With the clean development mechanism (CDM) in place, a host of Indian companies are eyeing additional earnings by adopting projects that reduce the emission of greenhouse gases (GHGs).
The United Nations Framework Convention on Climate Change (UNFCCC) has designed CDM, under the Kyoto Protocol, to achieve cost-effective GHG mitigation for industrialised countries.
The Kyoto Protocol, which came into force on February 16, 2005 makes it obligatory for some 37 developed countries to reduce their emissions of six harmful GHGs, including carbon dioxide.
Reducing GHG emissionThese developed countries, and the companies therein, can reduce GHG emissions through a combination of several methods. First, the companies can adopt cleaner technologies within their own firms to ensure that lower levels of GHG are emitted.
Second, they can fund projects in the industrialised countries that adopt clean technologies. Third, they can fund clean technology projects in developing countries through the CDM.
Preference for CDMAmongst the above listed methods, developed countries have a certain level of preference for funding cleaner technologies in developing countries since it would be cheaper to adopt cleaner technologies in those nations where the level of industrialisation is not as high as in developed countries.
According to certain studies, reducing one tonne of carbon dioxide equivalent would require about $50 in developed countries, but the same can be done in developing countries for $15.
However, the developed countries cannot achieve all their emission reductions through CDM as they are mandated to achieve a certain level of emission reduction in the industrialised economies as well.
Thus, several Indian companies can earn carbon credits through a multi-layered validation process and then sell them to developed countries.
These credits are given in the form of certified emission reductions (CERs). Each CER stands for one tonne of carbon dioxide reduction and can be traded globally.
The companies or the Governments of developed countries can use these units to offset their own GHG emissions during a given period. They can also sell them to buyers in other industrialised countries that are required to meet GHG emission reduction targets.
The approval processIndian companies wanting to trade carbon are first required to prepare a project design document (PDD) that would explain the details of the project. The PDD should explain how the project would reduce GHGs and help in sustainable development. Most of the companies tend to appoint consultants for preparing PDDs.
The PDD is then submitted to the National CDM Authority for getting a "host country approval." It usually meets on a monthly basis for giving host country approvals to the projects and is in charge of formulating the appropriate guidelines. The project is then taken to the CDM Executive Board at the UNFCCC.
The project has to undergo a validation, registration and issuance of CERs process at the UNFCCC. The project validation is done by firms known as designated operational entities (DOEs), which are approved by the UNFCCC to do so. The projects are then registered at the UNFCCC and finally, CERs are issued. The issued CERS are generally spread over specified time period of the project.
At the UNFCCC, there is a provision for relatively faster clearance of small-scale CDM projects. The small-scale projects include renewable energy project activities with a maximum output capacity of 15 MW and energy efficiency improvement project activities that reduce energy consumption by up to 15 gigawatt a year, among others. The speed of project clearance at the UNFCCC also depends on whether the project conforms to one of the methodologies already approved by the CDM Executive Board (EB).
Approved methodologies are recognised by the CDM EB as clean technology processes. Projects based on those methodologies are likely to get faster approvals. For projects based on new clean technologies, project participants are required to get their methodology approved by the CDM EB.
Projects registered so farIndian projects registered till date are from wide-ranging sectors such as cement, sugar, paper, iron and steel, power that includes biomass cogeneration, and hydro and wind energy projects.
Till June 2, 203 projects were registered by the CDM EB at the UNFCCC, with India accounting for over 29 per cent of the projects. It is followed by Brazil, which accounted for almost 22 per cent. These projects together aim to result in an average of 56.52 million CERs a year.
Some of the projects that are already registered or are in the process of getting registered are JSW Steel, Gujarat Ambuja Cement, ACC, MSPL's wind power project, Shree Cements, Tata Sponge Iron Ltd (TSIL), through its waste heat recovery-based power plant at Joda; Reliance Industries, which has two projects based on reduced steam consumption at Hazira and Jamnagar, Birla Corporation, JK Cement, Grasim Industries, Shree Bhawani Paper Mills Limited (rice husk-based cogeneration project), Shree Renuka Sugars, Shree Pandurang Sahakari Sakhar Karkhana (Shree Pandurang SSK) sugar unit, and Triveni Engineering