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Clean energy is all set to undergo a major expansion worldwide as the Kyoto Protocol comes into force today. The Protocol requires the industrialized countries to reduce their emissions of carbon dioxide and other greenhouse gases (GHGs), which are changing global climate patterns. The industrialized countries would need to accelerate the introduction of renewables to meet these requirements, as well as reduce energy consumption by promoting efficiency of energy end use, and enhance the absorption of carbon dioxide in trees through greater afforestation.
India has already ratified the Kyoto Protocol on 26th August 2002. India is not required to reduce emission of Green House Gases (GHG) under the Protocol under which basically the developed countries are required to reduce emissions of GHG by an average of 5.2 per cent below 1990 level by 2012. This Protocol was adopted in 1997 by the countries, which are Parties to the United Nations Framework Convention on Climate Change (UNFCC). The Convention seeks to stabilise Green House Gas concentrations in the atmosphere at a level that would minimise interference with the climate system. One of the provisions of the Kyoto Protocol, known as the Clean Development Mechanism (CDM), establishes a framework within which the industrialized countries can meet a part of their carbon dioxide emissions reduction requirements by purchasing Certified Emission Reductions (CERs) from India and other developing countries. These CERs are generated through an international due diligence process that continuously monitors and verifies that clean energy projects in developing countries are indeed leading to lower carbon dioxide emissions than would occur otherwise. The sale of these CERs provides an additional revenue stream to clean energy projects, thus increasing their financial viability.
As a result of the opportunities unlocked by the CDM, the Indian private sector is fast emerging as the largest potential supplier of CERs in the world. The Government of India, through the Ministry of Environment and Forests, has established an inter ministerial committee to process and approve CDM project proposals before they are sent to an international CDM Executive Board in Bonn. The inter ministerial committee meets once a month, and has already approved 54 projects.
The price of the CERs is market determined, and is expected to rise as the demand for CERs increases with the coming into force of the Kyoto Protocol. The current price of CERs is about $6 for a tonne of carbon dioxide emission reductions, which is about $1 more than it was one year ago. Most assessments predict that this price would rise to about $8 to $10 in about 3 to 5 years.
At the current price of $6 for each tonne of carbon dioxide emission reduction, renewable energy projects would secure an additional revenue of about 15 to 20 paise for each unit of electricity that they produce, enhancing the project’s rate of return by about 1 to 2 %. The increase in the project rate of return is much more substantial for waste to energy projects where the increase can be of 5% or more.
This is because these projects collect the methane generated in landfills and burn it to produce electricity. By reducing emissions of methane, which is 20 times more potent a green house gas than carbon dioxide, the project secures significant additional source of revenue. This increase makes it profitable for private investors to collect garbage and manage landfills – which could have a major impact on the management of solid waste in our cities.
As a result of this activity, a large and strong industry of consultants, financial analysts and CER traders has also developed to support CDM activity. Recently, several CDM project developers, NGOs and consultants came together to form a CDM stakeholders association called the Indian Carbon Market Group (ICMG).
The Ministry of Environment & Forests is organizing an event, ‘Clear Skies’, jointly with the Indian Carbon Market Group on the first day of the Kyoto Protocol tomorrow, i.e. the 17th of February 2005, to facilitate interaction with CDM developers. The day long event would celebrate the Kyoto Protocol’s coming into force, and will bring together all the major constituents of the CDM circle – project developers, financial institutions, government body, NGOs and individuals.
AKS/rs
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