US-based Carbon Credit Capital (CCC) is a leading player in the international carbon credit financing business. It provides greenhouse gas reduction and risk management solutions to large industrial emitter companies in various countries including India. In an email interview to FE?s Noor Mohammad, Olivia Fussel, president, CCC, tells how India can leverage CDM to encourage capacity addition in clean energy sources as also to promote energy efficiency. Excerpts:
The global carbon credit market was hit by the recession. Has the market responded to the economic recovery? What is your medium term outlook on growth of the carbon credit market?
The global carbon market was certainly hit by the recession but has recovered quite well. The value of the carbon market grew in 2010. In particular, the volume of certified emission reductions (CERs) traded increased in 2010 and we expect it to continue to increase due to forecast shortages of CERs to supply the EU ETS phase II and as companies in the EU begin to prepare to meet their post 2012 commitments. Particularly since CERs, as compared to EU Allowances (EUAs), are bankable for the post 2012 period, we expect the prices of CERs to begin to reflect this. Australia?s announced proposal for an emissions trading scheme will also put upward price pressure on CERs in the long term.
What is the business potential for the Indian industry?
The Indian industry is in a position to take advantage of the unique opportunity they have in the carbon market and this is a exciting opportunity. As large companies with strong balance sheets, they are in a position to make large scale investments in emission reduction projects that can benefit from carbon finance as a ?subsidy?. Project opportunities range from high efficiency coal, natural gas and renewable power plants to internal efficiency measures such as waste heat recovery and system upgrades. These companies are in a position to provide larger scale projects to the market which can benefit from higher prices due to larger transaction sizes. In addition, industrial companies can use the carbon finance opportunity to transition to cutting edge or experimental technology with the assistance of carbon finance as technology transfer is one of the main objectives of the Clean Development Mechanism (CDM). We have already seen multiple project types in the steel and chemicals industry involving adoption of new patented technologies for process improvement or recycling which use carbon finance to help overcome some of the risks of adoption of new technology.
Your company is in the business of providing carbon credit financing? How has been the response from the Indian market? Which industry sectors have been more enthusiastic in reaping benefits of CDM mechanism? What are the sectors that need to be more aggressive?
We are in the business of providing access to the carbon market and carbon financing for project developers. The market is complex, fragmented and cross border, and we provide assistance at the early stages of a project to ensure ultimate success in maximizing the benefit of carbon finance. The Indian industry has been very active in the carbon market. In particular, the renewable energy sector has been very active in accessing the CDM opportunity. In fact, renewable energy projects are the largest category of CDM projects in India, accounting for over 16,900 MW of renewable energy spread across 1039 projects that have accessed the CDM benefit. This is second only to China. In contrast, energy efficiency in industry accounts for only 6% of all CDM projects in India, while there is great potential here for industry to access CDM benefits to assist investment in energy efficiency measures. Transportation projects account for only 0.9% of CDM projects in India, despite the fact that transportation is the second largest contributor to emissions in India after the electricity sector. The government can be more aggressive in adopting national programmes using CDM benefits as a way to promote clean energy and create improvements in energy efficiency in, for example, the transmission and distribution system and the transportation system.
What kinds of challenges and difficulties are faced by Indian industry in getting their projects approved for carbon credits?
Certain industries have had more challenges than others in getting their projects approved. For example, in the cement sector, a project type that faced a high rejection rate is blended cement, which was deemed to be justifiable entirely on the return on investment of the project and becoming common practice. Another factor that has led to India having one of the highest CDM project rejection rates of any country is the poor quality of many of the project development designs submitted, which sets a bad precedent for projects. We see a future challenge to be addressed of balancing the multiple incentives now being offered by the government through the Climate Change Action Plan to properly consider and structure the various incentives into a project and properly reflect the contribution of each to the success of the projects.
What are the key challenges for the Indian power sector in emission reductions?
The Indian electricity sector is the number one contributor to carbon emissions in India, responsible for over 30% of total emissions. Coal contributes 90% to this total. There are many available technologies for cutting down emissions from the electricity sector, including high efficiency coal power projects which can reduce emissions from coal fired power generation by as much as 25%. In addition, existing demand side energy efficiency measures can provide meaningful emission reductions. Improving the transmission and distribution grid to reduce the current high level of losses will allow India to produce the same amount of power with lower levels of emissions. The challenge to reducing emissions is not only technological, but also a governmental challenge in how to provide for clear incentives and simple procedures for businesses to invest in the available technologies.
How has the Indian industry fared vis-a-vis China?
While China is the number one supplier of CERs globally with the highest number of CDM projects registered, India is at the second position. However, in certain areas India is ahead of China.
