The global trade in carbon credits has taken off fairly well with the turnover going up from $11 billion in 2005 to $118 billion in 2008. Carbon markets investments planned have exceeded all expectations. But the resistance to the idea seems to be gathering steam with many in the developed countries pointing out procedural deficiencies and arguing that carbon trading will confer unfair advantages on companies in developing countries like China and India, the major sellers of carbon credit.
But despite growing opposition, the concept of carbon trading continues to soar steadily, boosting the number of emission-reducing projects in the pipeline from 490 in end-2005 to 4,782 in November 2009, and pushing up the total carbon credits supply from 704 million CERs to 2,820 million CERs during the period.
One reason the concept of carbon credits has gained popularity is its ability to create a political alliance of forces on opposing sides like Left-wing environmentalists and free market proponents. While the former believe that the polluters have no significant incentives for self-regulation and have to be curbed through government intervention, the latter believe that such command and control intervention would wreak havoc and that the market would eventually offer an optimal solution.
Carbon trading regulations helped break the impasse by providing a clear target that the environmentalists could embrace, while at the same time favouring the market mechanism over governmental regulation as advocated by the Right. An added advantage of the carbon credits is that it optimises investments in emission-reduction projects by encouraging projects in countries where the cost of reducing emissions is the least, which generally goes in favour of developing countries.
Countries like India have favoured carbon trade, as it offers a win-win situation for both entrepreneurs and the broader society. While innovative companies that help reduce emissions are provided with carbon credits, which they can encash to boost viability or earn profits, the gains to society accrue in the form of a smaller destabilising impact on the environment.
But the level of popularity of the carbon credit scheme in India has varied sharply across different segments and states. At the national level, the three most popular segments with the largest share of CERs in the pipeline come from HFCs (17.2%), wind (12.9%) and hydro projects (11%). This is largely similar to trends in China and at the global level. But the fourth-largest segment in India is biomass, which has a 13.7% share.
The larger gains made by the biomass segment in India compared to elsewhere is explained by its long history. The renewable energy programmes initiated in the 1970s promoted various programmes like its direct utilisation of fuel, conversion of woody biomass into fuel and methane gas reclamation. The biomass segment gained greater attention and popularity with the coming of bio-fuel projects like bio-diesel. The high fuel price scenario has helped India integrate its energy security strategies with more environment-friendly projects in segments like biomass and wind.
Data on popularity of the carbon credit projects in different states is however limited to 1,308 projects. Here the most recent numbers show that four states account for more than half the projects. These are Maharashtra (14.4%), Tamil Nadu (13.8%), Karnataka (13.5%) and Gujarat (10.6%). In all four states, wind projects constituted the largest segment. In the case of Maharashtra, close to half the projects were in the wind energy segment (90 of the 189 projects). In the case of Tamil Nadu, the share was even larger (108 of the 180 projects). The share was slightly smaller in Gujarat and Karnataka with their numbers being 61 out of 139 for Gujarat and 72 out of 177 for Karnataka.
In the case of biomass energy, the state that ranked at the top was Uttar Pradesh with 52 projects, followed by Andhra Pradesh (40), Maharashtra (37) and Karnataka (34)?an almost entirely different bundle of states with only Karnataka being the common link. This runs counter to the common belief that carbon companies usually diversify their business by investing in related areas, given that the location of new-generation wind power projects is almost entirely different from the states where biomass, with its long history, is located.
Of course, there are other factors such as the country?s regulatory framework that influence the growth of different segments. But given that the framework is common to the country, it would not have any significant impact on the location of projects across the states. In contrast, it is more likely that the incentive structure linked to energy security efforts has given a boost to the carbon credit innovations in India.
p.raghavan@expressindia.com
