Carbon credit — thrust for cleaner technologies
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Trading carbon credits between developing and developed nations will soon become a reality. Companies in India will gain monetarily and be able to put up projects that are eco-friendly.
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COME GLOBALISATION, and trade takes on different hues. The latest comes from quite unconventional quarters — trading of carbon credits or more specifically carbon dioxide credits between developing and developed nations. When global warming is the watchword and reducing carbon dioxide emission is the buzzword, can trade be far behind?
This becomes particularly relevant when CO{-2} emissions from developed countries are way beyond those from the developing countries. Add to this the compulsion faced by developed countries to reduce emissions by 2008-2012. The catch however is the cost — developed countries have to spend nearly $300-500 for every tonne reduction in CO{-2} emission. Contrast this with $10-25 to be spent by the developing countries. The stage is thus set for trade to flourish. Trading carbon credits is hence seen as a less expensive option. Yet, there is a limit to which developed nations can buy credits.
The United Nations Framework Convention on Climate Change's Clean Development Mechanism (CDM) has been put in place to facilitate the trade of carbon credits between the developing and developed nations. Till date CDM held little significance, as there was no accrediting body recognised by the United Nations. Not any more.
In March this year, Det Norske Veritas (DNV) of Oslo, Norway, well known in the field of ISO certification was accredited by the UN to act as a validating body. The first organisation to get the accreditation, DNV has already lapped a few projects around the world. In India, DNV is in the process of validating 9-10 projects.
What does a company in a developing country gain by trading carbon credits? Monetary gain is of course the first and foremost. Every tonne of CO{-2} not emitted is considered as one credit and every carbon credit fetches the company $3-6. The remuneration continues year after year. And the best part is that it is quite easy to implement technologies known to reduce emissions provided the project meets certain criteria.
"The most important criterion is for the project proponent to prove that it is `not business as usual' and is a sustainable project," said C. Kumaraswamy, Station Manager & Registered Lead Auditor at DNV, Bangalore. For instance, it is considered business as usual if it is a binding requirement (on the company) to change the fuel or technology. Thus the change over by the Delhi buses to CNG will not fall under the "is not business as usual" clause.
"Only those getting overseas assistance to implement the project will be allowed to trade credits. Again, the government has to first approve the project before the project is validated and a developed country should be ready to buy the credit," explained Mr. Kumaraswamy. "Even projects implemented after 2000 can engage in carbon credit trading and small companies using similar technology can come together to claim credits and trade them."
The companies trading credits have two options to choose from depending on the life of the project — fixed crediting period of ten years or first period of seven years extendable twice for a total period of 21 years.
Mr. Kumaraswamy feels that India, like China has a big potential to trade credits. According to him even projects like biomass gasifiers are seen as sustainable. Despite emitting CO{-2}, it is seen as a zero CO{-2} emitter. Similarly, solid waste management projects are sure credit earners. "Someone collecting the waste and converting the methane to power can claim carbon credits," Mr. Kumaraswamy explained.
Another advantage of implanting cleaner and sustainable technologies is the ability to avail funding from Prototype carbon Fund which is under the aegis of the World Bank. The fund is formed by contributions from many developed nations. The only catch being that the carbon credit trading will be at a discounted price.
With the European Union Emission Trading Scheme about to be passed any time by the European Union, the Clean Development Mechanism is here to stay. And Indian companies may well take the lead to use cleaner technologies to earn credits and secure funds.
R. Prasad
in Chennai
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