Ministry of the Environment, Japan · 2008-08-08 · CDM Country Guide for India iii FOREWORD The Kyoto Protocol, signed in 1997, finally entered into force on February 16, 2005

Ministry of the Environment, Japan

1-2-2, Kasumigaseki, Chiyoda-ku, Tokyo, 100-8975 Japan

Telephone: +81-(0)3-5521-8330 Fax: +81-(0)3-3580-1382

http://www.env.go.jp

Institute for Global Environmental Strategies (IGES)

2108-11 Kamiyamaguchi, Hayama, Kanagawa 240-0115, Japan

Telephone: +81-(0)46-855-3700 Fax: +81-(0)46-855-3709

http://www.iges.or.jp

Winrok International India

1, Navjeevan Vihar, New Delhi 110017, India

Telephone: +91-11-2669-3868 Fax: +91-11-2669-3881

http://www.winrockindia.org

Copyright © 2005 by Ministry of the Environment, Japan

Second edition 2005

Electronic edition published 2005

All rights reserved. Inquiries regarding this publication copyright should be addressed to IGES in writing. No part of this

publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including

photocopying, recording, or any information storage and retrieval system, without permission in writing from Ministry of

the Environment, Japan through IGES.

Printed in Japan

ISBN: 4-88788-013-8

This book is made as part of the Integrated Capacity Strengthening for the Clean Development Mechanism/Joint

Implementation (ICS-CDM/JI) programme and published by the Institute for Global Environmental Strategies.

Photo credits – cover page photos courtesy of Winrock International India.

Whilst advice and information in this book is believed to be true and accurate at the date of going to press, neither the

authors nor publisher can accept any legal responsibility or liability for any errors or omissions that may be made of.

Copyedited by Greg Helten

Printed and bound by Sato Printing Co., Ltd.

CDM Country Guide for India

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FOREWORD

The Kyoto Protocol, signed in 1997, finally entered into force on February 16, 2005. Since the signing of the Marrakesh Accords in 2001, which set out the fundamental rules for the Kyoto mechanisms—the Clean Development Mechanism (CDM), joint implementation (JI), and emissions trading (ET). The CDM was designed to assist Annex I countries in meeting their greenhouse gas emissions reduction targets by implementing reduction/sequestration activities in non-Annex I countries and counting the reduced/sequestered amounts as purchasable “credits.” Before the protocol came into effect, investors and project developers were hesitant to move into the CDM field. Since it came into force in February, there has been a steep increase in the number of projects submitted for validation and registration, and this upward trend is expected to continue in the next few years.

Despite the high demand to utilize the CDM and the continuing improvement in CDM rules, many investors and developers still find it difficult to implement projects. There are many factors acting as impediments, including inherent, country-specific problems in attracting foreign investment. One problem directly related to the effectiveness of the CDM, however, is the unpreparedness of developing countries to host projects. The reasons for this include premature institutional development, the existing highly complicated system for endorsing projects, a lack of experience among government officials, and lack of coordination among ministries and relevant governmental institutions—just to name a few. Therefore, it is imperative to ameliorate the situation in host countries in order to foster CDM activities and contribute to the global efforts to combat global warming.

Two key strategies available to enhance the ability of host countries to utilize the CDM are information collection/rearrangement/dissemination and capacity building. In most host countries, some relevant information already exists, but often in disparate pieces or it is not considered in terms of the CDM—and it has never been put together before in a comprehensive form. This is the main reason for publishing this series of guidebooks, which feature information on specific countries in Asia. By making the guidebooks as user-friendly as possible, they provide essential information that project developers and investors will need for most effective CDM project preparation and implementation in each country.

This guidebook is part of a series prepared as a core component of the information dissemination and awareness-raising activities under the Japanese Ministry of the Environment’s Integrated Capacity Strengthening for the Clean Development Mechanism/Joint Implementation (ICS-CDM/JI) programme.

Akio Morishima Chair, IGES Board of Directors


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ACKNOWLEDGEMENTS

This guidebook was produced by the Institute for Global Environmental Strategies (IGES) as part of the Integrated Capacity Strengthening for the Clean Development Mechanism and Joint Implementation (ICS-CDM/JI) programme.

We would like to express our sincere gratitude to Ministry of the Environment, Japan for their invaluable support in making this project a reality.

Ms. Yukimi Shimura, both a country officer for India and a chief IGES editor of the CDM country guidebook series, took main responsibility for editing the guide for India as well as its contents, under the supervision of Mr. Shinichi Iioka, IGES programme manager. Ms. Aditi Dass, Mr. Dhirendra Kumar and Dr. Kalipada Chatterjee of Winrock International India (WII) were the main authors of the manuscript, with Mr. Akshay Jaitly and Mr. Satyadeep Misra of Trilegal as lead authors of chapter 7 and significant contributors to chapter 8 on the section of the taxation issue of CERs. Dr. Suman Majumdar of the Confederation of Indian Industries (CII) was the lead author of chapter 8 and a contributor to chapter 7.

Mr. Greg Helten proofread all the manuscripts and contributed extensive editing work. Dr. Kayo Ikeda, Mr. Keisuke Iyadomi, Mr. Kazuhisa Koakutsu, Ms. Sakae Seki, and Ms. Akiko Sato of IGES, and Mr. Sumit Barat and Ms. Tanusree Talukdar of WII provided extensive support throughout the project. Also special thanks to Mr. Kiyoto Tanabe of the Intergovernmental Panel on Climate Change National Greenhouse Gas Inventories Programme (IPCC NGGIP) for his valuable input. This guidebook is jointly developed by the IGES and WII.

Finally, IGES would like to extend special thanks to Mr. R. K. Sethi of the Ministry of Environment and Forests, India, for his feedback in making this guidebook truly practical and up to date.


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CONTENTS

LIST OF BOXES, FIGURES, AND TABLES.............................................................................XI

ABBREVIATIONS....................................................................................................................XIII

EXECUTIVE SUMMARY ....................................................................................................... XVII

1. INTRODUCTION.....................................................................................................................1

1.1 Significance of the Kyoto Protocol.....................................................................................2

2. COUNTRY PROFILE..............................................................................................................5

2.1 Demography ......................................................................................................................5 2.2 Households........................................................................................................................8 2.3 Governance .......................................................................................................................8 2.4 Environmental governance................................................................................................9 2.5 Economic profile ................................................................................................................9 2.6 Foreign direct investment (FDI).......................................................................................11

2.6.1 Share in approvals, by country ..............................................................................11 2.7 GDP and its structure ......................................................................................................13 2.8 Budget .............................................................................................................................14 2.9 Energy profile ..................................................................................................................15

2.9.1 Commercial energy demand and supply scenario................................................. 16 2.9.2 Electricity access....................................................................................................18 2.9.3 Demand/supply situation in the power sector ........................................................20 2.9.4 Role of renewables in meeting the energy needs..................................................21

3. THE CDM PROJECT CYCLE...............................................................................................25

3.1 Overview of the Clean Development Mechanism ...........................................................25 3.2 Eligible project activities ..................................................................................................26 3.3 Classification of CDM project activities ...........................................................................27 3.4 Small-scale CDM projects ...............................................................................................28 3.5 Forestry and the CDM .....................................................................................................29 3.6 Credits and crediting periods...........................................................................................30 3.7 Overview of the CDM project cycle .................................................................................30

3.7.1 Project formulation .................................................................................................31 3.7.2 The project design document.................................................................................32 3.7.3 The baseline...........................................................................................................33 3.7.4 Additionality............................................................................................................35 3.7.5 Gaining host country approval ...............................................................................37 3.7.6 Validation and registration .....................................................................................37 3.7.7 Monitoring a CDM project activity ..........................................................................39 3.7.8 Verification and certification ...................................................................................39 3.7.9 Issuance of CERs ..................................................................................................39

4. POSSIBLE CDM PROJECTS IN INDIA...............................................................................41

4.1 GHG inventory.................................................................................................................41 4.2 Potential of CDM projects in India ...................................................................................42

4.2.1 Power sector: technology and CDM potential........................................................43 4.2.2 Industrial sector energy efficiency..........................................................................45 4.2.3 Cogeneration..........................................................................................................53 4.2.4 Transport sector .....................................................................................................54 4.2.5 Renewable energy .................................................................................................56


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4.2.6 Agriculture and livestock ........................................................................................61 4.2.7 Municipal solid waste management .......................................................................62 4.2.8 Land use, land-use change, and forestry (LULUCF) .............................................64

4.3 Comparative assessment of CDM potential ....................................................................66

5. GOVERNMENT AUTHORITIES ...........................................................................................69

5.1 Introduction ......................................................................................................................69 5.2 Structure of India’s designated national authority............................................................70

5.2.1 The powers and functions of the National CDM Authority .....................................71 5.3 CDM promotion at the state level ....................................................................................73

5.3.1 CDM cell in Andhra Pradesh..................................................................................74 5.3.2 CDM cell in Madhya Pradesh.................................................................................74 5.3.3 CDM cell in West Bengal........................................................................................75

5.4 Operational entities at the national level..........................................................................75 5.5 Bundling organizations ....................................................................................................76 5.6 Role of other stakeholders...............................................................................................77 5.7 India’s Initial National Communication.............................................................................77

6. CDM PROJECT APPROVAL PROCEDURE AND REQUIREMENTS ................................79

6.1 Kyoto Protocol requirements of the CDM........................................................................79 6.2 Endorsement criteria........................................................................................................80 6.3 National priorities .............................................................................................................80 6.4 Sustainable development and its priorities ......................................................................82 6.5 Projects involving ODA....................................................................................................82 6.6 Previous CDM project approval process .........................................................................83

6.6.1 India’s designated national authority......................................................................84 6.7 Approved CDM projects...................................................................................................86

7. LAWS AND REGULATIONS................................................................................................91

7.1 Introduction ......................................................................................................................91 7.2 Establishing a business presence in India.......................................................................91

7.2.1 Entry strategies ......................................................................................................91 7.2.2 Foreign investment policy.......................................................................................92 7.2.2.1 Foreign investments ............................................................................................93 7.2.2.2 Foreign technology agreements..........................................................................94

7.3 Relevant environmental laws and regulations .................................................................96 7.3.1 The Water (Prevention and Control of Pollution) Act, 1974...................................96 7.3.2 The Air (Prevention and Control of Pollution) Act, 1981 ........................................96 7.3.3 Consequences of breach by a company under the Air Act and the Water Act......96 7.3.4 The Environment (Protection) Act, 1986................................................................96 7.3.5 The Energy Conservation Act, 2001 ......................................................................97 7.3.6 Reforms in the coal sector......................................................................................97 7.3.7 The Electricity Act, 2003.........................................................................................97 7.3.8 Environmental impact assessment (EIA) ...............................................................98

7.4 Intellectual property regime .............................................................................................99 7.5 Labour law regime ...........................................................................................................99 7.6 Property issues ..............................................................................................................100

7.6.1 Nature of CERs ....................................................................................................100 7.6.2 Title to CERs ........................................................................................................100

7.7 Contractual issues in carbon trading contracts..............................................................101 7.7.1 Indian law as governing law of contract ...............................................................101 7.7.2 Jurisdiction of courts.............................................................................................101 7.7.3 Key contractual terms of CER sale/purchase contract ........................................102

8. FISCAL AND FINANCING ISSUES ...................................................................................105


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8.1 India and economic development..................................................................................105 8.2 An overview of India’s financial services sector ............................................................106

8.2.1 Recent changes in banking..................................................................................106 8.2.2 Reserve Bank of India..........................................................................................107 8.2.3 Capital markets ....................................................................................................107 8.2.4 Mutual funds.........................................................................................................107 8.2.5 Foreign institutional investors ..............................................................................108 8.2.6 Insurance companies...........................................................................................108 8.2.7 Non-banking financial institutions ........................................................................108 8.2.8 Other aspects of the financial services industry ..................................................109

8.3 Investment climate and foreign trade in India................................................................109 8.3.1 Foreign investment framework.............................................................................110 8.3.2 Foreign portfolio investment.................................................................................110 8.3.3 Investment limits ..................................................................................................111 8.3.4 Foreign Investment Promotion Board ..................................................................111 8.3.5 Foreign Investment Implementation Authority (FIIA) ...........................................112 8.3.6 Other foreign alliances .........................................................................................113 8.3.7 Foreign exchange controls...................................................................................113

8.4 Ease of investing in India...............................................................................................114 8.5 Introduction to financial aspects of the CDM.................................................................115

8.5.1 Current status of financing structures for CDM eligible projects in India .............116 8.6 Evolution of the CDM in India........................................................................................117 8.7 CDM project financing ...................................................................................................119 8.8 The concept of risk ........................................................................................................120 8.9 CDM project risks ..........................................................................................................122 8.10 Government and CDM financing and taxation ............................................................123 8.11 Taxation treatment of transactions involving CERs ....................................................124

8.11.1 Business asset vs. capital asset ........................................................................124 8.11.2 Possible business models for CER transactions ...............................................126

9. GOVERNMENT INCENTIVES............................................................................................129

9.1 Introduction ……………………………………………………………………………………129 9.2 Enabling environment....................................................................................................129

9.2.1 At the centre (Government of India).....................................................................129 9.2.2 At the state level...................................................................................................129

9.3 Government measures that provide direct/indirect incentives to the CDM project developers and investors in India ..................................................129

9.3.1 Government energy–efficiency programmes across all industrial sectors ..........129 9.3.2 Proactive role of the government of India in the renewable energy sector..........130

9.4 Incentives to establish renewable energy power projects.............................................130 9.4.1 Policy incentives...................................................................................................130 9.4.2 Specific fiscal incentives ......................................................................................131

9.5 The bundling requirement of small-scale CDM projects in the small-scale sector........131 9.6 Rural energy policy........................................................................................................131

APPENDICES.........................................................................................................................133

Appendix I. List of contacts..................................................................................................134 Appendix II. Project pipelines ..............................................................................................146 Appendix III. Whole process of project development to approval .......................................154 Appendix IV. List of Annex I and Annex B Parties ..............................................................157 Appendix V. List of consolidated and approved methodologies..........................................158 Appendix VI. Simplified baseline and monitoring methodologies........................................160 Appendix VII. Project concept note required by the NCA ...................................................161 Appendix VIII. Gazette (Ministry of Environment and Forests) ...........................................166 Appendix IX. Glossary .........................................................................................................169


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REFERENCES ........................................................................................................................191


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LIST OF BOXES, FIGURES, AND TABLES

Box 3.1. The six greenhouse gases addressed under the Kyoto Protocol ................................. 25 Box 3.2. How to determine if a project can be considered debundled........................................ 29 Box 3.3. Designated operational entities..................................................................................... 38 Box 6.1. Major features of the interim approval criteria .............................................................. 83 Box 7.1 Process for incorporating a new company in an existing one ....................................... 92

Figure 2.1. Percentage decadal growth rate in India .................................................................... 6 Figure 2.2. Population density in person per square kilometre..................................................... 7 Figure 2.3. Rural-urban population profile in India........................................................................ 8 Figure 2.4. Contribution of FDI, by country (1991–2002)............................................................ 12 Figure 2.5. Sectoral distribution of FDI approvals since 1991 (in %).......................................... 13 Figure 2.6. Contribution to GDP at factor cost, by sector ........................................................... 14 Figure 2.7. Organization of India’s energy sector ....................................................................... 15 Figure 2.8. Growth of energy, electricity, and the Indian economy............................................. 16 Figure 2.9. Decadal trend in total primary energy supply (Mtoe)................................................ 17 Figure 2.10. Installed generation capacity (MW) ........................................................................ 18 Figure 2.11. Per capita consumption of electricity ...................................................................... 19 Figure 2.12. Percentage of households with access to electricity .............................................. 20 Figure 2.13. Power supply scenario in India ............................................................................... 21 Figure 3.1. Diagram of how the CDM functions .......................................................................... 26 Figure 3.2. Classification of sub-categories of CDM project activities ........................................ 27 Figure 3.3. Overview of the CDM project cycle........................................................................... 32 Figure 3.4. Baseline scenario...................................................................................................... 33 Figure 3.5. Baseline scenario and the net GHG removals by sinks ........................................... 34 Figure 3.6. Calculation of net GHG removals by sinks ............................................................... 35 Figure 3.7. Project assessment using the additionality tools ...................................................... 36 Figure 4.1. Estimated CDM potential in India, in million tonnes of CO2 equivalent per annum.. 43 Figure 5.1. Schematic view of national-level operational entities in India................................... 76 Figure 6.1. Assessment and approval process of the India’s National CDM Authority .............. 85 Figure 6.2. Breakdown of projects approved by the NCA, by sector (78 as of May 2005)......... 86 Figure 6.3. Distribution of CDM projects, by state ...................................................................... 87

Table 1.1. Greenhouse gas types and sectors/source categories................................................ 2 Table 2.1. National socioeconomic indicators, 2001................................................................... 10 Table 2.2. Total FDI approved and actual FDI inflows (amounts in Rs. 10 million) .................... 11 Table 2.3. The percentage contribution and the amount contributed by

countries to India’s FDI inflows in 2002 ..................................................................... 12 Table 2.4. Trends in primary energy production ......................................................................... 17 Table 2.5. Renewable energy potential and achievements (as of Decmeber 31, 2004) ............ 22 Table 3.1. List of project categories eligible under the CDM ...................................................... 27 Table 3.2. Credits and crediting period for CDM project activities.............................................. 30 Table 3.3. Criteria for justifying additonality for a small-scale CDM project activity.................... 37 Table 3.4. Registration fees for CDM projects ............................................................................ 39 Table 4.1. GHG inventory estimates for India............................................................................. 41 Table 4.2. Per capita CO2 emissions.......................................................................................... 42 Table 4.3. GHG emission by sector and estimated projections (%) ........................................... 42 Table 4.4. Possible technological options in India’s power sector.............................................. 45 Table 4.5. Comparison o fspecific energy use in select industries between 1990 and 1999 ( in million kilocalories/tonne) ............................................ 45


