Carbon reduction projects call for treating revenues as export

New Delhi, Nov 18 (UNI) The respondents to an industry survey have called for a policy that clearly spells out the revenue earned from carbon credits be treated as export earnings and stressed the need for defining a Clean Development Mechanism (CDM) -friendly legal and regulatory framework.

The industry chamber FICCI Survey, conducted across 50 companies from 17 industry sectors on Risks and Barriers to CDM projects in India, pointed out the need for access to market information like prevailing prices of carbon credits, buyers, are essential for carbon market transactions.

Despite Indian industry responding positively to the Clean Development Mechanism (CDM), the carbon market in the country is up against institutional, financial and technical impediments, the survey said.

It noted that despite several awareness building initiatives on CDM across the country, over 66 per cent of the respondents feel that there is a huge information gap related to CDM projects.

More than 54 per cent feel that lack of adequate capacity at the company level is a major problem while over 45 per cent feel that lack of adequate methodologies pertaining to their sectors or projects is a constraint in developing further projects.

The 43 per cent of the respondents point to the need for capacity building within the validation and verification entities entrusted with the job of validating and verifying carbon credits from CDM projects and close to 43 per cent advocate the need for greater outreach to promote investment in CDM projects.

Capacity building and information dissemination have emerged as the critical challenges for the carbon market to grow at a rapid pace, said FICCI Industry has pointed to the need for capacity building at different levels -within companies, at the government level, at the level of third party verifiers and validators of projects, and at the international approval stage (CDM Executive Board under the UN which registers and issues carbon credits), said the chamber.

The survey also brings out the industry's need for the creation of Indian entities that could serve as verification and validation agencies for CDM projects.

Currently, third party verification and validation is done by foreign companies who have set up offices in India, with only five such agencies operating in the country.

Considering the large Indian pipeline of projects, this would become an important capacity building issue for a further pipeline of projects to be developed, said FICCI.

The Survey also highlights the major risks perceived by project proponents. Over 46 per cent of the respondents feel that the risk posed by fluctuating CER (Carbon Emission Reduction) prices is among the major risks in the CDM process.

Delivery and timing risk come a close second (33 per cent of the respondents' views) to the price risk, since there are several factors that can affect the actual delivery of carbon credits in terms of volume as well as time. Delayed delivery could also run the risk of lower CER pricing at the time of delivery, adding to the impact on the final CER sales and revenues.

Equally important is the risk of timing. The unnecessarily long time required by the overall CDM project cycle, which is a multilateral process, results in delays in the delivery of CERs and receipt of payment. The respondents point to the long approval process at the international level for CDM projects.

The industry sectors covered by the FICCI Survey included cement, thermal power generation and distributions units, iron and steel, power, oil and gas (upstream&downstream), textiles and synthetics, chemicals and fertilisers, mining, hotels, pulp and paper, sugar, distillery&bottling, food/FMCG, manufacturing, trading, renewable energy (wind&hydro) and poultry.

UNI