China, India and Brazil ahead in carbon credits

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SummarySimilarities and disparities among Bric countries in different spheres of economic activity have been well-documented. But one area where the disparity is most visible is in emission....

Similarities and disparities among Bric countries in different spheres of economic activity have been well-documented. But one area where the disparity is most visible is in emission trading whereby countries having commitments under the Kyoto Protocol use market mechanisms to acquire emission units from other countries and use them to meet a part of their targets. This clean development mechanism (CDM) allows emission reduction projects in developing countries to earn certified emission reduction (CER) credit by reducing greenhouse gas emissions which are then sold to industrialised countries to meet a part of the targets.

While China, India and Brazil heads the list of countries earning the maximum carbon credits, Russia is nowhere in the picture with its contribution limited to a few joint investment projects commissioned recently. Most recent numbers show that there are 4,782 CDM projects in the pipeline, of which 1,915 are registered, 2,590 are under validation and 277 are still registration requests. And so far, only about 605 of the registered projects have issued 355 million CER credits where each CER is equal to 1 tonne of carbon dioxide.

China holds the maximum share with 1,895 CDM projects, or 39.6% of those in the pipeline, followed by India with 1,207, or 25.2% in the pipeline. Brazil, with 347 projects, accounts for 7.3%. The fourth major contender is Mexico with 162 projects and a 3.4% share.

The total emission reduction potential of the 4,782 projects is 661 million CER credits and this is expected to go up to 2,820 million CER credits by 2012. The 1,895 Chinese projects currently have an emission reduction potential of 371 million CER credits that will increase to 1,544 million credits by 2012, accounting for 54.8% of the global share.

India comes next with the 1,207 projects, having an emission reduction potential of 112 million CER credits that will go up to 454 million CER credits which is only 16.1% of the total. Brazil’s current contribution to the emission reduction potential from its 347 projects in the pipeline is 30 million CER credits that will move up to 171 million credits by 2012 ,accounting for 6.1% of the global potential.

One highlight of the CDM projects in the Bric countries is the disparity in the number of CDM projects and the emission reduction potential. While China has a 39.6% share of projects, its emission reduction potential is expected to be 54.8% by 2012, indicating that its projects are much larger than the global norm.

In contrast, while India’s share of CDM projects in the pipeline is a substantial 25.2% and its share of the CER credits is a meagre 16.1%, pointing to the small size of its CDM projects. Brazil is more on par with global benchmarks with its share of projects and emission reduction potential being a more comparable 7.3% and 6.1%, respectively. Back-of-the envelope calculation shows that while globally the average emission reduction potential of a CDM project is 5,90,000 CER, the average size of Chinese projects was a high 8,15,000 CER credits. In contrast, the average size of Brazilian and Indian CDM projects were sizably lower than the global average at 4,93,000 CER credits and 3,76,000 credits, respectively.

However, disparities among CDM projects in the Bric countries are not restricted to size alone. A further investigation shows that there is a significant variation in the kind of projects chosen for gaining emission reduction credits.

When one looks at the distribution of carbon credit projects, we find that all the three countries have greater concentration than the global average. While the largest four segments contributed to around two-thirds of the total projects at the global level, the share of the largest four segments was a high 85.6% in China followed closely by Brazil with 84.4%. Among the three Bric countries, India had the least concentration with the share of the four largest segments being at a much lower 74.4%.

Sector-wise details of carbon credit projects show that globally, the largest number of projects was in the hydro segment (27.2%), followed by wind projects (17.3%), bio energy (13.8%) and energy efficiency in generation (9.6%). The concentration of such projects in China was similar with the first two places going to the hydro (4.4%) and wind segments (17.3%). However, the third place went to EE projects in generation and bio energy projects only had the fourth place in China.

Though the first four categories dominating the carbon credit projects in India are similar to the global and Chinese structure, the ranking varied significantly. The wind segment was the biggest category in India with a 27.7% share followed by bio energy segment (24.8%), hydro (11%) and energy efficiency in generation (10.9%).

However, the ranking varied a little more substantially in the case of Brazil. While the first place was for the bio energy projects with a 28.2% market share, the second went to hydro projects with a 22.5% market share. What is especially striking is that the third and fourth categories were substantially different from the global and the Chinese and Indian rankings. While the third category was methane avoidance projects with a 21.6% market share the fourth was landfill gas projects with a 12.1% share.

The concentration of emission reduction potential across segments is marginally lower than in the case of project numbers, with the share of the first four segments hovering around half with a 52.7% share. But as in the case of projects the level of concentration of the first four largest segments in the Bric countries were higher than the global benchmarks.

The highest concentration of emission reduction potential among the three Bric countries was in Brazil where the four largest segments contributed a 79.7% share. The share of the first four largest categories in China and India were much lower at 69.1% and 57%, respectively.

Globally the top segments which had the highest emission reduction potential was the HFC segments with a 16.9% share followed by hydro (16.7%), wind (10.2%) and N2O (8.9%) segments. China has a similar ranking in the first three segments with the share being 23.5%, 21.2% and 13%, respectively. However, energy efficiency in generation was the fourth largest segment in China as compared to the N20 segment at the global level.

In the case of India, the emission reduction potential was slightly different. While HFCs was the largest segment as at the global level and in China the second most important contributor was bioenergy mass segment with a 13.7% market share. Energy efficiency in generation was the third most important segment with a 13.2% and wind the fourth largest with a 12.9% share.

The ranking of the emission reduction potential of the first four most important segments in Brazil was very different from that of the other two Bric countries and the global trends. While landfill gas projects was the largest component with a 31.3% share, the second space went to N20 projects (22%) followed by biomass projects (15.9%) and hydro segments (10.5%).

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