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Table 4.6. Summary of the economic energy-efficiency potential in major energy-intensive industries in India.............................................................. 46

Table 4.7. Brick kilns in India (2001) ........................................................................................... 52 Table 4.8. Cogeneration potential in India................................................................................... 54 Table 4.9. State-wise wind power installed capacity in MW (as of February 28, 2004).............. 59 Table 4.10. India’s national GHG inventory by the agriculure sector, 1994,

in million tonnes/year ............................................................................................... 62 Table 4.11. India’s natioanl GHG inventory of the land use, land-use change,

and forestry sector fo r1994, I million tonnes per year ............................................ 65 Table 4.12. CDM potential of different interventions in various sectors in India ......................... 66 Table 5.1. Composition of the National Clean Development Mechanism Authority (NCA) ........ 71 Table 6.1. Millennium development goals and related Indian plan targets ................................. 80 Table 6.2. Methodologies submitted to the CDM Executive Board by India ............................... 87 Table 8.1. Functions and modalities of FIIA .............................................................................. 113 Table 8.2. Additional costs involved in CDM projects as compared to

conventional project costs ........................................................................................ 119 Table 8.3. Comparative analysis of buisness models ............................................................... 128


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ABBREVIATIONS

AD authorized dealer

ADB Asian Development Bank

AIJ activities implemented jointly

ALGAS Asia Least-cost GHG Strategy

ASSOCHAM Associated Chambers of Commerce and Industry of India

BCF Bio Carbon fund

BoB Bank of Baroda

BOD bio-chemical oxygen demand

BSE Mumbai Stock Exchange

BU billion units

CCEA Cabinet Committee on Economic Affairs

CDCF Community Development Carbon Fund

CDM Clean Development Mechanism

CER certified emission reduction

CERUPT Certified Emissions Reduction Procurement Tender

CH4 methane

CII Confederation of Indian Industry

CNG compressed natural gas

CO2 carbon dioxide

COP Conference of Parties

CST Act Central Sales Tax, 1956

DNA designated national authority

DSCL DCM Shriram Consolidated Limited

DTAA Double Taxation Avoidance Agreement

ECB external commercial borrowings

EHTP Electronic Hardware Technology Park

EOU export oriented units

EPA Environment Protection Act, 1986

EPZ export processing zone

ERC Expenditure Reforms Commission


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ERPA emission reduction purchase agreement

ESCO Energy Services Co. Ltd.

ESI Act Employees State Insurance Act, 1948

ETS EU Emission Trading Scheme

FDI foreign direct investment

FICCI Federation of Indian Chambers of Commerce and Industry

FEMA Foreign Exchange Management Act, 1999

FERA Foreign Exchange Regulation Act, 1973

FIIA Foreign Investment Implementation Authority

FIIs foreign institutional investors

FIPB Foreign Investment Promotion Board

FI financial institution

FTC Fast Track Committee

GDP gross domestic product

GHG greenhouse gas

GoI Government of India

GTR gross tax revenue

GTZ German Agency for Technical Cooperation

GW gigawatt

HDFC Housing Development Financial Corporation

HFCs housing finance companies

HFCs hydrofluorocarbons

HSD high-speed diesel

HSS Horizontal Stud Soderberg

ID Act Industrial Disputes Act, 1947

IDFC Infrastructure Development Finance Corporation

IGCC integrated gasification combined cycle

IMR infant mortality rate

IRDA Insurance Regulatory and Development Authority

IREDA Indian Renewable Energy Development Agency

IUCN International Union for the Conservation of Nature and Natural Resources “World Conservation Union”

JI joint implementation

km2 square kilometre


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KP Kyoto Protocol

LIC Life Insurance Corporation of India

LULUCF land use, land use change and forestry

M&V monitoring and verification

MNES Ministry of Non-Conventional Energy Sources

MoC Ministry of Coal

MoCI Ministry of Commerce and Industry

MoE Ministry of Environment

MoEF Ministry of Environment and Forests

MoF Ministry of Finance

MoP Ministry of Power

MoPNG Ministry of Petroleum and Natural Gas

MSW municipal solid waste

MT million tonnes

Mtoe million tonnes oil equivalent

N2O nitrous oxide

NATCOM national communication

NBFC non-bank finance company

NCA National Clean Development Mechanism Authority

NCCBM National Council for Cement and Building Materials

NCEPC National Committee on Environmental Planning and Coordination

NGO non-governmental organizations

NSE National Stock Exchange

NTPC National Thermal Power Corporation

ODA overseas development assistance

PAB Project Approval Board

PBF point break feeders

PCB Pollution Control Board

PCF World Bank Prototype Carbon Fund

PCN project concept note

PD project developers

PFCs perfluorocarbons

PIS portfolio investment scheme


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PLF plant load factor

PPA power purchase agreement

PSB public sector bank

P-S-I-R pressure, state, impact, response

PTC Power Trading Corporation

PV solar photovoltaic

RBI Reserve Bank of India

RE renewable energy

RET renewable energy technology

ROC Registrar of Companies

SD sustainable development

SDIs sustainable development indicators

SEB State Electricity Board

SEBI Securities and Exchange Board of India

SF6 sulphur hexafluoride

SIDBI Small Industries Development Bank of India

SMEs small and medium enterprises

SPCB State Pollution Control Board

SPV special purpose vehicle

STP software technology park

SWERF solid waste and energy recycling facility

TERI The Energy Research Institute

TFR total fertility rate

TPP thermal power plants

TRIPS Trade Related Intellectual Property Rights Convention

UNDP United Nations Development Programme

UNFCCC United Nations Framework Convention on Climate Change

VRM vertical roller mills

WTO World Trade Organization


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EXECUTIVE SUMMARY

The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) came into force on February 16, 2005, and is now fully operational. Most of the industrialized countries have committed to reducing their aggregate emissions by 5.2 percent below 1990 levels during the first commitment period (2008–12); the United States and Australia have so far declined ratifying the protocol. To make the process cost-effective, the protocol established the following three flexible mechanisms:

• Joint implementation (JI) among Annex I countries • The Clean Development Mechanism (CDM) for use between non-Annex I (developing) and

Annex I (developed) countries • Carbon trading among Annex I countries

The CDM provides opportunities for emission reductions as well as sustainable development in developing countries.

India’s economic growth is mainly based on energy from fossil fuels like coal and therefore has considerable potential in reducing its greenhouse gas (GHG) emissions as well in CDM participation. CDM projects starting after January 1, 2000, are eligible to earn certified emission reductions (CERs). However the modalities and procedures of the CDM may be too complex to exploit its full benefit. This guidebook will provide a roadmap to the project developers and investors for realizing the full benefit of CDM within the allotted time frame.

The report has been organized into the following chapters:

Country profile

This chapter deals with India’s demography, households, governance of people, environmental governance, economic profile, gross domestic product (GDP), and the structure of its budget. This chapter also deals with India’s energy profile. India is the second most populated country in the world. The high rate of economic development puts a high demand on energy. Major energy–intensive sectors such as power generation, steel, cement, fertilizer, and transport have resulted in high energy consumptions and GHG emissions with respect to GDP, resulting in a high consumption of fossil fuels. Coal meets most (63 percent) of India’s energy demand, followed by petroleum products, and natural gas.

Access to electricity is vital for the economic development of any country. The growth in India’s installed power generation capacity from 1,362 megawatts (MW) to over 100,000 MW since independence (1947), and the electrification of more than 500,000 of its villages is an impressive achievement. However India’s per capita consumption is among the lowest in the world (about 355 KWh). Many households in a large number of villages have no access to electricity. Providing energy security to all is essential for sustainable development and providing a better quality of life.

This chapter also deals with the power supply scenario in India, the role of renewable energy in meeting energy needs, and the reform of the energy sector.


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The CDM project cycle

The CDM has specific procedures and modalities for different types of projects and project sizes. There are two main project types: mitigations and sequestration, with each type having simplified rules for small-scale projects. This chapter covers those basic rules and qualification requirements as well as the steps necessary to register projects and issue carbon credits.

Possible CDM projects in India

There are a variety of possible CDM projects in India encompassing about 300 million tonnes of CO2–equivalent, including 90 million tonnes from renewable energy sources alone. Potential CDM projects cover various sectors including: industrial energy efficiency; power; transport; renewable energy; agriculture and livestock; municipal and solid waste; and changes in land use.

The ongoing and future efforts on GHG emission mitigation in India clearly indicate a substantial potential to achieve emission reductions through the CDM.

Government authorities

India is a party to the UNFCCC as well as the Kyoto Protocol. India ratified the Kyoto Protocol in August 2002, thereby strengthening global efforts and fulfilling the participation requirement for CDM projects. India has also established a designated national authority (DNA), which is designated as the “National Clean Development Mechanism Authority (NCA)” and consists of nine members. The Ministry of Environment and Forests (MoEF) is the nodal ministry for climate change and the CDM, and is chaired by the secretary. Climate change is an important consideration in India’s national plan and millennium development goals. India’s development priority envisages: doubling per capita income by 2012, reducing poverty levels by 10 percent, providing gainful employment to all, thereby ensuring food, energy, and economic security for the country. The Indian government has targeted an 8 percent GDP growth rate per annum for 2002–2007.

CDM projects: approving procedures and requirements

CDM endorsement criteria, national priorities, sustainable development indicators, the Kyoto Protocol requirements on CDM, as well as the approval process for issuance of host country endorsement of CDM projects are covered in this chapter. The NCA has accorded host country approval to 93 CDM projects under various sectors submitted by project developers in India. Out of these, 51 projects belong to the renewable energy sector. The others stem from energy efficiency, fuel switching, industrial processes, and solid waste sectors. Projects from the small-scale sectors and other small projects would need bundling (with other projects) to minimize transaction costs. A number of facilitating institutions called designated operational entities (DOEs) can assist project developers in the preparation of project idea note (PIN) and project design document (PDD), and also facilitate the validation, verification, monitoring, and certification of CDM projects.

Laws and regulations

This chapter discusses the laws and regulations relevant to investors in CDM projects. It discusses in detail the procedures for establishing a business presence in India, foreign direct investment (FDI), foreign technology transfer issues related to CDM, and relevant environmental


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laws. This chapter also discusses trade–related intellectual property rights and laws related to employment and labour in India. Finally, property issues such as: nature of CERs; title to CERs; contractual issues in carbon trading contracts, and Indian law as a governing law of contract are discussed.

Fiscal and financing issues

India’s stable economy and great potential in offering CDM projects to industrialized countries are made apparent in this chapter. An overview of India’s financial services sector is presented, covering issues such as banking, capital markets, mutual funds, foreign institutional investors, insurance companies, non–banking financial institutions, and FDI. This chapter further discusses the financial aspects of CDM and CDM project financing, taxation treatment on transaction involvement, CERs, and various risks involved in CDM project implementation.

Government incentives

The concluding chapter of this guidebook explains the various incentives from the government of India (MoEF) and from the state level that are available in order to establish an enabling environment for CDM initiatives. The chapter further discusses methods and incentives for establishing renewable energy power projects in India, as well specific fiscal incentives for biomass/cogeneration projects and windpower projects.

It can truly be said that India is the most favoured destination of CDM globally.


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1

1. INTRODUCTION

The United Nation Framework Convention on Climate Change (UNFCCC), adopted by most of the world’s governments in Rio de Janeiro in June 1992, recognized that it could be a launching pad for stronger action in the future towards achieving the objective of the convention.1 The first review of the adequacy of developed country commitments was taken up by the Parties at the first session of the Conference of the Parties (COP 1) in Berlin in 1995, and the main theme was the adequacy of the UNFCCC by the Annex I Parties. Some 10,000 delegates, observers (NGOs), and media personnel participated in this high profile event hosted by Japan in December 1997. The conference resulted in a conscious decision to adopt a new protocol, the Kyoto Protocol, under which industrialized countries (ratifying the protocol) are required to reduce their combined greenhouse gas (GHG) emissions by at least 5.2 percent compared to 1990 levels by the first commitment period (2008–2012. This legally binding commitment promises to produce an historic reversal of the upward trend in emissions that started in the developed countries some 150 years ago.

The Clean Development Mechanism (CDM) is one of the innovative features of the Kyoto Protocol to the UNFCCC. It encourages investments in projects that provide sustainable development in developing countries, while at the same time limiting GHG emissions. The CDM was introduced in Article 12 of the Kyoto Protocol. Under this mechanism, legal entities in developed countries can invest in projects in developing countries that reduce GHG emissions. Once certified, these emission reductions can be used to meet the commitments made by the developed countries under the protocol. Although there are no immediate targets for the developing countries, it can be seen as an additional source of foreign direct investment into national mitigation projects, which would contribute to sustainable development and a decrease in worldwide GHG emission levels.

According to the Kyoto Protocol, project activities that qualify for the CDM are those related to specific GHG types and to the sources and sectors responsible for the majority of emissions, as established in Annex A of the Kyoto Protocol (table 1.1).

As per the UNFCCC, the Kyoto Protocol is to enter into force on the ninetieth day after the date on which at least 55 countries ratify the treaty, provided they account for at least 55 percent of the total Annex I countries’ 1990 emission levels. With the Russian Federation’s instrument of ratification by the United Nations Secretary-General on November 18, 2004, the Kyoto Protocol entered into force on February 16, 2005, and is now fully operational.

1. For more information, please visit the UNFCCC official website (http://cdm.unfccc.int/).


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Table 1.1. Greenhouse gas types and sectors/source categories.

Greenhouse gases • Carbon dioxide (CO2) • Methane (CH4) • Nitrous oxide (N2O) • Hydrofluorocarbons (HFCs) • Perfluorocarbons (PFCs) • Sulphur hexafluoride (SF6)

Energy • Fuel combustion • Energy industries • Manufacturing industries and construction • Transport • Other sectors • Fugitive emissions from fuels • Solid fuels • Oil and natural gas • Others

Industrial processes • Mineral products • Chemical industry • Metal production • Production of halocarbons and SF6 • Consumption of halocarbons and SF6 • Others

Solvents and other products Agriculture • Enteric fermentation

• Manure management • Rice cultivation • Agricultural soils • Prescribed burning of savannas (field) • Field burning of agricultural residues • Others

Waste

• Solid waste disposal on land • Wastewater handling • Waste incineration • Others

Source: Annex A of the Kyoto Protocol to the Convention on Climate Change.

1.1. Significance of the Kyoto Protocol

Signals of climate change are already visible around the world. Some of the projected impacts, which can adversely affect life, economy and ecosystem, are its impacts on the Asian monsoon (the main source of fresh water), agriculture, and other life-saving systems such as rivers, etc. Climate change will increase vector-borne diseases, extreme weather events, their intensity and frequency, and cause an unprecedented loss of life and property, etc. The Kyoto Protocol is an important step towards stabilization of the concentration of GHGs in the atmosphere to prevent dangerous anthropogenic interference with the Earth’s climate system.

The Kyoto Protocol introduced the following three flexibility mechanisms to supplement the domestic activities of the developed (Annex I) countries. The three flexibility mechanisms are:

• Joint implementation (JI) • Clean Development Mechanism (CDM)


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• International carbon trading

Of these three, only the CDM is applicable between developed and developing countries that have ratified the protocol. The certified emission reductions (CERs) that result from CDM project activities have considerable economic use to both the host (developing) and investor (developed) countries. During the last few years the mechanisms have aroused worldwide interest in carbon investment and the carbon market, which is growing as companies and governments have started purchasing emissions credits through voluntary trading schemes, carbon investment funds, and government procurement tenders. It is heartening to note that of the twelve CDM projects registered by the CDM Executive Board (as of July 19, 2005), three are located in India, as follows:

• GHG emissions reduction by thermal oxidation of HFC-23 in Gujarat • Electricity generation from mustard crop residues in Rajasthan • 5-MW Dehar grid-connected small hydropower in Himachal Pradesh

Under the Kyoto Protocol, the developing countries ratifying the protocol are eligible to participate in the CDM. India signed the protocol before COP 8 in 2002, which was hosted by the government of India in New Delhi. India offers a large potential for utilizing the CDM because of its inherent dependence on fossil fuels for development, its proactive government, and the enabling environment in place. Indeed, India is the most favoured destination for the CDM.

India is a competitive supplier for cost-effective GHG offset projects. Recognizing the possible benefits derived from such investment flows to India, the government has placed the CDM at the top of its climate change agenda. The designated national authority (DNA) for CDM projects from India has been set up in the Ministry of Environment and Forests (MoEF).

This guidebook is aimed at providing CDM project developers and investors interested in host country information—which is vital when making decision on investment and the procurement of CDM benefits, rules, and regulations of the India’s DNA—and reliable, updated information regarding CDM opportunities in India in various end-use sectors. The information in this guide is based on the UNFCCC guidelines, the Kyoto Protocol, the Marrakesh Accords, and the decisions agreed upon during the subsequent Conferences of Parties (COP 8, COP 9 and COP 10, held in India, Italy, and Argentina, respectively).

