CDM takes a hit as brokers hold on to green certificates

Despite India occupying a significant position in the global carbon trading business, the brokers and projects developers are holding on to certified emissions reductions (CER) transactions for higher future prices, which is hampering the implementation of carbon development mechanism (CDM) agreed under the Kyoto protocol for reduction of carbon emission in global atmosphere.

Although India holds more than 25% of $64 billion carbon trade, brokers purchase more than 40% of the transactions in 2007, a Ficci research paper has said. More than 50% of the transactions in 2006 were concentrated among developers, wholesalers and aggregators. ?The growing role of brokers within the voluntary trade suggests a shift from end use to capital gains,? the paper titled ?Reshaping of Indian Carbon Market? has said.

CDM (2008-2012) ratified under the United Nation Framework Convention on Climate change (UNFCCC), allows developed nations to give financial incentives to companies in developing countries to cut greenhouse gas emissions. Besides Ficci, even Shyam Saran, Prime Minister?s special envoy on climate change and minister of science and technology Kapil Sibal have expressed reservation about the carbon trading business.

The Ficci paper said as Indian project developers and brokers are holding on to CERs, despite the country receiving a quarter of issued CERs, the transactions in 2007 represented less than 10% of the total carbon trade. ?Buyers, brokers and other intermediaries continued to report difficulty in getting Indian project developers to trade their CERs.

?Whatever the world talk about CDM market, the truth is that despite huge investments in India, no real transfer of technology has taken place,? Kapil Sibal said recently. He even went on to describe the process of CDM ?complex and farce?.

Echoing similar views, Shyam Saran had commented that the impact of climate change mitigation through carbon trading is yet to be assessed, as there is ?uncertainty? about CDM after 2012. Even the Ficci paper said that post 2012 uncertainty has hung like a dark plume over the carbon markets.

The estimated value of global carbon markets more than doubled to $64 billion in 2007 from $34 billion in 2006. According to estimates, around three billion tonne CO2 were transacted in 2007, a growth of 70% from the previous year. Energy efficiency improvements, fuel switching or technology adoption projects in manufacturing and industries have always been one of the most challenging CDM projects to undertake. Their growth during 2007-8 represents the improved ability of CDM procedures to handle more complex project requirements and of carbon markets to commercialise them,? the Ficci paper said.

The paper also reinforces that despite the post 2012 uncertainty and perception that the CDM registration process is getting more difficult appears to have done little to dampen project originating in the country. By August 2008, there were 1,050 registered and pipeline projects representing 76 million CER per year. The number of Indian projects entering the CDM pipeline during January?August 2008 registered a strong 18% increase over same period last year.

According to Ficci, the country?s CDM portfolio of registered and pipeline projects would increase by 40% to 1,092 projects and 100 million CER per year.

Under the Bali Action Plan (BAP) agreed upon in December 2007 for negotiating framework for post 2012 agreement, the United Nations had called on developing countries to undertake nationally appropriate ?mitigation actions, supported and enabled by technology, financing and capacity building, in a measurable, reportable and verifiable manner?.

BAP is seen as pre-cursor to the imminent climate treaty to be signed in 2009 when the conference of parties included in the UNFCC meet in Copenhagen, Denmark for the 15th time to formulate a strategy on climate change in the post 2012 period.