countries get sustainable production due to CDM projects and either finance and/or technology for development of CDM projects cash flows from sale of CER. The industrialized countries and the companies get the required CER at economic price or cost of investment.Up to 12-02-2007 a total 506 projects have already been registered and 99 projects are requesting registration and another 845 projects are in the pipeline. The expected green house gas reduction in units of tons of carbon or equivalent by 2012 is 1.8 billion with average annual emission reduction of 113 million of tCO2e. (tCO2e means one ton of carbon dioxide emission or equivalent) In 2005, 374 million tCO2e of Certified Emissions Reductions (CER), were transacted at a value of US$2.7 billion with an average price climbing over US$7.23 per CER. In the first three months of 2006, prices for projectbased emission reductions soared with an average reported price of US$11.45 per tCO2e for the 79 million tons transacted in the first three months of 2006 alone, corresponding to a value of nearly US$0.9 billion.Starting on 08-March-2005 till 12-Feb-2007 India has 164 registered projects with annual estimated emission reduction of 1.567 millions of tCO2e. Based on the risk adjusted conservative value of $6 only (offered by the World Bank) for the CER to be generated from the registered projects in India and taking the current rate of conversion of 1 USD for 44 ICU the potential monetary value of ‘Additionality’ in India comes to almost 4138 million rupees a year.In world ranking India is first in number of projects and third in annual volume of emission reduction. Out of 15 sectors only in 6 sectors CDM projects have been developed in India. Amongst 28 states of  India only in 16 states in India CDM projects have been developed while  other states and union territories are yet to open their account. Rajasthan shared 31% of total emission reduction.