This report is organized into chapters and various appendices, which broadly cover the following:

• Country profile – India

• The CDM project cycle

• An analysis of the potential and priorities for CDM projects in India

• An overview of the institutional infrastructure for climate change/Kyoto Protocol activities and CDM-related government authorities

• CDM project approving procedure and requirements of the National CDM Authority

• Laws and regulations regarding CDM projects in India

• Fiscal and financing issues in CDM projects

• Government incentives in potential sectors where CDM projects can be developed


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• The current state of CDM project development in India, types of projects, location, status of development, etc.

• A list of institutions/organizations involved with climate change and CDM activities in the country, which could be a useful source of information and contacts for CDM project investors and developers in India.


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2. COUNTRY PROFILE

India is a large country, covering an area of 3.28 million square kilometres (km2) and situated north of the equator between 66oE to 98oE longitude and 8oN to 36oN latitude. It is bordered by Nepal, China, and Bhutan to the north, Bangladesh and Myanmar to the east, and Pakistan to the northwest. It has seas on three sides: the Bay of Bengal to the southeast, the Indian Ocean to the south, and the Arabian Sea to the west. India consists of diverse physio-geographical features that may be classified into (a) the Great Mountain Wall (the Himalayan range) in the north, (b) the Northern Plains, (c) the Great Peninsular Plateau, (d) the Coastal Plains, and (e) the Islands. India is endowed with varied soils, climate, biodiversity, and ecological regions. Under such diverse natural conditions, over a billion people who speak different languages, follow different religions, and inhabit rural and urban areas, live in relative harmony under the world’s largest democratic system.

2.1 Demography

India is the second most populous country in the world. Its population crossed the one billion mark in 2000 and has been increasing annually by about 15 million since then. Population levels and growth rates drive national consumption of energy and other resources and, therefore, GHG emissions. The decadal population growth rate has, however, steadily declined from 24.8 percent between 1961–1971 to 21.3 percent between 1991–2001, and it is targeted to further decline to 16.2 percent between 2001–2011, due to the various policies of the government of India on family welfare, education, health, and the empowerment of women (figure 2.1) (MoEF 2004).

India has a high population density. It was 264 persons/km2 in 1991, and it increased to 324 persons/km2 in 2001 (figure 2.2). Almost all the coastal districts are very densely populated (above 500 persons/km2), with over a 100 million people inhabiting them.

Some main features of Indian population density are:

• 95 percent of India’s districts have more than 50 persons/km2 • 80 percent have above 100 persons/km2

This high population density, coupled with low per capita income and the low adaptive capacity of the majority of the population, renders them vulnerable to the impacts of climate change, especially in coastal areas and fisheries.


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Figure 2.1. Percentage decadal growth rate in India

Source: Office of the Register General, India 2001.

Many critical demographic indicators have steadily improved in India. The average life expectancy at birth has gone up from 32 years to over 60 years between 1951 and today. The total fertility rate declined between 1982 to 1992, resulting in the reduction of almost one child per woman. The infant mortality rate, a sensitive indicator of health status as well as of human development, has also declined considerably for both males and females. The average literacy rate has gone up from less than 20 percent in 1951 to more than 65 percent in 2001.

The progress of urbanization has been relatively slow in India compared to other developing countries. The share of urban population was about 18 percent of the total population in 1961 and had increased to about 28 percent in 2001 (figure 2.3). Thus, the number of people living in urban areas increased from 79 million in 1961 to 285 million in 2001. In 2001, nearly two-thirds of the urban population was concentrated in 317 class-I cities (population of over 100,000), half of which lived in 23 metropolitan areas with populations exceeding one million each. The number of urban agglomerations/cities with populations of over a million has increased from five in 1951 to 23 in 1991 and to 37 in 2001. There has been unplanned urban development, and this increase of urban population has resulted in changed consumption patterns and increased demands for transport, energy, and other infrastructure, which in turn have resulted in high levels of energy consumption and emissions (Office of the Register General, India 2001).


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Figure 2.2. Population density in person per square kilometre


With 28 percent of the population living in urban areas, the rest, which is around 72 percent of the population, live in rural areas in about 0.63 million villages (Office of the Register General, India 2001). However, many of them suffer from poor communications and transport facilities, lack of adequate clean drinking water, and sanitation and basic health facilities. Reproductive health and basic health infrastructure require considerable strengthening, despite commendable achievements in the last 50 years. Nearly 100 million people live in urban slums, with limited access to clean, potable water, sanitation facilities, and health care services. In addition, there is the ongoing issue of a large-scale migration of people from rural to urban areas.


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Figure 2.3. Rural-urban population profile in India


2.2 Households

India had more than 160 million households in 1994. Nearly three-fourths of these households lived in rural areas accounting for one-third of the total national energy consumption (NSSO 1993/1994; Office of the Register General, India 2001). Demographic changes have led to an appreciable rise in the total number of households in India, with the urban share increasing faster than the rural one. There is also an increase in energy-consuming appliances at all levels. Nonetheless, this is an expected and desirable trend for a developing country where appliance/possession levels per 1,000 households are still abysmally low in comparison to the developed and even many developing countries; it increased to 2.7 per cent in 2000. However, the immediate national development target of doubling the per capita income by 2012 and continued 8 percent and above GDP growth rates into the medium term will result in increasing possession of durable goods and, therefore, increasing energy consumption and greenhouse gas emissions.

2.3 Governance

India is the world’s largest democracy, which is constituted of the legislature, the executive, and the judiciary. Laws are enacted by the legislature, implemented by the executive, and upheld by the judiciary. India’s parliament consists of two houses, the Rajya Sabha (upper house) and the Lok Sabha (lower house). The spheres and activities of the union and the states are clearly demarcated. Some sectors like environment and energy are listed in the concurrent list, wherein both the union and the state have concurrent jurisdiction to enact laws. The Constitution also devolves powers to the lower levels—“lower to the people”—through the institutions of

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panchayats (local governments) and nagar palikas (local municipal bodies), with a view to ensure administrative efficiency in concordance with the broader concept of good governance.

India has a strong and independent judiciary. Environmental issues are of high importance and often dealt with through judicial processes, which protects the citizen’s right to a clean environment. Further, matters of public interest are also taken up by the powerful media and the active NGO community.

The government itself accords high priority to the environment. The Ministry of Environment and Forests (MoEF) is responsible for planning, promoting, coordinating, and overseeing the implementation of environmental and forestry policies and programmes. It is also the nodal agency for international cooperation in the area of the environment, including the issue of climate change. Environment ministries/departments at the state level deal with state-specific environmental issues and concerns.

2.4 Environmental governance

Environmental governance is integral to the governance of India. The government of India established the National Committee on Environmental Planning and Coordination (NCEPC), under the aegis of the Department of Science and Technology, prior to the United Nations Conference on the Human Environment at Stockholm. Through this commitment, India amended its constitution to incorporate provisions for protecting its environment. More than two dozen laws, acts, rules, and notifications support the constitutional provisions and are enacted to protect and safeguard India’s environment. All aspects of the environment—like air and water pollution, conservation, deforestation, nuclear waste disposal, etc.—are covered by these laws. Some important acts related to the protection of environment are the Animal Welfare Act (1960), the Indian Wildlife (Protection) Act (1972), the Water Prevention and Control of Pollution Act (1974), the Forest (Conservation) Act (1980), the Air (Prevention and Control of Pollution) Act (1981), the Environment (Protection) Act (1986), the Public Liability Insurance Act (1991), and the Biological Diversity Act (2002).

In India, different agencies are involved in resource management. The Planning Commission directs the allocation of resources to various sectors within the framework of its five-year plans. Environmental management is dealt with by the MoEF at the central level and by the departments of environment at the state level. Natural resources (like water, forests, and oceans) are managed by separate ministries and departments. Inter-ministerial coordination committees and working groups deal with cooperation and conflict-of-interest issues. Resource allocation and project implementation is coordinated by the administrative units at the central and state levels. Implementation of all programmes is done at the field level under the overall supervision of the district collector. Local bodies such as the panchayats and city councils also have a stake in implementing various schemes in accordance with the laws. At the local level, several participatory management schemes dealing with environmental issues have been successfully carried out (MoEF 2004).

2.5 Economic profile

After the 1990s, the annual average growth rate of the gross domestic product (GDP) in India was about 6.6 percent, making it one of the ten fastest-growing economies in the world. India’s GDP (at factor cost and constant prices) grew by about 8 percent in the 2004/05 financial


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year (GoI Ministry of Finance 2005). The key socioeconomic indicators for 2001 are presented in table 2.1. Despite this rapid economic growth, the per capita GDP is one of the lowest in the world. One-fourth of its population of over one billion is still below the poverty line, and 44 percent of India’s population has an income below $US1/day. Its human development index is only 0.59, compared to China (0.745) and to developed countries such as Germany (0.925), Japan (0.938), and the United States (0.939) (UNDP 2004).

The production of coal—a resource for most industries and indicator of economic development—reached a record 350 million tonnes in 2004. Eleven infrastructure sectors, including telecommunications, transportation, and energy, posted higher growth during the first ten months of the current financial year (2004/05) compared with the corresponding period in the previous year. Telecommunications, civil aviation, roads, and shipping registered double-digit growth.

Table 2.1. National socioeconomic indicators, 2001

Criteria Number

Population (millions [M]) 1,019

Area (Mkm2) 3.28

GDP at factor cost 1994/95 Rs. Billion 12,679

GDP per capita (purchasing power parity in US$), 2002 2,670

Share of industry in GDP (%) 24.41

Share of services in GDP (%) 49.3

Share of agriculture in GDP (%) 26.29

Land area used for agricultural purposes (Mkm2) (net area sown) 1.42

Urban population as percentage of total population 27.8

Livestock population excluding poultry (M) 485

Forest area (Mkm2) 0.67

Percentage of population below poverty line (national poverty line) for 1990–2001 28.6

Life expectancy at birth of males (years) 63.87

Life expectancy at birth of females (years) 66.91

Literacy rate (%) 65.38

Exchange rate in US$ 47.69

Source: GoI Ministry of Finance 2005, Office of the Register General, India 2001, UNDP 2004.

Social development depends to a great extent on economic development. For many decades, India followed a mixed economy model, where central planning co-existed with private enterprise. Agricultural activities, however, have rested almost entirely with private farmers. Until 1991, industrial investment was sought to be controlled through industrial licensing. In the same year, a major programme of reforms was initiated under which industrial licensing was abolished, trade constraints were relaxed, protection was reduced, and a greater emphasis was laid on the private sector.


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2.6 Foreign direct investment

India is now on an upswing with its booming economy and growing attractiveness as an investment destination. Investments by foreign institutional investors (FIIs)2 in the country exceeded $9 billion in 2004—the highest in the history of Indian capital markets. The total foreign exchange reserves of India went up to $140 billion in March 2005. The total FDI approved and the actual FDI inflows during the last decade, along with the percentage realisation rate of approvals, are shown in table 2.2. Exports have revived remarkably; starting with 8.7 percent growth in January 2004, they maintained a steady rise of over 20 percent for the rest of 2004. They are expected to exceed $100 billion in 2004/05. Rural consumption has grown; it has exceeded consumption in urban India by 50 percent in the past two years. The year 2004 closed with a bang on the Mumbai Stock Exchange with nine sectors of industry recording over 100 percent gains in a single calendar year.

Table 2.2. Total FDI approved and actual FDI inflows (amounts in Rs. 10 million)

Year (Jan–Dec) FDI approved FDI inflows % realisation of FDI approved

1991 534.11 351.43 65.80 1992 3,887.54 675.18 17.36 1993 8,859.33 1,786.71 20.17 1994 14,187.19 3,289.28 23.18 1995 32,071.72 6820.03 21.26 1996 36,146.81 10,389.20 28.74 1997 54,891.35 16,425.33 29.92 1998 30,813.50 13,339.84 43.29 1999 28,366.53 16,867.79 59.46 2000 37,039.45 19,341.74 52.22 2001 26,874.73 19,265.10 71.68 2002 11,139.79 21,285.97 191.08

Total (1991–2002) 284,812.05 129,837.60 45.59 Source: GoI MoCI 2003.

As evident from table 2.2, the average rate of realisation (FDI approval to approval ratio) for the total period 1991–2002 in terms of rupees works out to be 45.59 percent. 2.6.1 Share in approvals, by country

Figure 2.4 shows a breakdown of FDI approvals by country during the period April 1991 to December 2002. The United States and Mauritius contributed the most to the country’s aggregate FDI inflows, followed by the United Kingdom, Japan, and South Korea.

During the year 2002, Mauritius contributed the maximum to FDI inflows into India, followed by Japan, United Kingdom, United States, Netherlands, and Germany. The percentage contribution and the amount contributed by these countries to India’s FDI inflows in 2002 are provided in table 2.3.

2 See 8.3 for further details on FIIs.


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Table 2.3. The percentage contribution and the amount contributed by countries to India’s FDI inflows in 2002

Country FDI contributed (in billions Rs.) % contribution

Mauritius 72.80 45.18 Japan 19.18 17.36 United Kingdom 17.00 10.54 United States 13.60 8.42 The Netherlands 7.50 4.64 Germany 6.60 4.11

Source: GoI MoCI 2003.

Figure 2.4. Contribution of FDI, by country (1991–2002)


Sectoral distribution of approvals since 1991

Figure 2.5 depicts the share of various industries in the total FDI that the country has received (up to 2003). Telecommunications, power, and oil refining attracted maximum attention and investments from FIIs. The presently low penetration levels in the Indian telecom industry, the power restructuring initiatives undertaken by the government, and heightened business activity in the oil and gas industry have collectively resulted in attention being received from investors globally.

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Figure 2.5. Sectoral distribution of FDI approvals since 1991 (in %)


The latest major sectors to get the government’s approval for 100 percent FDI are the housing, construction, and real estate sectors, as per a notice issued in February 2005.

2.7 GDP and its structure

Signs of the tremendous improvements in India’s economy since independence in 1947 include its achieving self-sufficiency in food for its rising population, increasing per capita GDP by over threefold, reducing illiteracy and fertility rates, creating a strong and diversified industrial base, building up infrastructure, developing technological capabilities in sophisticated areas, and establishing growing linkages with an integrated world economy.

The primary sector (particularly agriculture) has been the major contributor to India’s GDP, although its share has declined from over 50 percent in the early 1950s to about 23 percent in 2002/03. The shares of the manufacturing, transportation, banking, and service sectors have doubled during this period (figure 2.6).

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Figure 2.6. Contribution to GDP at factor cost, by sector

Source: Ministry of Finance 2005, Office of the Register General, India 2001, UNDP 2004.

2.8 Budget

National expenditures can be divided into two broad categories of “plan” and “non-plan,” as well as “developmental” and “non-developmental.” The plan expenditure generally considers the planned outlays of the central government and concerns with growth and investment in the economy, whereas the non-plan expenditure encompasses the recurring expenditures of the government and the economy. Furthermore, these are split into capital and revenue expenditures.

During the past few years there has been a 22 percent increase in the total expenditure, contributed to by an increase of about 30 percent in the plan expenditure and a 19 percent increase in the non-plan expenditure. There has been an increase in the non-plan expenditure due to a significant rise in the share of defence expenditure and also a rise in interest payments, which is roughly about 15 percent. The plan expenditure shows a gradual increase attributed to an increase in capital plan expenditure and central assistance to the states and union territories (UTs), among others. However, the total expenditure as a percentage of GDP has shown a gradual decrease since 1980. This may be due to the active participation of stakeholder organizations and the initiatives of NGOs.

Regarding revenue receipts, it can broadly be divided into two parts: (a) part A-revenue receipts and b) part B-capital receipts. Part A includes two components, namely, (a) tax revenue and (b) non-tax revenue. Part B deals with capital receipts, which includes market loans, external assistance, small savings, government provident funds, special deposits, and others. Gross tax revenue (GTR) for the year 2004/05 is 3,060 billion rupees compared to 1,983 billion rupees during 2000/01. This substantial rise in GTR can be attributed to the growth of the GDP, larger revenue generated from union excise duties, corporate taxes, and income tax. Similarly, the

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capital receipts have also shown an increased trend of 6,252 billion rupees in 2003/04 from 1,294 billion rupees for the year 2000/01. The maximum gain is from short-, medium- and long-term loans. The total receipts account for 9,643 billion rupees for the year 2003/04, compared to 3,355 billion rupees for the year 2000/01 (Economic Survey of India 2004/05).

2.9 Energy profile

The energy sector has emerged as one of the important pillars of the modern economy since independence, and especially after the oil crisis of 1973. Since then, energy policy became inseparable from the national development strategy. A large number of ministries and organizations are responsible for various functions concerning energy development. The organization of the energy sector in India is given in figure 2.7 (WII 2004).

Figure 2.7. Organization of India’s energy sector

Source: TERI 2004b.

Note: BPCL = Bharat Petroleum Corporation Limited; BRPL= Bongaigaon Refinery and Petrochemicals Limited; CEA = Central Electricity Authority; CIL = Coal India Limited; CRL = Cochin Refineries Limited; DAE = Department of Atomic Energy; EMC = Energy Management Centre; GAIL = Gas Authority of India Limited; GoI = Government of India; HPCL = Hindustan Petroleum Corporation Limited; IOC = Indian Oil Corporation Limited; IREDA = Indian Renewable Energy Development Agency; IBP = Indo-Burma Petroleum Company Limited; MRL = Madras Refineries Limited; MRPL = Mangalore Refineries and Petrochemicals Limited; MoEF = Ministry of Environment and Forests; MNES = Ministry of Non-conventional Energy Sources; NHPC = National Hydro-electric Power Corporation; NTPC = National Thermal Power Corporation; OCC = Oil Coordination Committee; OIL = Oil India Limited; ONGC = Oil and Natural Gas Corporation; PFC = Power Finance Corporation.


