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Conventional wisdom in India on CDM-based funding is that it is the best thing to happen to the Indian renewable energy arena, as the projects (mainly solar, wind, small-hydel, waste-heat conversion, aforestation, energy efficiency, cogeneration, etc.) now have another source of funding through CDM. The NGOs are gung-ho on the concept, the ministry is bending backwards to ensure we have a smooth process to bring “carbon money” to India, the financial institutions are more-than-ready to structure such projects.

But lately there is some “murmur” questioning the ethics around the CDM mechanism. Why should developed countries (such as US, EU and Japan) continue to contribute more than their share of global carbon emissions by buying ‘cheap’ carbon credits in developing countries? At best they should trade emissions among themselves!

According to a recent study, the annual per capita energy consumption in India is 0.53 tons of oil equivalent per person, and the average per capita electricity consumption in India is about 450 kWh per year — less than 1/5th of the world average and 1/30th of the US average! The volumes of certified emission reductions of carbon dioxide (CERs) recorded annually by the UNFCCC (UN agency regulating the emission reduction) are 174 million tones; and the price for CERs is “engineered” at less than $20 per CER. Researchers indicate that if the developed countries had to meet their Kyoto targets, the economic cost incurred by the US would be $32 billion, by the EU would be $14 billion and for Japan it would be about $6 billion. This would indicate costs of reduction ranging from $41 to $55 per ton of carbon-di-oxide. This is more than double the existing price of the CERs!

India (along with China) is actively participating in CDM activity with approx 300 projects with 28 million CERs registered per year. Most of these projects allow the industrialized countries to pick up the low hanging fruits at the cheapest price.

In effect are we allowing the developed countries to keep polluting the climate by selling our carbon credits? And, are we making enough money in the process?

Net net, is promoting CDM a smart opportunistic move or poor judgment?

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