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Two Indian companies have become leaders in the world of carbon trading under Clean Development Mechanism. Vadodara-based Gujarat Fluorochemicals Ltd

Two Indian companies have become leaders in the world of carbon trading under Clean Development Mechanism CDM. Vadodara-based Gujarat Fluorochemicals Ltd GFL, and Gurgaon-based SRF announced their annual results on Tuesday and their bottomlines are growing more by selling carbon credits than their main business, refrigerants. It8217;s not just these companies that are gleefully looking at their carbon-credit pumped up baselines. India has captured a substantial share of the world8217;s carbon market after signing the Kyoto Protocol in 2002. It has the largest number of approved projects under this mechanism. Though there is debate on some details, the fact is that complex carbon trading has gained substantial momentum. Sonu Jain gives the full picture:

8226; What is Clean Development Mechanism?

CDM established under the Kyoto Protocol is designed to provide an incentive for developed countries to transfer greenhouse gas emission reduction technologies to developing countries. CDM allows developed countries to earn certified emission reduction credits CERs, or 8216;carbon credits8217;, for investment in emission reduction projects in developing countries.

8226; What is a Carbon Emission Reduction CER?

The 8216;currency8217; for this trade in carbon-reduction obligations is called a Carbon Emission Reduction. One unit of CER is one tonne equivalent of carbon dioxide emission. CERs generated from CDM projects can then be used by developed countries to offset their national emission reduction commitments under the Protocol, and similarly by private companies seeking to meet emission reduction obligations. The going rate of one unit of CER in the European market is around 12-13 Euros.

8226; What purpose does this mechanism solve?

The CDM enables developed countries to minimise the cost of complying with their greenhouse gas emission reduction targets. The principle is that emissions reduced in any part of the world will help reduce the planet8217;s total dangerous greenhouse gas.

8226; What kind of projects qualify for CDM?

The idea was that CDM should contribute in real, measurable and long term ways to mitigate climate change. A set of validators check if emission reductions are 8216;additional8217; to reductions in the absence of the certified project activity.

An example of a CDM Project would be building a solar or hydro power station in China or India with technology and know-how from US or Australia, rather than adopting a lower cost coal fuelled power station. The reduction emissions attributed to this decision are credited towards the developed country8217;s/company8217;s emission reduction commitment.

8226; How does the process begin?

Project proponents develop a project design document PDD, for which they usually hire a consultant. It goes to the Designation National Authority for approval. Then, appointed auditors check the project report and validate the project. If the green signal is given at this stage, the CDM Executive Board in Geneva gives its approval.

8226; Where does India stand in the market?

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India has the highest number of projects approved by the CDM board 8212; out of 355 projects approved by the Board in Geneva, 114 are in India. Brazil has 74, Mexico 32 and China 23. However, the total number of CERs reduced annually by India would be 11.5 million compared to 36.9 million by China. The reason is that China has focused on large sectoral projects instead of smaller, scattered ones in India. Maximum projects in India are related to energy efficiency.

8226; What are the loopholes?

The process is dominated by inputs from private validators. Both the host country and the CDM executive board seem to play a fringe role. There have been calls to make the system more transparent and accountable. Most parties keep the price of CERs a closely-guarded secret. The price itself is seen to be too low. It is felt that the developed countries are getting away by buying carbon credits at a throwaway price from countries like India. The process is dominated by a few consultants who have been found to commit fraud. There are no penalties prescribed in the system for them.