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Energy and environment-related concerns in India include the growing gap between the demand and supply of energy and the environmental externalities associated with energy use. High growth in the major energy-intensive sectors—such as power generation, steel, cement, refineries, chemicals, fertiliser, and transport—has resulted in a high elasticity of energy consumption and environmental emissions with respect to GDP (figure 2.8).

Figure 2.8. Growth of energy, electricity, and the Indian economy

Sources: GoI Ministry of Finance 2005; Energy Information Administration 2004.

2.9.1 Commercial energy demand and supply scenario

The consumption of commercial fuels (coal, oil, natural gas, and power) has been steadily rising over the years, with coal continuing to be the dominant source. Coal meets 63 percent of India’s total energy requirement, followed by petroleum products (30%) and natural gas. The total coal reserve in India is 211 billion tonnes, and by current estimates the reserves are enough to meet India’s power needs for at least another 100 years (GoI MoC 2000). The agriculture, industry, transport, domestic, and other sectors are the major consumers of commercial energy/power in India. India imports around 70 percent of its total crude oil requirements. In regards to natural gas, the Hydrocarbon Vision 2025 indicates that India’s total gas reserves will decline by 16 billion m3 by 2011/12, based on its consumption of 22.5 billion m3 in 1998/99.

Total energy use in India has increased substantially during the past five decades, with a shift from non-commercial to commercial sources of energy. Accordingly, the production of commercial sources of energy has also increased significantly. Table 2.4 indicates the production trends of various primary energy resources, including renewable energy sources.

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Table 2.4. Trends in primary energy production

Primary energy Units 1960/61 1970/71 1980/81 1990/91 2001/02

Coal Mt 55.67 72.95 114.01 211.73 325.65

Lignite Mt 0.05 3.39 4.80 14.07 24.30

Crude oil Mt 0.45 6.82 10.51 33.02 32.03

Natural gas BCM — 1.44 2.35 17.90 29.69

Hydro power BkWh 7.84 25.25 46.54 71.66 82.8

Nuclear power BkWh — 2.42 3.00 6.14 16.92

Wind power BkWh — — — 0.03 1.70

Source: GoI Planning Commission 2002.

Between 1953 and 2001, the total primary energy supply grew at an annual rate of 3.4 percent, reaching a level of 437.7 million tonnes of oil equvalent (Mtoe) in 2001. This growth has been mainly contributed by commercial energy supply, which grew at 5.3 percent per annum, whereas, non-commercial energy grew at 1.6 percent per annum. Due to this high growth rate, the share of commercial energy has increased from 28 percent in 1953/54 to 68 percent in 2001/02 (figure 2.9).

Figure 2.9. Decadal trend in total primary energy supply (Mtoe)


Coal is the dominant fuel in India's energy mix, with a share of 31 percent (26% in 1953/54). Petroleum products have also gained prominence during this period, increasing to about 27 percent in 2001/02 from a share of just 2 percent in 1953/54 (all petroleum products were imported at that time). The share of natural gas has also increased from virtually nil to 6 percent in 2001/02.

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2.9.2 Electricity access

Access to electricity is vital for the economic development of any country. Since independence, the Indian power sector has grown manifold in size and capacity. There have been radical changes in the structure, ownership patterns, and regulatory set-up of the power sector, especially in the last few years, due to the ongoing reform programme, establishment of independent regulators, corporatization, unbundling, and advent of privatization in some states. In spite of the overall development that has taken place, however, the power supply industry is still under constant pressure to bridge the gap between supply and demand.

In March 2005, India had an installed generation capacity of nearly 115 gigawatts (GW). The share of thermal capacity was 69.4 percent, hydro plus wind was about 28 percent, and the balance was nuclear (GoI MoP 2005). Public policy has consistently attempted to encourage hydro and wind energy sources, which do not rely on fossil fuels and avoid carbon emissions. Figure 2.10 shows the growth in the installed capacity of the power sector from 1991/92 to 2003/04. Out of the total installed capacity, 89 percent is owned by the public sector (58% under state governments and 31% under the central government) and the balance by the private sector (11%).

Figure 2.10. Installed generation capacity (MW)

Annual electricity generation by the utilities is presently about 558 billion units (BU). In the period from 1992 to 2004, the generation capacity grew at a rate of 4.1 percent. The Ninth Plan envisaged a capacity addition of 40,245 MW, comprising 24.4 percent of hydro capacity and the balance of 75.6 percent from thermal capacity addition including nuclear power. Out of this, only 47.24 percent of the capacity addition target could be achieved during the Ninth Plan. The major shortfall was in the central government and the private sector. Although there are many reasons for not meeting the planned target, private sector projects have not been materialized, mainly because of the poor financial condition of the state electricity boards (SEB) (WII 2004).

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t-hou

rsThe growth in the installed power generation capacity, from 1,362 MW to over 100,000 MW

since independence, and the electrification of more than 500,000 villages is an impressive achievement. Per capita electricity consumption has also improved significantly, as can be seen in figure 2.11. It should be noted, however, that annual per capita consumption, at about 355 kWh, is still among the lowest in the world. Many households in a large number of villages still have no access to electricity. As well, end users of electricity, such as households, farms, commercial establishments, industries, etc., suffer frequent power cuts, both scheduled and unscheduled. Power cuts, erratic voltage levels, and wide fluctuations in the frequency of supply add to the problem.

Figure 2.11. Per capita consumption of electricity

The major reasons for the inadequate, erratic, and unreliable power supply are (1) inadequate power generation capacity; (2) lack of optimum utilization of existing generation capacity; (3) inadequate inter-regional transmission links; (4) inadequate and ageing sub-transmission and distribution networks, leading to power cuts and local failures/faults; (5) large-scale theft and a skewed tariff structure; (6) the slow pace of rural electrification; and (7) the inefficient use of electricity by end consumers. The status of access to electricity in India is shown in figure 2.12.

Year


20

Figure 2.12. Percentage of households with access to electricity

2.9.3 Demand/supply situation in the power sector

The power sector has been characterised by a shortage of supply vis-à-vis demand. At the beginning of the Ninth Plan, the energy shortage was 11.5 percent and peak deficit was 18 percent. The power supply position during 2003/04 indicated an energy deficit of 7.1 percent and a peak deficit of 11.2 percent (GoI MoP 2005). This improvement is partly due to a marked improvement in the plant load factor (PLF) of thermal plants as well as a higher inter-regional transfer of power through the national grid—in spite of a major shortfall in capacity addition during the Ninth Plan period. The power supply position in terms of shortages in peak demand and energy during the Ninth Plan is shown in figure 2.13.


21

Figure 2.13. Power supply scenario in India

The Ministry of Power has set an agenda of providing power to all by 2012. To meet the projected power requirement by 2012, a capacity addition target of 46,500 MW has been tentatively fixed for central public sector undertakings under the Ministry of Power. At the state level, the state electricity boards (SEBs)/state utilities and the private sector will add about 41,800 MW. For optimal development of the electricity sector in its totality, an integrated approach, including capacity addition through nuclear and non-conventional energy, has been adopted. The capacity addition targets of 6,400 MW through nuclear power and 10,700 MW through non-conventional resources have been accordingly fixed for the period up to 2012. The ministry has developed appropriate strategies of fully exploit the country’s hydro potential and accords high priority for its development. 2.9.4 Role of renewables in meeting the energy needs

The development and utilization of renewable energy has been accorded a high priority by the government of India. India is the only country to have a separate ministry looking after the promotion of renewable energy sources, and runs one of the most diverse and biggest renewable energy programmes in the world. The government policy has been successful in creating a fairly large and diversified manufacturing base, and an infrastructure (technology-support groups and facilities, as well as nodal agencies) to support renewable energy technology (RET) design, development, testing, and deployment. So far, an aggregate capacity of about 5,000 MW has been installed, based on renewable energy technologies. The estimates of potential from these sources as well as the achievement figures have been outlined in table 2.3.

0

2

4

6

8

10

12

14

16

1997-98 1998-99 1999-2000 2000-01 2001-02

Year

Shor

tage

s (%

)

Peak demand Energy


22

Table 2.5. Renewable energy potential and achievements (as of December 31, 2004)

Sl no. Sources/technologies Units* Approx. potential Achievements

1 Wind power MW 45,000 2,980 2 Small hydro power (up to 25 MW) MW 15,000 1,693 3 Biomass power/cogeneration MW 19,500 727 4 Biomass gasifiers MW — 62 5 Energy recovery from wastes MW 1,700 46.50 6 Solar photovoltaic (SPV) power MW 20 MW/sq.km 191 MWp* 7 Improved Chulhas lakh 1200 339 8 Solar water heating Lakh m2 1400 10 9 Biogas plants lakh 120 36.71

Source: GoI MNES 2005.

*Of this, 105 MWP in SPV products have been exported.

In spite of the proactive stand taken by the government and the achievements made so far, however, renewable energy still remains far from the energy mainstream. The reasons for this range from high initial costs, inadequate servicing and repair infrastructure, lack of commercial financing and, at times, an unfavourable policy environment. Investment in the promotion of renewable energy technologies has also been much lower in comparison to that for conventional energy sources. The cumulative government expenditure for the renewable energy sector between 1980 and 1992 totalled only Rs. 11.55 billion, compared to Rs. 812 billion for the power sector, Rs. 335 billion for the petroleum sector, and Rs. 158.5 billion for the coal sector. In the Eighth Plan (1992–97), allocations for renewable energy were about 0.8 percent of the total funds allocated for the energy sector.

A host of fiscal incentives and facilities are available to both manufacturers and users of renewable energy systems, including the following:

• 100 percent accelerated depreciation for tax purposes in the first year of the installation of projects/systems

• No excise duty on the manufacture of most finished products • Low import tariffs for capital equipment and most of the materials and components • Soft loans to manufacturers and users for commercial and near-commercial technologies • Five-year tax holiday for power generation projects • A remunerative price under the alternate power purchase policy instigated by state

governments for the power generated through renewable energy systems and fed to the grid by the private sector

• Facility for the banking and wheeling of power • Facility for third-party sale of renewable energy power • Financial incentives/subsidies for devices with high initial costs • Involvement of women not only as beneficiaries but also for their active contribution in the

implementation of renewable energy programmes. Encouragement to NGOs and small-scale entrepreneurs

• Special thrust for renewable energy in the northeastern region of the country. Of the plan funds earmarked for the northeast towards enhanced and special subsidies, 10 percent is for renewable energy. Allotment of land on a long-term basis at a token lease rent and supply of


23

garbage free of cost at the project site by state governments for energy recovery projects from municipal waste.

Renewable energy has a special role to play in improving access to cleaner energy in remote areas. A lot of attention is now being given by the government of India on providing energy on a sustainable basis to the rural population, and village electrification is a very important component of this initiative. Out of 150,000 un-electrified villages, based on the current definition of electrification, 25,000 are considered remote where the extension of the grid is considered unviable. The government intends to electrify these inaccessible villages through distributed generation based on renewable energy resources. Considerable emphasis is also being placed on the use of biogas and improved stoves for cooking, a task that constitutes a major share of the total rural energy demand.


24


25

3. THE CDM PROJECT CYCLE

Before reading country-specific information related to CDM project development and implementation, it is important to understand some of the CDM terminologies and rules. The CDM has its own specific modalities and procedures, and this chapter explains the basics of them by going through CDM project cycle.3

3.1 Overview of the Clean Development Mechanism

The CDM is a mechanism where Annex I countries with a specific obligation to reduce a set amount of greenhouse gas (GHG) emissions by 2012 under the Kyoto Protocol assist non-Annex I countries to implement project activities to reduce or absorb (sequester) at least one of six GHGs (see box 3.1 and figure 3.1). Non-Annex I countries are signatories and ratifiers to the Kyoto Protocol; however, they do not adhere to reduction targets stipulated under the protocol. The reduced amount of GHGs becomes credits called certified emission reductions (CERs), which Annex I countries can use to help meet their emission reduction targets under the protocol (UNFCCC 1997).4

Box 3.1. The six greenhouse gases addressed under the Kyoto Protocol

Source: UNFCCC 1997.

3. Readers are encouraged to refer to the official documents of the United Nations Framework Convention on Climate

Change (UNFCCC) for further details. All the documents are available at http://cdm.unfccc.int. The foundations of modalities and procedures for the CDM were established in the Marrakesh Accords (UNFCCC 2001). In addition, the CDM Executive Board regularly meets and makes decisions on details and clarifies rules set in the accords. There are many textbooks available on the CDM. Following are some of the publications recommended: CDM and JI in Charts, ver. 2.1 (MOE and IGES 2005) will facilitate a basic understanding of the CDM. Readers are also suggested to read the CDM Manual for project developers and policy makers (Ministry of the Environment, Japan, Global Environment Centre Foundation, Pacific Consultants Co., Ltd., 2004) and CDM Methodologies Guidebooks (Ministry of the Environment, Japan, Global Environment Centre Foundation, Climate Experts, Ltd., November 2004).

4. The CDM is one of the Kyoto mechanisms introduced to supplement domestic actions to reduce GHG emissions levels in Annex I countries. Under the UNFCCC rulebook, there is no legal restriction for Annex I countries to limit the usage of CERs or any other credits acquired under the Kyoto mechanisms to meet their reduction targets, except for the CERs from carbon sink activities (UNFCCC 2001b, 2). However, each Annex I country may introduce its own rule to ensure that sufficient efforts are made domestically.

The six GHGs are not equal In terms of global warming potential (GWP), which measures the relative radiative effect of GHGs compared to CO2. For example, one tonne of methane has a GWP as potent as 21 tonnes of CO2.

Greenhouse gas Global warming potential 1. Carbon dioxide (CO2) 1 2. Methane (CH4) 21 3. Nitrous oxide (N2O) 310 4. Hydrofluorocarbons (HFCs) 140–11,700 5. Perfluorocarbons (PFCs) 6,500–9,200 6. Sulfur hexafluoride (SF6) 23,900


26

Figure 3.1. Diagram of how the CDM functions

Source: MOE Japan and IGES 2005.

3.2 Eligible project activities

CDM project activities must result in reducing or absorbing (sequestering) GHGs that are real and measurable and would not have occurred in the absence of the proposed project activity (additionality) (UNFCCC 2001b, 20). In other words, to qualify for credits, a project activity must demonstrate that GHG emissions were reduced against the “baseline scenario,” a representation of GHG emissions under normal circumstances.

Another important aspect of the CDM is that proposed CDM project activities must demonstrate their contributions to environmental integrity and the host country’s sustainable development goals (UNFCCC 2001b, 20). Reducing GHG emissions alone may not suffice to meet this requirement. Many host country governments provide information on their prerequisites, often referred to as “sustainable development criteria” (see chapter 6 for more details).

In addition, other disqualifications for use of the CDM are:

• emission reductions from nuclear facilities (UNFCCC 2001b, 20), • a diversion of official development assistance (ODA) from Annex I countries (UNFCCC

2001b, 20), and/or • any other type of sequestration activities apart from afforestation and reforestation

(UNFCCC 2001b, paragraph 7[a], 22).

Table 3.1 summarizes the possible types of CDM project activities and some examples. Country-specific information on possible CDM project activities in China is covered extensively in chapter 4.

It is important to note that existing or newly built facilities already under commission can still be registered as CDM project activities, provided the following conditions are met (UNFCCC, 2001b, paragraph 13, 23; 2003a, paragraph 1[c], 5):

• the proposed project activity started between January 1, 2000, and the date the first CDM project activity was registered (November 18, 2004);

A project activity site in a host country

Projected amount of GHG emissions from the site

Baseline scenario (see section 3.7.3)

CERs

Proposed project scenario

Non-Annex I country Annex I country

A total emission cap of an Annex I Party

CERs


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• the project activity is submitted for registration to the CDM Executive Board, the supervisory body of the CDM, before December 31, 2005; and

• proof is given for the CDM being considered at the project’s design stage.

3.3 Classification of CDM project activities

CDM project activities can be classified in two main areas: (1) GHG emission reductions and (2) sequestration (sink). Within these two main categories, there are sub-categories based on project size (figure 3.2).

Figure 3.2. Classification of sub-categories of CDM project activities

Table 3.1. List of project categories eligible under the CDM

Sectoral scope Examples

Renewable energy Wind power, solar photovoltaic (PV), hydro, geothermal

1 Energy industries (renewable/non-renewable sources) Non-renewable

energy Combined heat and power (CHP); fuel switching from coal or fuel oil to natural gas

2 Energy distribution Electricity

Transmission and distribution lines

3 Energy demand Energy efficiency

High-efficiency equipment and lighting

Energy efficiency High-efficiency equipment 4 Manufacturing industries Fuel switching

From coal to natural gas; clean coal technology

5 Chemical industries Process change

Nitrous oxide abatement

6 Construction Material substitution

Energy-saving measures; shorter transport distance for trucks

Energy efficiency Improved vehicle efficiency, transit expansion

7 Transport

Fuel substitution Biofuels, natural gas fuels 8 Mining/mineral production Fuel substitution

Coal mine methane recovery

9 Metal production Energy efficiency Improved process efficiency Process change Dry coke quenching

10

Em

issi

on re

duct

ions

act

iviti

es

Fugitive emissions from fuels (solid, oil, and gas)

Fuel substitution

Recovery and utilization of gas from oil wells

Normal-size project

Small-scale project

Normal-size project

Small-scale project

GHG emissions reductions Sequestration (sink CDM)

CDM


28

Table 3.1—Continued

Sectoral scope Examples

11 Fugitive emissions from production and consumption of halocarbons and sulphur hexafluoride

HFCs Incineration of HFC-23 waste streams

12 Solvent use Material substitution

Replacement with less GHG-emitting materials

13

Waste handling and disposal Fuel substitution Landfill gas recovery, wastewater treatment, animal waste treatment

Afforestation 14 Afforestation and reforestation Reforestation

15

Seq

uest

ratio

n

Agriculture Methane production avoidance from biomass decay

Source: UNFCCC 2005a; Pembina Institute 2003; Houghton et al. 1997; Shimizu Corporation 2004; editor’s contribution.

