Climate change is being described
as the most important environmental challenge before humankind today. The
mitigation of climate change, by drastically reducing GHG emissions and stabilizing
the carbon dioxide concentration in the atmosphere has become a prerequisite to
avoid a strong alteration of the climate system. With its vibrant economy and a
growing population, India
has become a major energy consumer. Access to reliable, affordable electricity
is a prerequisite for socio-economic development. In terms of GHG emissions,
the trends are rising rapidly as well. The historical share in cumulative
emissions, measured over the period 1900-2005, amounted 2% for India. This
pattern changes radically during the period 1900-2030, when the emissions rise
to 4%. Nonetheless, per capita emissions in India still represent a fraction of
those of industrialized countries.
The Kyoto Protocol, which was
adopted in 1997 pursuant to the UN Framework Convention on Climate Change,
represents an agreement that international efforts are required to reduce
anthropogenic GHG emissions that contribute to global climate change. In
accordance with the principle of ‘common but differentiated responsibilities’, the
industrialized countries, which are responsible for the vast majority of
historic GHG emissions, agreed to collectively reduce GHGs by an average of
5.2% as compared to the 1990 levels between 2008 and 2012.
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The number of projects from India is substantial;
however, in terms of the certified emission reductions (CERs) available for
trade, it is far less. In 2006, India’s
market share, measured in signed Emission Reduction Purchase Agreements (ERPA)
was at 12%, second only to China,
which supplied 61% of ERPA’s. The Indian carbon market is largely driven by
small & medium enterprises (SMEs), which is largely disadvantaged in the
current carbon market. The proposed Carbon Finance Fund seeks to address the
issue of upscaling the carbon finance operations in India. The first cycle of the Kyoto
Protocol is between 2008 and 2012. While India has a relatively well-developed
financial system, it seems project proponents have been unable to access carbon
finance due to lack of suitable project finance instruments for this purpose
and a conducive policy framework for project entities to optimise utilisation
of this window.
There is a potential for the
market share to go up through market-based initiatives such as developing the
Carbon Finance Fund (CFF) and integrating it with the ongoing efforts. The CFF
would act as a platform for financial resource management, carbon trade,
information collection & dissemination, and technical support through
extensive domestic and international cooperation. The CFF would introduce a
holistic approach to enable project entities to explore the carbon finance
window for earning resources for the project on a sustainable basis. CFF would
thereby help significantly upscale new investments with carbon finance as an
additional source. It will also help in replication of successful projects.
Government of India (GoI) should
establish the CFF as a permanent, sustainable financing mechanism which could
be a unique partnership between the government of India, International
Financial Institutions (IFIs), bilateral donors and public and private sector
financial institutions to coordinate and implement a carbon finance programme
in order to maximise the number of projects, which can be registered with CDM
EB. This would complement and reinforce the ongoing efforts currently in
operation.
CFF will blend resources grants
and loans, both domestic and external for the purposes of determining the
overall cost of its funds. CFF would potentially raise resources through a
number of ways including the following: World Bank Group loan or IDA credit
channeled through GoI (by way of corpus contribution); GOI budgetary
contributions as loans/grants to the CFF corpus; bilateral donors; market
borrowings by CFF with/without GOI guarantees; public sector institutions’
contributions as corpus funds; and private sector (equity) contributions,
loans, and co-financing under the public-private sector initiatives.
To conclude, India acceded to the Kyoto protocol in 2002, although it does not
have GHG emissions commitments, it has taken steps to address the issue of
climate change, notably by encouraging projects under the CDM. The potential
under CDM is enormous and the key initiatives that India needs to focus is on a
strategic overview of CDM opportunities available and the international demand
for emission offsets; identification of CDM projects for key sectors; key
institutional, legal, financial and regulatory prerequisites to facilitate CDM
project development and implementation, implement and process CDM projects in
India; human and institutional capacity building to identify, develop and
capacity to exploit global opportunities.
