Green incentives

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SummaryThe carbon trading market may not have sheer scale right now, but it serves as an incentive for developing countries to go green. And, while India may have a lot of ground to cover, it is on the path of ‘carbon smart growth’ with a high number of carbon credits.

Going green seems to be the mantra on every mind, but for India, it's a fact as well. India ranks an impressive second in the number of certified emission reduction (CER) credits, or carbon credits, second only to China.

CERs are part of the Clean Development Mechanism (CDM) initiated by the United Nations Framework Convention on Climate Change (UNFCCC), which allows emission-reduction projects in developing countries to earn CER credits, each equivalent to one tonne of carbon dioxide. These CERs can be traded and sold, and used by industrialised countries to meet a part of their emission reduction targets under the Kyoto Protocol. Under the CDM, emission-reduction (or emission removal) projects in developing countries can earn certified emission reduction credits. Countries listed in Annex I (developed) of the UNFCCC can purchase CDM credits. Non Annex-I countries (developing) can host CDM projects. And that's not all. While investors profit from CDM projects by obtaining reductions at costs lower than in their own countries, the gains to the developing country host parties are in the form of finance, technology, and sustainable development benefits. Projects are related to energy efficiency, transport and methane recovery, among others.

India on the green path

With Indian firms evidently entering the domain in a big way, carbon trading seems to be the way forward for India Inc to contribute to a reduction in GDP emission intensity by 20% by the year 2020. The sector is estimated to be over R1,000 crore in size. India currently has 15% share in the global CER space, while China has 54%. By 2012, this is expected to rise to 16% with 444 million CERs for India. But given that China has bagged more than a lion's share, India still has a lot of catching up to do.

However, on the flip side, India still has a lot of potential in a sector that is now beginning to be taken really seriously by businesses. Not only businesses, but governments too are looking at carbon credits as an exciting opportunity. Himachal Pradesh has already taken a lead by signing a pact with the World Bank for harnessing carbon credits to generate carbon revenue amounting to R20 crore for 20 years under "Bio Carbon Projects" in 10 districts of the state.

As Arvind Sharma, director, advisory-climate change and sustainability, KPMG, explains, “If you consider the price of one CER to be 12-15 euros, it means till date India

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