3.4 Small-scale CDM projects

Although the CDM is devised to foster the sustainable development of host countries, developing small-scale CDM project activities, which are known to be beneficial to the sustainable development of local communities, are often burdened with high costs for low returns. In order to leverage the development of small-scale CDM project activities, the UNFCCC introduced fast-track modalities and procedures with some preferential treatment. A project activity can be qualified as small-scale CDM if it meets one of the three following conditions (UNFCCC 2001b, paragraph 6[c], 21):

• Type I: renewable energy project activities with a maximum output capacity equivalent to up to 15 megawatts (or an appropriate equivalent)

• Type II: energy-efficiency improvement project activities which reduce energy consumption on the supply and/or demand side by up to the equivalent of 15 gigawatt-hours per year

• Type III: other project activities that both reduce anthropogenic emissions by sources and directly emit less than 15 kilotonnes of CO2 equivalent (CO2e) annually

Small-scale CDM project activities benefit from a number of privileges, which allows them to speed up their registration process. The details of the special treatment given to small-scale projects can be found in the overview of the CDM project cycle (section 3.7).

One special feature applicable only to small-scale CDM project activities is bundling and debundling. Bundling is to cluster projects that are too small to be attractive for investment, even with the additional CER revenues. By using the bundling scheme, small projects can become cost-effective and thus become sufficiently attractive with CER revenues. Many community-based projects (e.g., small hydropower), as well as projects for small- or medium-size enterprises, with significant contribution to local sustainable development often face difficulties in attracting sufficient interest for investment without a substantial level of public support. These projects can use the bundling scheme to improve their overall financial viability. Projects can be bundled into “sub-bundles” based on the small-scale project types (type I, II, or III) and project characteristics, such as technology types, emission reduction measures, location, and baseline methodologies. Furthermore, bundling of one or more sub-bundles is possible and there is no limitation on the


29

number of projects that can be sub-bundled, as long as the total size of the each sub-bundle cluster does not exceed the ceiling set for its small-scale project type (UNFCCC CDM EB 2005d, 1–3). While it is possible to bundle small projects together, however, large projects are not allowed to be debundled to smaller project sizes well within the range of small-scale CDM rules (box 3.2), in order to avoid anyone taking advantage of the CDM’s fast-track and cost-effective scheme for small-scale CDM projects. While the bundling scheme may appear to be an ideal solution for small projects beneficial to sustainable development, there also exists a number of difficulties involved with the practice, for example, in developing a plan for monitoring all bundled project activities.

Box 3.2. How to determine if a project can be considered debundled

3.5 Forestry and the CDM

The CDM qualifies only afforestation and reforestation (A/R) project activities as credible sink activities under the current ruling, and they are defined as follows (UNFCCC 2001a, paragraph 1[b], [c], 58):

• Affforestation is the direct, human-induced conversion of land that has not been forested for a period of at least 50 years to forested land through planting, seeding, and/or the human-induced promotion of natural seed sources.

• Reforestation is the conversion of land from being non-forested to forested that was previously forested but then cleared. For the first commitment period, reforestation activities will be limited to reforestation occurring on this type of land that was not forested before December 31, 1989.

For non-Annex I Parties to host afforestation and/or reforestation (A/R) CDM project activities, in addition to the general participation requirements in the CDM Modalities and Procedures (annex to Decision 17/CP.7), the DNA of the host Party needs to define and report to the CDM EB on the following thresholds (UNFCCC 2003, paragraph 7–8, 17):

a. A single minimum tree crown cover value between 10 and 30 percent b. A single minimum land area value between 0.05 and 1 hectare c. A single minimum tree height value between 2 and 5 metres

The UNFCCC defines small-scale afforestation and reforestation project activities as “those that are expected to result in net anthropogenic greenhouse gas removals by sinks of less than 8 kilotonnes of CO2 per year and are developed or implemented by low-income communities and individuals as determined by the host Party” (UNFCCC 2003, paragraph 1[I], 16). Project developers should be aware that even if a small-scale A/R project activity results in actually

The UNFCCC (UNFCCC 2002, 27) recognizes any small-scale activity as being eligible for being debundled from a large project activity if it is already registered or expected to be registered as a small-scale CDM project activity, and if it is • with the same project participants, • in the same project and technology/measure category, • registered within the previous two years, and • whose project boundary is within 1 km of the project boundary of the proposed small-scale activity at

the closest point.


30

removing more than 8 kilotonnes of CO2e per year, no issuance of credits is allowed for any excess removals that take place.

Although the project cycle is similar to the one for mitigation activities, A/R CDM project activities need to follow a different set of rules under the UNFCCC. Some of the notable differences include the manner in which GHG emissions sequestration is calculated and CERs are issued (see section 3.7.3 on setting a project baseline).

3.6 Credits and crediting periods

One of the main features of CDM project activities is that they are able to generate tradable emission credits (CERs).5 Table 3.2 summarizes the different options for the crediting period and types of credits to be issued for GHG emissions reduction and A/R project activities.

Table 3.2. Credits and crediting period for CDM project activities

GHG mitigation project activities A/R project activities

i. 7 years with the option of renewing twice (total crediting period = 21 years)

i. A maximum of 20 years with an option of renewing twice (total crediting period = 60 years) Crediting

periods ii. 10 years without the renewal option ii. A maximum of 30 years without the renewal

option i. Temporary CERs (tCERs):

The net GHG removals by sinks achieved by the project activity since the project starting date, which should be replaced by other Kyoto Protocol credits before the end of the subsequent commitment period

Types of credits CERs

ii. Long-term CERs (lCERs): The net GHG removals by sinks achieved by the project activity during each verification interval

Sources: UNFCCC 2001b, paragraph 49, 37; UNFCCC 2003, paragraph 23, 1 and paragraph 38, 24.

The renewal of crediting period requires the review of baseline scenarios at each renewing time for both GHG mitigation and sequestration project activities. Each Annex I Party can carry over a maximum 2.5 percent of its assigned amount to the next commitment period (envisaged to start from 2013).6 In addition, there is a ceiling placed on the credits from A/R CDM project activities, at least for the first commitment period, stipulated as “not to exceed 1 percent of base year emissions of that [Annex I] Party, times five” (UNFCCC 2001b, paragraph 7[b], 22).

The calculation of net GHG removals by A/R CDM project activities is described in the baseline section of this chapter (3.7.3).

3.7 Overview of the CDM project cycle

In December 2001, negotiators worked out the detailed modalities and procedures of the international climate change policy regime, including the rules and regulations of the CDM, which

5. Non-Annex I Party participants can sell or transfer the credits to Annex I Party participants. However, non-Annex I

Party participants are not allowed to freely trade the credits in the emissions trading market. 6. The total amount of units an Annex I party will be assigned, calculated by its base-year emissions minus its emissions

reduction target.


31

were formulated as the Marrakesh Accords.7 The CDM Executive Board was established as the UNFCCC secretariat to oversee the CDM process. In order to be registered as a CDM project activity, project proponents need to go through the steps detailed in figure 3.3. 3.7.1 Project formulation

The first step in CDM project formulation is to identify a project activity and to examine whether or not it is eligible for the CDM. It is also important to collect information on the designated national authorities (DNA) of concerned Parties and their requirements and procedures for project approval. Since the CDM is a mechanism designed to contribute to the sustainable development of non-Annex I countries, information from the DNA of the host country becomes crucial in determining the eligibility of the proposed project under the CDM. Some countries specify a list of sustainable development criteria and some DNAs have a list of the CDM priority project types.

Project developers should also identify at this stage whether their proposed project activity is normal size or small scale, as different conditions apply to benefit small-scale project activities (UNFCCC 2002, paragraph 9, 20), including the following:

• A simplified project design document (PDD) (including the additionality test) • Simplified, predefined baseline methodologies provided by category • Simplified monitoring plans • The possibility to hire the same operational entity for validation, verification, and certification • Lower levies by the UNFCCC to cover administrative expenses and registration fees

(UNFCCC 2002, paragraph 21, 220) • Half the normal registration evaluation period (the period for normal projects is eight weeks

upon the date of receipt of the request for registration) (UNFCCC 2002, paragraph 24, 23)

Many project developers also begin with searching for potential buyers for CERs. In order to facilitate discussions, they produce a summary of the project description, known either as project idea note (PIN) or project concept note (PCN). Some donor organizations purchasing CERs have their own standardized form for application, while others may use the PIN form of the World Bank or the PCN form provided by host governments.

7. The Marrakesh Accords were signed at the Conference of Parties (COP) at its seventh session, organized at

Marrakesh, Morocco, in 2001. The accords adopted many operational rules of the Kyoto Protocol and established the modalities and procedures for the CDM (UNFCCC 2001b).


32

Figure 3.3. Overview of the CDM project cycle

3.7.2 The project design document

The project proponent needs to prepare a project design document (PDD) in order to be registered as a CDM project activity. The PDD presents information on the essential technical and organizational aspects of the project activity and is a key input into the validation, registration, and verification of the project, as required under the Marrakesh Accords. Currently, different forms are available for the following project categories:

• Normal-size GHG emissions reduction project activities • Small-scale GHG emissions reduction project activities (applicable to all except for

afforestation/reforestation) • Afforestation/Reforestation project activities

1. Planning a CDM project activity Project participants should consider that (a) the planned project activity will assist the host country’s

sustainable development, and (a) the planned project activity is additional.

Project participants should (a) download the standard PDD form from the UNFCCC Web

site and complete it according to the guidelines provided by the CDM EB.

2. Preparing the project design document (PDD)

Project participants should (a) learn about the approving process of concerned Parties

and all the requirements from designated national authorities (DNAs), and

(b) obtain the written approval of voluntary participation from the DNAs.

3. Getting approval from each party involved

4. Validation and registration Project participants should (a) have the validation done by a designated operational

entity (DOE) accredited by the CDM EB, and (b) pay a registration fee to the CDM EB. The DOE will submit all necessary documents to the CDM EB and request project registration.

5. Monitoring a CDM project activity

6. Verification and certification

7. Issuance of CERs

Project participants should (a) monitor according to the monitoring plan and report to the

operational entity.

The operational entity should (a) verify the monitoring results and certify the exact amount

of GHG emissions reduction resulting from the project activity, and

(b) report the result to the CDM EB.

The CDM EB will (a) issue a certified amount of CERs within 15 days after

receiving a request for issuance, and (b) deduct a “share of proceeds” from the issued CERs.


33

The common components of the PDD forms include (UNFCCC 2001b, Appendix B, 43–45):8

• A general description of the project activity • A baseline methodology • The duration of the project activity/crediting period • Justification for additionality • Monitoring methodology and plan • Calculation of GHG emission by sources • Environmental impacts • Stakeholder comments 3.7.3 The baseline

Establishing a “baseline scenario” (commonly referred to as the “baseline”) is the crucial part of designing a CDM project activity. It sets the “base” from which the amount of total GHG emission reductions and credits is calculated. The baseline scenario describes what the current level of GHG emissions is prior to introducing the proposed CDM project activity. As shown in figure 3.4, whatever the amount of emissions reduced or sequestered within a given project boundary during the crediting period will be accounted as the direct emissions reduction.

Figure 3.4. Baseline scenario

For normal-size GHG mitigation project activities, the Marrakesh Accords allow the baseline

for GHG mitigations to be established by one of the three approaches below (UNFCCC 2001b, paragraph 48, 37).9

1. Existing actual or historical emissions 2. Emissions from a technology that represents an economically attractive course of action,

taking into account barriers to investment 3. The average emissions of similar project activities undertaken in the previous five years,

under similar social, economic, environmental, and technological circumstances, and whose performance is among the top 20 percent of their category

8. This guidebook briefly touches on the concepts of baseline and additionality; however, complete guidelines and

details of requirements for PDDs are available at http://cdm.unfccc.int. 9. The document is available at http://cdm.unfccc.int/Reference/COPMOP.

Estimated amount of the emissions reduction

Baseline scenario

Projected emission level after a CDM project is introduced

GHG emissions

Time

Crediting period

Before

After


34

There are various methods to calculate baseline scenarios and GHG emission reductions. Project developers can propose a new methodology to establish the baseline scenario or use the standardized methodology (consolidated methodologies) or already approved methodologies. As of June 2005, there are three consolidated methodologies and 22 approved methodologies (see 4.9.1).

Emission reductions and baselines are determined by setting a project boundary that encompasses “all anthropogenic GHG emissions by sources under the control of the project participants that are significant and reasonably attributable to the CDM project activity” (UNFCCC 2001b, paragraph 52, 37). Project developers need to check whether there is a “leakage” in the proposed project activity. Leakage refers to GHG emissions outside the project boundary that are “measurable” and “attributable” to the project activity (UNFCCC 2001b, paragraph 51, 37). The total GHG emission reductions need to be netted out of the leakage. For small-scale project activities, the UNFCCC provides the simplified baseline methodologies to relieve project developers from the burden of elaborating baselines and the associated high costs.

For A/R CDM project activities, project proponents can choose one of the following three approaches (UNFCCC 2001b, paragraph 22, 21):

1. “Existing or historical, as applicable changes in carbon stocks in the carbon pools within the project boundary”10

2. “Changes in carbon stocks in the carbon pools within the project boundary from a land use that represents an economically attractive course of action, taking into account barriers to investment”

3. “Changes in carbon stocks in the pools within the project boundary from the most likely land use at the time the project starts”

The calculation of net GHG removals by sinks is shown in figure 3.5.

Figure 3.5. Baseline scenario and the net GHG removals by sinks

10. Carbon pools are above-ground biomass, below-ground biomass, litter, dead wood, and soil organic carbon

(UNFCCC 2003, paragraph 1[a], 16).

Estimated amount of the net GHG removals by sinks

Leakage

Estimated amount of the GHG removals by sinks

GHG removals by sinks

Before

After

Time

Crediting period

Baseline scenario for the net GHG removals

Increase in GHG emissions by sources as a result of the A/R CDM project activity


35

Figure 3.6 explains the basic method for calculation of net GHG removals by A/R CDM project activities.

Figure 3.6. Calculation of net GHG removals by sinks Source: UNFCCC 2003, paragraph 1(f), 16.

For small-scale A/R CDM project activities, the CDM EB was to develop simplified methodologies for the following activities (UNFCCC 2004, Appendix B, paragraph 4, 38):

a. Grassland to forested land b. Cropland to forested land c. Wetland to forested land d. Settlements to forested land

So far, the simplified methodologies for grassland and cropland have been developed (UNFCCC Afforestation and Reforestation Working Group [AR WG] 2005, 1). 3.7.4 Additionality

Additionality is another important aspect of the CDM. Additionality is the justification of the proposed CDM project activity not being the baseline scenario. The CDM Executive Board introduced the additionality tools (figure 3.7) at its 16th meeting (UNFCCC 2004b). It is not mandatory to use the additionality tools,11 but it is highly recommended.

11. The exception to this is when the additionality tools are imbedded in the approved methodology. In other words, if the

selected and appproved methodology you would like to use for your project specifically use the additionality tools to demonstrate the project’s additionality, then they are considered part of the methodology, and therefore any users of that methodology are required to use the tools (UNFCCC CDM EB 2005c, 5).

Net GHG removals by sinks

Actual net GHG removals by sinks

The sum of the verifiable changes in carbon stocks in the carbon pools within the project boundary, minus the increase in emissions of the GHGs by the source as a result of the implementation of the project activity.

Baseline net GHG removals by sinks

The sum of the changes in carbon stocks in the carbon pools within the project boundary that would have occurred in the absence of the CDM project activity.

Leakage The increase in GHG emissions by sources which occurs outside the project activity’s boundary that is measurable and attributable to the project activity.

= ——


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Figure 3.7. Project assessment using the additionality tools

*Projects commissioned after January 1, 2000, can be still considered as being a CDM project.

For small-scale mitigation project activities, the project proponent needs to justify its additionality using at least one of the barriers listed in table 3.3.

Step 1. Identification of alternatives to the project activity consistent with current laws and regulations - There are some realistic and credible alternatives to the proposed project activity under the current

legal and regulatory requirements and enforcement practices go to Step 2 or 3

Step 5. Impact of CDM registration - A satisfactory explanation is given that the approval and registration of the project activity can

remove or alleviate the barriers identified in steps 2 or 3. The proposed CDM project activity is additional.

Step 2. Investment analysis Methods (use one of them): - Simple cost analysis - Investment comparison analysis (using

financial indicators) - Benchmark analysis (using benchmarks for

financial indicators) If the proposed project activity is economically or financially less attractive than other alternatives without the revenue from the sale of CERs”

go to Step 4

Step 3. Barrier analysis Possible barriers (examples) - Investment barriers - Technological barriers - Barriers due to prevailing practice - Other barriers The proposed project activity has a barrier(s) to implementation if not registered under the CDM and the same barrier(s) will not prevent at least one of the alternatives from being implemented.

go to Step 4

Step 4. Common practice analysis (complementary to steps 2 and 3) - The proposed project activity is proven with sufficient documentary proof that it does not have

similar types of activity in practice (such as using new technology) go to Step 5 - The proposed project activity is proven, with sufficient documentary proof, to be difficult to implement

without CDM incentives in the presence of a similar type of project activity or activities go to Step 5

Step 0. Preliminary screening based on the starting date of the project activity - Project implemented before registration* and sufficient proof is given to justify that the CDM was

considered when designing the project go to Step 1 - Project implemented after registration go to Step 1


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Table 3.3. Criteria for justifying additionality for a small-scale CDM project activity

Investment barrier A financially more viable alternative to the project activity would have led to higher emissions.

Technological barrier A less technologically advanced alternative to the project activity involves lower risks due to the performance uncertainty or low market share of the new technology adopted for the project activity, and so would have led to higher emissions.

Barrier due to prevailing practice

Prevailing practice or existing regulatory or policy requirements would have led to implementation of a technology with higher emissions

Other barriers Without the project activity—for another specific reason identified by the project participants, such as institutional barriers or limited information, managerial resources, organizational capacity, financial resources, or capacity to absorb new technologies—emissions would have been higher.

Source: UNFCCC 2002, Appendix B, attachment A, 26; UNFCCC CDM EB 7, 19.

For forestry projects, there is a separate additionality tool and simplified criteria available for normal-sized and small-scale projects accordingly (UNFCCC CDM EB 2005c, 8; UNFCCC AR WG 2005, 19). 3.7.5 Gaining host country approval

CDM project proponents need to obtain written approval from the DNA of the participating country in order to have their project registered under with the CDM EB In general, “‘participating countries” means both Annex I and non-Annex I countries. However, a project can still be registered as a CDM project without having an Annex I country participating at the time of registration (UNFCCC CDM EB 2005a, paragraph 57, 8). This type of project is called a “unilateral” CDM project as opposed to a “bilateral” CDM project (having both Annex I and non-Annex I countries involved). However, this does not mean that the unilateral project is completely exempted from submitting the approval letter from the DNA of an Annex I country. When a project developer of a unilateral project eventually finds a buyer of the CERs from an Annex I country and requests the CDM EB to transfer the CERs to the partner, the CDM EB still requires the submission of an approval letter from the participating Annex I country. The approval letter should contain the following statements according to the requirements set under the UNFCCC (UNFCCC 2001b, paragraph 29, 32; UNFCCC CDM EB 2004c, 1):

• The country has ratified the Kyoto Protocol. • The DNA confirms that the proposed CDM project activity is a result of voluntary

participation. • (For the hosting country only.) The proposed CDM project activity contributes to sustainable

development.

Although each participating Party to the CDM needs to set up a DNA for the CDM and indicate their approving procedures and requirements, some countries are still in the process of establishing and formulating those rules. It is important to note that some countries require a project concept note (PCN) or PDD for a DNA approval. 3.7.6 Validation and registration

Validation refers to the independent evaluation of the PDD against the UNFCCC’s requirements (CDM Modalities and Procedures, paragraph 34, p. 34). The CDM Executive Board


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authorizes third-party agencies, known as designated operational entities (DOEs) to validate PDDs (box 3.4). Validation includes checking the following points:12

• The requirements of participation are satisfied (i.e., being a voluntary participation, having a DNA already established, and being a Party to the Kyoto Protocol).

• Stakeholder comments have been invited, summarized, and taken into account. • Environmental impact analysis or assessment has been conducted according to the

requirements of the host country. • The GHG emissions reduction is additional. • Approved baseline and monitoring methodologies have been used or a new methodology

has been submitted. • The proposed project activity is in accordance with all other requirements and decisions by

the COP/MOP and the CDM EB.

Box 3.3. Designated operational entities

The DOE prepares a validation report and submits it to the CDM EB, together with the PDD, approval letter from the host country, and an explanation on how comments are taken into account in order to apply for registration. The registration requires payment of an administrative fee, which was temporarily set according to the project activity size (see table 3.4) but is now under consideration for revision.13 Upon confirmation of the receipt of the registration fee and completed documents, the CDM EB puts the validation report and PDD of the proposed project activity on the UNFCCC Web site for public comment. Unless otherwise arranged through a request for review from the participating parties or at least three members of the CDM EB, the proposed project activity is registered within eight weeks for normal-size CDM project activities and four weeks for small-scale CDM project activities (UNFCCC 2001b, 34–36).

12. DOEs are provisionally accredited and designated by the CDM EB until confirmed by the Conference of

Parties/Meeting of the Parties to the Kyoto Protocol (COP/MOP). 13. The CDM Executive Board (EB) decided at its twenty-first meeting in September 2005 that it would recommend to the

COP/MOP at its first session a revised registration fee, which would be calculated as the share of proceeds multiplied by the expected average annual emissions reduction for the project activity over its crediting period. Project activities with average annual emission reductions less than 15,000 tonnes of CO2-equivalent are exempted from paying the registration fee. The registration fee will be deducted from the share of proceeds to cover administrative expenses (SOP-Admin). The current registration fee (see table 3.4) will continue to apply until the final decision is made by the COP/MOP (UNFCCC CDM EB 2005e, 1). See the section on CER issuance for further information on SOP-Admin.

A DOE is a third-party agency that is allowed to conduct validation or verification and certification of a CDM project activity (for details on verification and certification, see section 3.7.8). For normal-size project activities, a different DOE is required to perform validation and verification/certification. However, upon request the CDM EB may allow a single DOE to conduct all required activities (UNFCCC 2001b, paragraph 27[e], 32), an allowance normally permitted to only small-scale project activities (UNFCCC 2002, paragraph 9, 20). The list of DOEs is available online at http://cdm.unfccc.int/DOE/list. Readers should be aware that DOEs can only perform validation or verification/certification for project activities under the authorized sectoral scope (see http://cdm.unfccc for the list of types of sectoral scope).


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Table 3.4. Registration fees for CDM projects

Source: UNFCCC CDM EB 2002.

3.7.7 Monitoring a CDM project activity

Project proponents are required to monitor the actual emissions reductions or sequestration that take place when implementing the project. Monitoring includes “collection and archiving of all relevant data necessary for determining the baseline, measuring anthropogenic emissions by sources of greenhouse gases (GHG) within the project boundary of a CDM project activity and leakage, as applicable” (UNFCCC 2005b, 10). Thus, the monitoring plan needs to be approved by the CDM EB prior to registration. Just like baseline methodologies, there are approved monitoring methodologies and simplified monitoring methodologies for small-scale project activities.

For normal-size A/R CDM project activities, the collected and archived data should be able to determine the actual net GHG removals by sinks. This means that the monitoring plan should first identify the techniques and methods used for sampling and accounting individual carbon pools and GHG emissions by sources. For small-scale A/R CDM project activities, simplified monitoring requirements will be established by the CDM EB and made available to the public (UNFCCC 2004, Appendix B, paragraph 4, 38). 3.7.8 Verification and certification

Once the actual GHG emission reductions are monitored and reported to the DOE by the project proponent, the DOE conducts the following verification activities in order to certify the authenticity of the report. The DOE conducts the following activities under verification (UNFCCC 2001b, paragraph 62 [a–g], 39):

• Checks if the monitoring report satisfies the requirements of the registered PDD. • Checks whether monitoring methodologies have been correctly applied. • Has an on-site inspection conducted or requests any additional information from the project

proponent, if necessary. • Makes recommendations to the project proponents for any revisions related to the

monitoring methodology for the future crediting period. • Determines the actual GHG emission reductions by the CDM project activity.

The DOE prepares a verification report and a certification report, both of which will be made publicly available. The certification report states the verified amount of GHG emission reductions. 3.7.9 Issuance of CERs

Once the CDM EB receives a request to issue CERs, the CDM EB issues the certified amount of CERs within 15 days, unless a party involved in the project activity or at least three members of the CDM EB request a review. The net amount of CERs, after deducting the “share

Volume of CERs generated annually (tonnes of CO2) Fee (USD) < = 15,000 5,000 > 15,000 and < = 50,000 10000 > 50,000 and < = 100,000 15000 > 100,000 and < = 200,000 20000 > 200,000 30000


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of proceeds” for adaptation (to climate change) and administrative expenses,14 are placed under the appropriate account of the CDM registry under the supervision of the CDM EB. The proceeds for the adaptation are set as 2 percent of the amount of CERs issued (UNFCCC 2001b, paragraph 15, 23), while the percent of proceeds for administrative expenses has been said to be $0.20 per CER, if approved by the COP/MOP at its first session at the beginning of December 2005 (UNFCCC CDM EB 2005e, 1–2). 15 A/R projects are exempted from providing the adaptation portion of the proceeds (UNFCCC 2004, [d], 26).

14. Article 12, paragraph 8, of the Kyoto Protocol (UNFCCC 1997) stipulates that “a share of the proceeds from certified

project activities is used to cover administrative expenses as well as to assist developing country Parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation.”

15. SOP for forestry project activities will be set separately at later stage (UNFCCC CDM EB 2005e, 8).


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4. POSSIBLE CDM PROJECTS IN INDIA

4.1 Greenhouse gas inventory

India offers a large potential for the Clean Development Mechanism (CDM) because of India’s inherent dependence on fossil fuels for development, as well as its proactive government and the enabling environment recently put in place. Indeed, India is the most favoured destination for CDM projects globally. The government of India has submitted a comprehensive national GHG inventory as part of its first national communication (NATCOM) to the United Nations Framework Convention on Climate Change (UNFCCC). This inventory has been prepared for the base year of 1994. Prior to the NATCOM, the most widely cited national GHG inventory available was that prepared for the 1990 base year in the Asia Least-Cost Greenhouse Gases Abatement Strategy (ALGAS) study of the Asian Development Bank (ADB-GEF-UNDP 1998). The ALGAS inventory covered emissions from three sectors, namely, energy, agriculture, and forestry and land-use change.

According to the ALGAS study, the energy sector is the largest contributor of carbon dioxide (CO2) emissions in India. The CO2 equivalent emissions from this sector are around 565.245 million tonnes, amounting to nearly 55 percent of total national emissions. These included emissions from road transport, burning of traditional biomass fuels, coal mining, and fugitive emissions from oil and natural gas. Table 4.1 presents the estimates of India’s GHG emissions from both the NATCOM inventory and the ALGAS study.

Table 4.1. GHG inventory estimates for India

CO2 equivalent emissions (in million tonnes) Emission sources (for energy production) ALGAS

1990 base year NATCOM

1994 base year A. Fuel combustion 717.549

1. Coal 328.400

2. Oil products 162.700

3. Natural gas 17.500 4. Traditional biomass 36.569

B. Fugitive emissions from fuels 1. Solid fuels 6.930 13.650

2. Oil and natural gas 13.146 12.621 Total emissions from the energy sector (fuel combustion + fugitive emissions) 565.245 743.820

Sources: GoI MoEF 2004; ADB-GEF-UNDP 1998.


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Table 4.2. Per capita CO2 emissions

Units Argentina Brazil China India South Africa

World

Total CO2 emissions per year (1999)

Million tonnes of CO2

143 306 3,007 904 346 22,956

CO2 emissions cumulative (1915–99)

Million tonnes of CO2

4,689 5,904 68,591 20,315 10,916 930,071

Population in 1999 Millions 37 168 1,250 998 42 5,975 Per capita emissions Tonnes of

CO2 per person

3.86 1.82 2.41 0.91 8.25 3.84

Source: Winkler et al. 2002.

Table 4.3. GHG emissions by sector and estimated projections (%)

GHG Sector 1995 2005* 2015* 2025* 2035* CO2 Power 44 45 44 45 47 Industry 35 34 31 29 28 Transport 14 16 20 22 21 Methane Livestock 39 39 39 38 37 Paddy 23 21 19 17 15 Biomass 16 15 14 13 12 MSWa 8 11 14 17 21 Nitrous oxide (N2O) N-fertilizer 65 70 74 75 74 CO2 equivalent GHG Power 28 31 32 34 36

Industry 22 23 23 22 21 Agriculture 25 21 18 16 15 Transport 9 11 15 17 16

*Estimated aMunicipal solid waste Source: Shukla et al. 2003.

4.2 Potential of CDM projects in India

Although there are varying estimates of the potential for CDM projects in India, it is roughly estimated to be in the range of about 300 million tonnes of CO2 equivalent, including 90 million tonnes from renewable energy sources alone. In this section, a brief description of the important end-use sectors/areas are presented where significant potential exists in terms of improvement in both local as well as global emissions. The various end-use segments discussed in this context are (1) power; (2) industrial sector energy efficiency (including small-scale industries); (3) industrial cogeneration; (4) transport; (5) renewable energy; (6) agriculture and livestock; (7) municipal solid waste; and (8) land use, land-use change, and forestry (LULUCF). Figure 4.1 shows the annual CDM potential in India.


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Figure 4.1. Estimated CDM potential in India, in million tonnes of CO2 equivalent per annum

4.2.1 Power sector: technology and CDM potential

The growth in installed power generation capacity, from 1,362 megawatts (MW) to over 100,000 MW since independence, and the electrification of more than 500,000 villages is an impressive achievement. The per capita electricity consumption has also improved significantly. It may be noted, however, that annual per capita consumption, at about 355 kilowatt-hours (kWh), is still among the lowest in the world. Still, many households in a large number of villages have no access to electricity. The Ministry of Power has set an agenda of providing power to all by 2012. To meet the projected power requirement by 2012, a capacity addition target of 46,500 MW has been tentatively fixed for central public sector undertakings under the Ministry of Power. At the state level, the state electricity boards (SEBs)/state utilities and private sector will add about 41,800 MW.

Coal is the primary source of energy for steam and thermal power generation in India. Its large-scale use also brings along with it environmental issues with respect to emissions of CO2 contributing to the greenhouse effect, sulphur oxides (SOx) and nitrogen oxides (NOx) causing acid rain, and particulates leading to health problems. In addition, fly ash generated as a result of coal combustion poses additional disposal hazards. All these issues call for the use of steam and thermal power generation technologies, which are more efficient and lead to minimum pollution of air, water, and land. The best option to mitigate the effects of the pollutants from the use of coal is to adopt technologies and policies which help the increase in the energy efficiency of all the processes from generation to end use.

15

24

6.5

90

35

1.2

78.175

Industrial energy efficiency

Power

Transport

Renewable energy

Agriculture and livestock

Municipal solid waste

Land use, land-use change, and forestry


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The largest user of coal in India is thermal power plants, where the Rankine steam cycle is used for generating power. In the last three decades since India started putting up indigenously manufactured plants, the steam parameters have been improved and the overall efficiency of power generation has gone up to 37 percent. Still, the parameters adopted are sub-critical (170 ata, 540°C/540°C) as compared to the world status of the technology, which has adopted supercritical and ultra-supercritical steam parameters and achieved 300 ata, 595°C/595°C cycles, leading to a 5 percent point improvement in efficiency. The capital cost of such plants is high, but overall techno-economics in terms of cost of generation are in favour of the advanced technology. This technology will take us to the level of 40 to 42 percent power generation efficiency. a. Advanced technology in the power sector

To improve the efficiency of power generation, integrated gasification combined cycle technology (IGCC), which has the capability of achieving up to 48 to 50 percent efficiency, will have to be adopted. This technology involves gasification of the fuel and using the gas in the combined cycle system for power generation (i.e., combination of gas turbine and steam turbine). This technology has been proven in the advanced countries for large-scale power generation applications. The capital cost of some of these plants has also been subsidized by the respective governments to prove the technology on a commercial scale. To adopt this technology for Indian coals, which have different properties compared to those in the advanced countries, a reasonable size demonstration plant of 100 to 250 MW will have to be set up. For this, the government of India may have to subsidize approximately 25 to 30 percent of the capital cost for a coal-based plant and approximately 10 to 15 percent for a refinery residue-based plant. Once the technology is demonstrated, it would be much easier to replicate this advanced technological option at Indian power plants.

Another area that holds promise is the renovation and modernization (R&M) of power plants. About 65 percent of the installed capacity in India is thermal based. The present capacity is unable to meet the demand; the country is experiencing an energy shortage of about 12 percent and a peak power shortage of about 8 percent. The characteristics of R&M that make it attractive compared to installing new capacity are its lower cost, no additional infrastructure requirement, improved efficiency, and reduction in GHG emissions. However, constraints of the nature of resources, lack of public and government determination, and absence of stringent environmental laws have always acted as a barrier towards the move.

In an evaluation undertaken of expected technologies for thermal power generation (table 4.4), including the scope for R&M, it is estimated that in the period 2007–2012 about 1,980 MW of super critical capacity may be installed and 28,000 MW of existing capacity may be covered under renovation and modernization efforts. This would lead to a potential abatement of about 102 Mt of CO2 and provide possible CDM projects.


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Table 4.4. Possible technological options in India’s power sector

2002–07 2007–12 Technologies

(Rs. million/ MW)

Efficiency (%) 10th Five-Year Plan

11th Five-Year Plan

Sub-critical steam cycle 40 35 Base technology Base technology

Supercritical steam cycle (240 ata, 540oC / 565oC)

44 37.1 Not expected to materialize

1,980 MW

Ultra-supercritical steam cycle (300 ata, 600oC / 600oC)

48 40 Not expected to materialize

Not expected to materialize

IGCC 75–80 41–42 Not expected to materialize

Demonstration project expected

(500 MW) R&M 10–15 5–8 28,332 MW 28,000 MW


It is important to note that, in spite of the tremendous scope and existence of technology options for mitigating the emission of GHGs, the efforts in this direction have not been significant. The reason for this is lack of capital for undertaking such measures. It is expected that the CDM will provide much needed financial resources for undertaking some of the GHG reduction measures. It should be realized, however, that uncertainties are still associated with the CDM and the eligibility of different GHG mitigation options within the power sector. 4.2.2 Industrial sector energy efficiency

Industry in India is generally highly energy intensive, and its energy efficiency is well below that of other industrialized countries. Efforts to promote energy conservation by such industries could lead to substantial reduction of operating costs, making them more competitive globally. An analysis of the industrial energy-use pattern further reveals that around 65 to 70 percent of India’s total energy consumption is accounted for by seven sectors, namely, (1) cement, (2) pulp and paper, (3) fertilizer, (4) iron and steel, (5) textiles, (6) aluminium, and (7) refineries. The scope of improving energy efficiency (and consequently CO2 reduction) through technology transfer in India is enormous and can provide possible CDM projects. This can be clearly seen from table 4.5, which compares the specific energy consumption figures of selected energy-intensive industries in India with their counterparts in the developed countries.

Table 4.5. Comparison of specific energy use in select industries between 1990 and 1999 (in million kilocalories/tonne)

Country Steel Cement Pulp and paper

India 9.5 2.00 11.13 United Kingdom 6.07 1.30 7.62 United States 6.06 0.95 9.70 Japan 4.18 1.20 — Sweden 5.02 1.40 7.56


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The energy conservation potential in India in each of these sub-sectors is presented in table 4.6. The sectoral efficiency improvement potentials as shown in the table are the result of a bundle of feasible energy-saving options applicable to that sector, as identified through energy and technology audit studies. The savings potential estimated for the fertilizer industry, for example, considers implementation of measures such as change of reformer tube material, use of adiabatic pre-reformer, revamp of ammonia converter, hydrogen recovery from the purge gas, and extra purification of synthesis gas.

Table 4.6. Summary of the economic energy-efficiency potential in major energy-intensive industries in India

Energy-intensive industrial sector Economic potential in % or million Gcal/annum

Fertilizer Cement Pulp and paper Textiles Iron and steel (integrated plants) Aluminium Refinery

3.02 Gcal/million metric tonnes, NH3* Electrical: 17.3% Thermal: 27.2%

20–25%

23% 15%

15–20% 8–10%

Source: World Energy Assessment Report, 1999. *Ammonia

a. India’s small-scale industry sector

In addition to the above energy-intensive sectors—which are largely medium to big industries—another important segment is the small-scale industry sector, which occupies a position of prominence in India’s economy. It contributes to more than 50 percent of industrial production in terms of value added, makes up one-third of total exports, and employs the largest manpower next to agriculture. Small and medium enterprises (SMEs) are the backbone of the Indian economy. With three million SMEs, this sector contributes 40 percent towards national income. It provides employment to more than 16 million people in the country and it is growing at the rate of 20 percent annually. Some of the key features of the small enterprise sector are that it is labour oriented (which provides employment to a large population of the country), it contributes to a great extent in foreign exchange earnings, and it is less capital intensive.

Growth of small enterprises has resulted in the clustering of similar types of industries in some areas and stimulating the development of localized skills. Despite these advantages, the small-scale sector is also a major concern, as it accounts for about 70 percent of industrial pollution. This is due to obsolete technologies, high waste generation factors, and less regulatory requirements. In spite of the high growth rate, unfortunately, this end-use sector is also experiencing growing industrial “sickness.” The reasons for this range from technological obsolescence, information deficiency, and poor management practices to non-availability of credit. There are some highly energy-intensive sub-sectors where the cost of energy makes up a sizeable proportion of the total production cost and offers tremendous scope for energy-efficiency improvement and pollution reduction through technology upgrading.


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b. The CDM as an opportunity in the small-scale industry sector

In this context, for India’s small-scale industry sectors—which are diverse, multi-sectoral entities that have issues both unique to themselves and cutting across multiple sectors—the CDM, in its present form, creates an atmosphere of opportunity. Given the problems that India’s small-scale industry sectors are facing in the complex international financing and technology transfer mechanisms, and their poor capacity to modernize technology to improve product quality and reduce production costs on their own, the chances of any wide-scale technology upgrading are severely restricted. It would, therefore, be in the interest of small-scale industry to take a proactive stand and start to establish the necessary processes and procedures to initiate CDM activities and build up sufficient CDM capacity among project stakeholders (e.g., governments, enterprises, industry associations, consultants, etc.).

• Energy efficiency in the industrial sector Energy-efficiency programmes across all industrial sectors hold the promise for

cost-effective CO2 abatement, as a large number of plants in India operate well below world energy-efficiency standards. The CO2 mitigation projects in industrial sector could be broadly grouped under the following major headings:

1. Sector-specific technological options 2. Cross-cutting technologies 3. Fuel switch options 4. Recycling and use of secondary materials

Technological changes leading to reduced CO2 emissions vary depending upon the particular industrial sub-sector, and thus cannot be generalized. As indicated earlier, more than 60 percent of total energy consumption in the industrial sector is accounted for by seven sectors. In many of industrial plants, the problem is mainly due to the vintage of the production process. A large number of plants are based on technologies developed in a period when energy efficiency was a secondary criterion of project design and engineering. Some of the progressive units have gone in for massive modernization plans, thus cutting down their energy costs and remaining competitive in the market. But in many other cases, concerns in this direction have remained confined to a conceptional level, mainly due to financial constraints. In some industrial sub-sectors, the protectionist policies of the government have proved detrimental to the implementation of energy-efficiency measures. A classic example is that of India’s sugar industry. Although, in terms of size, the sugar industry is the largest in the world, a lot needs to be done in terms of its energy efficiency. There are very few sugar mills that have advanced cogeneration systems in place for efficient utilization of bagasse.

In addition to the possibilities that exist in the large industries, there are also possibilities for energy conservation in small-scale industries like foundries, brick manufacturing, and pottery, tiles, and glass manufacturing, etc. In these sectors, traditional designs are being used, and tremendous scope for energy-efficiency improvement exists through technology upgrading. Some of the possible mitigation and CDM options under various industrial sectors are given below:

Cement. The cement industry has undergone rapid technological upgrading and vibrant growth during the last two decades. Some of the plants in India can be compared in every respect with the best plants operating in the world. The industry presents a mixed picture with the existence of


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many old plants as well as new plants that are technologically advanced. The specific power consumption in the case of modern plants is between 68–90 kWh/tonnes of cement, while it is between 90–120 kWh/tonne in the case of old plants. Similarly, the specific thermal energy consumption of the latest plants is as low as 665 kilocalories (kcal)/kilogram (kg) of clinker, while for the older dry process plants it can go up to 900 kcal/kg of clinker or more depending upon the level of technology that is in place. Hence, there exists the scope for improving energy efficiency in the relatively older installations. The CO2 intensity of India’s cement industry is 0.9 tonnes of CO2 per tonne of cement compared to the world average of 0.75 tonnes CO2/tonne of cement, which implies that there exists the potential for CO2 mitigation in India’s cement plants.16 Some of the energy-efficient technological options that can be adopted in the cement plants are outlined below:

• Fuel switching through, for instance, use of natural gas or alternative fuels (e.g., biomass, etc.) instead of coal, petroleum coke, fuel oil, and natural gas

• Use of mineral components to substitute clinker (gypsum and natural pozzolanas, blast furnace slag and fly ash)

• Raw material preparation: Use of gyratory crushers and mobile crushers, vertical roller mills (VRM) instead of ball mills, external re-circulation systems in VRMs, and adoption of roller press technology and high-efficiency separators in the grinding circuits

• Cement grinding: Use of VRM with high-efficiency separators and high-pressure roller presses in various modes of operation, and use of static V separators along with dynamic separators

• Pyro-processing section: Installation of precalcinators and 5/6 stage pre-heaters with low-pressure drop cyclones, new generation coolers having better heat-recovery potential

Depending upon the base-level energy consumption, the possibilities for energy saving in different plants vary—from 10 percent to as high as 30 percent when older plants are considered. In addition, waste heat recovery from pre-heater/cooler exit gases for power generation offers enormous opportunities for reducing CO2 emissions in the cement sector. Preliminary studies carried out by the National Council for Cement and Building Materials (NCCBM) indicate that there exists about 160 MW of cogeneration potential in India’s cement industry. The corresponding reduction in GHGs is estimated at about 1.5 million tonnes CO2/year.

Textiles. India’s textile industry contributes nearly 4 percent to the country’s GDP, and the export earnings are around 25 percent of the total value of exports from India. There are about 1,860 cotton and man-made fibre textile mills in the country.17 Energy accounts for 12–15 percent of the total cost of production at present. Some of the major energy-saving options in textile mills are as follows:

• Adoption of new spinning processes. It is possible to save 15–20 percent of the energy requirement in spinning by adoption of new spinning technologies like friction spinning and air-jet spinning. Modifications in ring-frame spinning machines, which account for the majority of the power consumption in a composite textile mill, can reduce energy consumption by 5–10 percent.

16. CDM—Cement Industry Perspective. Narang, K. C. 2003. 17. Annual Report 2002/03. Ministry of Textiles, Government of India.


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• Adoption of advanced drying processes to substitute clinker like high-speed drying machines and stenters for reducing energy consumption (20–30%). Use of radio frequency dryers can eliminate use of thermal energy in drying applications.

• Use of solar energy for water heating. In the textile industry, 80 percent of energy used is utilized in wet processing, with temperatures ranging from 40oC to 140oC. There is substantial scope to reduce the amount of fossil fuels used in boilers by utilizing solar thermal energy.

Based on the balance of useful energy, the potential improvement in energy efficiency in the textile sector is immense. It would be desirable, however, for India’s textile industry to replace fuel oil used for process heat with renewable sources of energy (e.g., use of solar energy for water heating, etc.). Within this context, a reduction in carbon emissions would take place through the substitution of a carbon-intensive fuel by another that is more environmentally friendly.

Pulp and Paper. The Indian pulp and paper industry consists of more than 470 registered mills. While the majority of them are in the small- and medium-scale category, there are also 25 large-scale, integrated mills. 18 In general, India’s pulp and paper industry is highly energy-intensive and its energy efficiency is well below that of other industrialized countries. Total CO2 emissions from the sector have been estimated at 9.05 million tonnes,19 and consumption of raw materials and chemicals and generation of waste is also almost double. Energy costs represent about 20–25 percent of the total production cost, compared to 12–14 percent in the United States and Scandinavian countries. The technologies identified for improvement in India’s pulp and paper industry and their energy-saving potential are given below.

• Installation of continuous digesters. Adoption of this technology would produce an estimated savings potential of around 690 kg of CO2/tonne of paper (about 676,000 tonnes of CO2 per year)20

• Other energy-saving options in the pulp and paper industry include installation of falling film evaporators, installation of trinip presses and high-capacity chippers, oxygen delignification, disc refiners in place of conical refiners, etc.

The CDM opportunities available to India’s pulp and paper sector are in the area of replacement of energy sources, as a significant portion of the energy consumption in this sector is based on non-renewable sources. Additionally, there is large potential for improving the sector’s energy efficiency and for the more widespread use of cogeneration, particularly through the re-use of waste materials generated in the production process.

Iron and steel. Of the total CO2 emissions from the industrial sector, 42 percent comes from iron and steel production (GoI MoEF 2004). Most emissions from the steel industry occur in the production process due to the use of coking coal in the case of blast furnace-based in-line strip plants (ISPs) and non-coking coal in the case of direct reduction (Midrex) and iron smelting (COREX) based plants. In the gas-based direct reduction plants the emissions are also due to

18. Directory of Indian Paper Manufacturers and Allied Industry, 5th edition. 2003. Indian Agro and Recycled Paper Mills

Association. 19. Survey of Industrial Environment: Sector Report of the Pulp and Paper Industry. TERI 1999. 20. CDM Project Opportunities in India. TERI 2001.


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the use of natural gas. The CO2 intensity in India’s steel industry in 1995 was about 3.6 tonnes CO2/tonne of steel, which translates to about 75 million tonnes of CO2 (Price et al. 1999).

Various technologies are available internationally to achieve potential reductions in CO2 emissions, including the following:

• Integrated steel sector - Coke dry quenching - Pulverized coal injection in blast furnaces - Basic oxygen furnace (BOF) gas recovery - Continuous casting/thin section continuous casting - Hot rolling • Secondary steel sector - Use of UHF furnaces - Oxy-fuel burners - Scrap-preheating

According to a detailed study of the CO2 reduction potential in India’s steel industry conducted by researchers from Lawrence Berkley National Laboratory, the potential CO2 savings are 1.65 tonnes of CO2 per tonne of steel, or 34.3 million tonnes of CO2 per annum for the year 1995. The study estimated the potential by comparing the energy consumption of India’s steel industry with benchmarks, which were an integrated steel plant operating in the Netherlands and a secondary steel plant operating in Germany (Price et al. 1999). During the past ten years (1992/93 to 2002/03), however, India’s steel industry has invested resources into the adoption of some of the above-mentioned technologies, and as a result its specific energy consumption has been steadily declining. The CO2 intensity of the integrated steel plants has already been reduced to around three tonnes of CO2 per tonne of steel during this period.

Aluminium. Primary aluminium is produced by mining bauxite, refining the ore to alumina, and combining the alumina and carbon in an electrolytic cell to produce aluminium metal. India has a total installed capacity of 8,80,000 tonnes per annum with five primary aluminium producing units (Center for Monitoring of Indian Economy 2002). The aluminium manufacturing process is electrical energy-intensive. The break-up of energy indicates that a large quantum (more than 80 percent) of energy is electrical energy and is consumed in smelting of alumina to aluminium. The major energy-saving opportunities in the sector are as follows:

• Alumina plants: The energy-saving potential in alumina plants is as high as 25 percent and the areas for improvement include calcination (switch over to gas suspension calciner as opposed to rotary kilns) and waste heat utilization

• Aluminium smelters: Energy conservation potential exists with regard to conversion to pre-baked systems from Soderberg systems.

Other operational improvements include the following:

• Current efficiency improvements: - Auto operation of the cell, smaller and more frequent additions of alumina (less anode

effects) and clean cathode, lower bath ratio, better quality of anode, material purity, and baking, constant current

- Boost voltage, check on molten metal movement - Magnetic field: reduction in anode current density (1.1–0.8 amps/cm2), bigger size of anodes


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- Less frequency of anode change, quality of alumina (soda content of 0.30–0.32%, silica content of 0.009–0.01%), and physical parameters like sandy, alpha content, etc., (improved cathode life)

• Reduction in operating voltage. Since the scope for improvement in current efficiency is limited (Indian plants operate between 90–95% current efficiency), lowering the voltage requirements of cells represents both the largest challenge and better opportunities for improving overall energy efficiency.

Fertilizer. The fertilizer industry produces four different types of fertilizers: nitrogenous, phosphate, potash, and complex fertilizers. The nitrogenous fertilizer production is highly energy-intensive and is one of the largest consumers of petroleum-based fuels. Many of the older ammonia/urea manufacturing plants use liquid fuels as the feedstock (naphtha, furnace oil), but in newer plants, natural gas is the preferred feedstock. During the last few decades, India’s fertilizer industry has witnessed many changes in feedstock and technology, which have resulted in a substantial reduction in overall energy use and improvement in energy efficiency. Most of the new plants built during the last decade incorporate state-of-the-art technologies. However, options for CO2 mitigation still exist in many of the older plants, which include switchover from fuel oil/naphtha to natural gas and other energy conservation schemes in both ammonia and urea plants. Recent advances in process technology and catalysts have opened up opportunities for developing specific energy-saving projects in fertilizer plants that can result in lower energy intensity in fertilizer production.

Iron foundry. In India today, there are about 7,000 foundries in the country, with an installed capacity of 3.5 Mt (million tonnes) and production of around 2.5 Mt. These units are mostly located in clusters, with the cluster size varying from less than 100 to around 400 units. The energy intensity of these units is quite high and presents an ideal situation where both energy savings and pollution reduction can be achieved through technological upgrades. The iron foundry sub-sector represents a case where technological development is not happening on its own. The constraints are essentially related to the limited capacity of the units to identify, research, develop, and absorb appropriate technologies as well as to access credit for their implementation. The overall purpose of CDM projects in the cluster should, therefore, be to decrease transaction costs to users, and thus increase the financial attractiveness of such technologies for their wider adoption. The CDM intervention in this cluster could involve establishing delivery chains for credit and technology to the small-scale units.

Brick making. In India, traditional technologies are typically used for brick production, and brick firing is still an energy-intensive process. The annual estimated coal consumption in the brick industry is 24 million tonnes, which forms about 8 percent of total coal consumption in India. The share of fuel in the total production cost of bricks is in the range of 35 to 50 percent. Significant scope exists for improving the energy efficiency of the brick production sector. It is possible to reduce energy consumption by 5–15 percent with incremental improvements in existing technologies. In order to ensure a sustainable supply of bricks in the future, it is imperative to improve the operations of these traditional industries besides introducing new products and processes. Without technological, financial, and institutional support, diffusion of energy- and resource-efficient technologies is expected to be very slow and may not be uniform. Similarly, the introduction and diffusion of new kiln technologies and production of alternate


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building materials will not happen on their own. Another big challenge associated with technology upgrades and modernization is related to development of the technological capacity of the industry. Given the fact that the brick industry has limited financial and technological capacities, the change process will be governed largely by the rate and direction of support provided by different national and bilateral programmes to upgrade and modernize it.

The construction sector in India has been growing at a rate of almost 6 percent per annum since 2000 and—fuelled by the rapid growth of India’s economy—is expected to grow even faster in the next few years. Burnt bricks are the most popular construction material in India and production is estimated at 120–140 billion bricks per year.21 India is the second largest producer of bricks after China. The brick industry in India is unorganized, with small production units of more than 100,000 clustered in rural and peri-urban areas in the country. Brick making consumes about 24 million tonnes of coal every year. Coal consumption by the brick industry is approximately 8 percent of the country’s total coal consumption. The share of energy cost in the total cost of brick production is 35–50 percent. The choice of technology for firing bricks depends generally on factors such as scale of production, soil and fuel availability, market conditions, and skills available.

The brick industry is currently based on decentralized production activity using energy-intensive, resource-depleting, and highly-polluting technologies and production methods. Cheap access to resources, such as soil, coal, biomass material, etc., has resulted in irreversible environmental damage in terms of continued wastage of energy and damage to property and crops from high levels of air pollution.

Brick making in India is a profitable business, but most of the processes deployed in brick making are with low inputs of technology and archaic techniques. The composition of the sector according to technologies is depicted in table 4.7.

Table 4.7. Brick kilns in India (2001)

Kiln type Typical production capacity range

(lakh bricks/year)

Approximate number of

kilns

Energy/ 1,000 bricks

Emissions/ 100 bricks

BTK - fixed chimney 30–100 25, 000 3.2 GJ 0.23 t Co2 BTK - moving chimney 20–80 8, 000 4.2 GJ 0.29 t Co2 High draft / zig zag 30–50 200 Firing / down draft kiln clamps 0.5–10 > 60,000 Vertical shaft brick kiln 5-40 30 2.6 GJ 1.8 t Co2 Source: TERI Report 2000.

In 1994 the Central Pollution Control Board published environmental regulations for brick kilns. The Honourable Supreme Court of India subsequently issued directions for kiln operators to change to cleaner production by June 2003 or face closure. The organized brick industry has responded to this pressure in a very limited way. The most influential brick owners organized into industry associations have opted for capital-intensive fixed chimney kilns. The movable chimney kiln owners and clamp operators (60 percent in number) have been left in the lurch due to lack of

21. TERI Project Report 2000. EE68 section 1.1.


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affordable technology options. With strict enforcement of environmental regulations, the regulatory authorities have accepted the vertical shaft brick kiln as a preferred option for small-scale brick makers.

The devastating effect of the pollution caused by the huge amount of emissions from the brick industry has attracted the attention of regulatory agencies, and they have issued deadlines after which the polluting kilns are to “clean up or close down.”

Situation of brick workers. India has approximately four million brick workers, of which 7 percent are women. A majority of them are engaged in green brick moulding and lifting. They are landless poor and usually belong to sub-castes engaged in brick making for several generations. Brick-moulder families belong to specific regions in these states. Most of them migrate from their home villages to brick manufacturing clusters for six to eight months in a year. In some areas, where small open fire camps are found, these families remain in their own region. Several studies have shown that brick workers do not engage in other economic activities.

Ceramic industry. Manufacturing of ceramic tiles and sanitary wares takes place in both large and small-scale units. Total national production of ceramic tiles in India is more than 1.5 million tonnes. Approximately 50 percent of the annual national production is accounted for by the small-scale sector. The small-scale ceramic tile and sanitary ware units are characterized by energy-inefficient operations and low awareness about energy-efficiency options. These units usually do not have enough capacity to upgrade their production process and adopt energy-efficient technological options. Moreover, off-the-shelf technological options are not available to these units to conserve energy. There is also the lack of an enabling environment (in terms of human and institutional development) to promote energy efficiency in these industries. In terms of energy efficiency, there is the scope to reduce the specific energy consumption (around 10 percent) in the existing process technology by incorporating incremental changes in technology, adoption of energy-efficient devices, and better housekeeping measures. Inefficient operation of units results in energy wastage, resulting in higher production costs and higher environmental damage (in terms of GHG emissions). The CDM intervention in the sub-sector will focus on developing technological and institutional capacity for upgrading and modernization of these small-scale units, with special significance placed on replication/spill-over benefits and incremental technological changes.

Despite having tremendous scope for the CDM, Indian small-scale industries are still not able to fully utilize it. The constraints are essentially related to the limited know-how within the sector about the CDM and its benefits, limited financial capacity of the units to absorb CDM-compatible technology, high transaction costs, etc. Therefore, the concept of bundling has to play an important role in decreasing the transaction costs, thus increasing the financial attractiveness of suitable technologies and making the CDM process more user-friendly, especially for the small-scale industry sector. c. Bundling

The CDM in the small-scale sector would however need bundling to bring down the transaction cost of such projects. 4.2.3 Cogeneration

Cogeneration offers an attractive solution to meet the industrial energy requirements in an efficient manner, while conserving national resources. Cogeneration is the simultaneous


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production of power, either electrical or mechanical, and useful thermal energy from a single fuel source with an overall efficiency normally exceeding 70 percent. Cogeneration offers numerous direct benefits to industrial and institutional applications but also positive carry-over benefits to utilities and society-at-large.

The estimated potential of cogeneration in India is between 17,000 to 20,000 MW, based on conservative estimates. It is difficult to give an accurate figure, as many small-scale industrial applications and industrial estates may also have cogeneration plants, but no estimates are available for these areas.

Traditionally, refineries, fertilizer plants, and sugar plants have cogenerated power and heat requirements for various industrial processes, but without exporting to the grid. There are several chemical and petrochemical processes that generate large quantities of waste heat that could be utilized for electricity generation. Given the suitability of cogeneration to industry in India, the candidates for cogeneration include industries with substantial combined heat and power requirements, such as sugar, textile, paper, fertilizer, food processing, chemicals, and petrochemicals. Cogeneration is already being practiced widely in various industries such as pulp and paper, rayon, sugar, chemicals, and fertilizers. Table 4.8. Cogeneration potential in India

Industry Potential (MW) Alumina 59 Caustic soda 394 Cement 78–100 Cotton textile 506 Iron and steel 362 Manmade fibres 144 Breweries 250–400 Coke oven batteries 200 Commercial sector 175–350 Dairies 70 Distilleries 2,900 Fertilizers 850–1,000 Petrochemicals 250–500 Plywood manufacturing industry 50 Rice mills 1,000 Solvent extraction 220–350 Sponge iron 225 Tyre plants 160–200 Paper and pulp 850 Refineries 232 Sugar 5,200 Sulphuric acid 74–125 Total 14,628–15,586

Source: TERI 1997.

4.2.4 Transport sector

The second most important energy-consuming sector in India is transport. Almost half of the total petroleum product consumption is accounted for by this sector in the form of high-speed diesel (HSD) and gasoline. A review of India’s transport sector reveals two major structural shifts that have had a pronounced impact on energy use efficiency. First, the rail-dominant economy in


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the 1950s gradually gave way to a road-dominant economy in the 1990s. Second, an inadequate public transport system has led to a rapid increase of personal modes of transport and intermediate public transport, some of which are extremely energy inefficient. A reference can be made to the large number of two-stroke powered two-wheelers used as personal vehicles (the total number of registered vehicles was 23.1 million in 1996). In terms of the share of commercial energy use, road transport is most important, accounting for 81.34 percent of the total commercial energy use by this sector. Railways come next with a share of 9.35 percent, followed by water (7.29 percent), and air (2.02 percent). So in terms of an energy-efficiency intervention strategy and potential benefits, road and rail transport are considered in this section. The possibilities of efficiency improvement in road transport can be broadly categorized under two headings: (1) improvements due to design changes and (2) improvements due to inter-fuel substitution. A significant design-induced efficiency improvement is possible for the two-stroke engine categories (two- and three-wheelers). The stringent future proposed emission standards for two- and three-wheelers would force manufacturers to change the power pack to four-stroke engines. The benefits in the car and bus segment are estimated to be primarily due to fuel switching from gasoline/diesel to compressed natural gas (CNG).

Transportation is a major sector contributing to GHG emissions, which includes road, rail, airways, and waterways. The total CO2 emissions from this sector in 1994 were 79.88 million tonnes (GoI MoEF 2004). Among the various sub-sectors, road transport is the main source of CO2 emissions and accounted for nearly 90 percent of the total transport sector emissions in 1994. Road transport is constituted of gasoline- and diesel-fuelled vehicles. According to a survey by the Indian Market Research Bureau on behalf of the Ministry of Petroleum and Natural Gas (MoPNG), the transport sector consumed nearly all the gasoline in the country (98.3 percent) (GoI Ministry of Petroleum and Natural Gas 1998). The share of vehicle categories in gasoline consumption was two-wheelers (50.8 percent), cars/taxis (31.5 percent), and three-wheelers (13.4 percent).

Diesel is consumed in both private and public modes of transport (trucks, buses, jeeps, car/taxis, etc.) as well as in agriculture (tractors, irrigation pumps, etc.). The all-India survey by MoPNG indicated that 61.8 percent of the diesel sold through the network of retail outlets was consumed by road transport. Automotive exhaust emissions are amongst the major sources of toxic pollutants, besides producing GHG emissions like CO2, methane (CH4), and nitrous oxide (N2O). The vehicular emissions standards, first introduced in India in 1991/92, were focused on reducing toxic pollutants. The standards were subsequently upgraded in 1996 and 2000. Presently, emission norms equivalent to the Euro-I standard prevail in the entire country, while Euro-II is the standard in metropolitan cities. The government of India has made significant policy interventions, including continuous improvements in the emissions standards to improve the air quality in the urban centres in the wake of a rapidly growing vehicular population; recent years have witnessed a phenomenal growth in road transport vehicles. This trend of growing vehicle population is expected to continue with rising incomes and enhanced vehicular choices offered to consumers. The emissions of local pollutants in urban centres have, therefore, continued to grow along with rising GHG emissions.


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The deterioration in urban air quality led to several responses, such as the introduction of CNG vehicles, improvement in auto fuel quality, and enhancement of road infrastructure. The government of India announced the Auto Fuel Policy in 2003, which comprehensively addresses the issues of vehicular emissions, vehicular technologies, and the provision of cleaner auto fuels in a cost-efficient manner, while ensuring security of the fuel supply. The policy includes a road map for reduction in emission standards for new vehicles. Besides proposing the enhanced quality of liquid fuels, the policy encourages the use of CNG and liquid natural gas (LNG) in cities affected by high vehicular pollution to enable vehicle owners a wider choice of fuel and technology. The policy envisages the accelerated development of alternate technologies, like battery and fuel cell-powered vehicles, and a comprehensive programme for research and development support and other measures for zero-emission vehicles. Implementation of the Auto Fuel Policy would accrue significant improvement in local air quality and also contribute to reduction of GHG emissions.

However, the transport sector remains a difficult arena for CDM projects. Transport-related emissions are usually very dispersed and difficult to monitor, while baselines are hard to calculate. This makes CDM projects in the transport sector risky until standardized guidelines and processes are introduced. 4.2.5 Renewable energy

The development and utilization of renewable energy has been accorded a high priority by the government of India. It is the only country to have a separate ministry looking after the promotion of renewable energy sources, and it runs one of the most diverse and biggest renewable energy programmes in the world. The government’s policy has been successful in creating a fairly large and diversified manufacturing base and infrastructure (technology-support groups and facilities, as well as nodal agencies) to support renewable energy technology design, development, testing, and deployment. So far, an aggregate capacity of about 5,000 MW has been installed, based on renewable-energy technologies.

In spite of the proactive stand taken by the government and the achievements made so far, however, renewable energy still remains far from the energy mainstream. For CDM options, the ones discussed in some detail are (1) biofuels, (2) biomass energy (gasification), (3) wind energy, (4) hydro power, and (5) solar energy.

a. Biofuels and rural electrification

The role of biofuels in meeting the future energy needs of India is gaining lot of prominence. In July 2002, the Planning Commission constituted the Committee on Development of Biofuels in order to accelerate the developmental pace in this emerging field of renewable fuels. The committee recently submitted its report to the commission, giving recommendations on various aspects of biofuel use, such as commercialisation, prospects, quality standards, development of large-scale projects, marketing strategies, research and development, etc. The emphasis so far, however, is on utilizing biofuels for vehicular applications as a fuel extender in internal combustion engines. Keeping in mind the high demand for petroleum products in the transport sector and a steeply escalating fuel import bill to bridge the demand–supply gap, the focus on environment-friendly alternate transport fuel based on renewable energy sources seems quite justified. It is strongly felt, however, that while encouraging the use of biofuels for the transport


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sector, one should not lose sight of its possible use in other potential applications. One such area of application that holds enormous promise is in the use of biofuels to energize rural India.

India has embarked on a major rural electrification programme that aims to electrify more than 80,000 villages that still have no access to electricity. Out of these 80,000 villages, more than 18,000 are classified as remote, where the extension of the grid is considered unviable, either because of difficult terrain or the high cost of grid extension. It may be noted that a remote village in this context is defined as one which has less than 60 households and which is located at or more than seven kilometres from the grid. In hilly and forest areas, any village located beyond three km is considered as remote. In view of the resource constraint, the focus is on providing lighting to this target group on a priority basis. But in the longer run, the electrification programme has to go much beyond just meeting the lighting needs of rural communities. One of the major challenges in mainstreaming renewables and in renewable-based rural electrification is to link the availability of energy with productive work. This is extremely important for the long-term sustainability of such initiatives.

The Ministry of Non-Conventional Energy Sources is responsible for the electrification of these remote villages by 2012 through the use of renewable energy-based distributed generation. The various options being considered are wind power, mini/micro hydropower (hydel turbine), solar photovoltaics, and biomass gasifiers. Along with these options, the option of biofuel-powered diesel-generating sets (either in 100% biofuel mode or in blends with high-speed diesel) also merits attention for electrification of such villages. The biofuel route holds the promise of not just improving the quality of life of people living in such remote villages by providing access to clean energy, but also stimulating regional development by generating rural employment. The opportunities for small- and micro-enterprises in the areas of cultivation of oil-bearing species of plants and downstream processing of oil seeds could be complementary to the national agenda of promoting such fuels for vehicular application. Since biofuels can be used in compression ignition engines with little or no modifications, it is a relatively simpler form of distributed generation to be managed by the local community and does not require additional servicing/repair infrastructure, which has been one of the major bottlenecks in mainstreaming renewables.

With the main source of raw material for biofuels being the oil-bearing seeds of the Jatropha and Pongamia tree species, the consumption of biofuel as an energy source, either in stationary combustion or mobile combustion, leads to a “no net addition” of CO2 into the atmosphere. As per the estimate, each tonne of biofuel consumed leads to a reduction of GHGs by about three times, i.e., avoids the equivalent of three tonnes of CO2 (CO2e). These reductions in GHGs can then be accumulated and traded as carbon credits. According to the National Mission on Bio-Fuel, around 3.35 million metric tonnes (MMT) of biofuel is required for a 5 percent blending of biofuel in petro-diesel, and around 13.38 MMT of biofuel is required for a 20 percent blending by the year 2011/12.22 This translates into a reduction of GHG emissions to an extent of 40 million tonnes of CO2e in 2011/12 with a 20 percent biofuel blend, which offers great potential for CDM projects in this sub-sector. Although this data relates to fuel substitution in the transport sector, a similar advantage can be availed of by the use of biofuel for rural electrification.

22. Report of the Committee on Development of Bio-Fuel. Planning Commission, Government of India, New Delhi.


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b. Biomass energy (gasification)

Biomass energy holds enormous potential for a country like India. Being an agricultural country and the world’s largest producer of sugar cane, India has abundant quantities of agricultural residues and sugar cane bagasse. It is estimated that India produces about 350 million tonnes of biomass every year, equivalent to 220 million tonnes of coal in terms of heat value. This quantum of available biomass can generate 19,500 MW of power annually. The manner in which biomass is currently utilized for energy, however, is far from ideal because it results in polluting the environment, particularly indoor air. Biomass fuel could provide a much more extensive use than at present in the field of energy generation.

There could be many variants of this resource and, ideally, it could be used to meet both the electricity as well as the cooking/thermal energy needs of the rural population in the most cost-effective manner. Biomass energy (other than biofuel, which is covered under section 4.2.5.a) includes wood, agricultural residue, leaves, etc. Power generation can be based on (1) gasification of solid biomass to generate producer gas that can be used to replace diesel in a diesel generator set, either partially or fully, and (2) direct combustion of biomass to generate steam for power generation. Both of these options would still require sustainable production and availability of biomass so as not to exacerbate deforestation.

National programmes to promote biomass energy use and disseminate biomass energy technologies have existed in India for almost two decades. Despite several programmes on biomass energy, their penetration rate has been slow. Numerous technical, economic, marketing, institutional, and social barriers have prevented alterations in biomass consumption patterns. Hence, it continues to be used in a conventional, inefficient, and unsustainable manner.

A study of these programmes reveals the complexity of issues that need to be addressed in formulating intervention strategies and designing effective measures for providing better biomass energy services. It remains a challenge as to how effective instruments could be designed to address the different barriers. Intervention measures will also need to address biomass supply issues to ensure the sustainability of providing energy services. While designing mechanisms and instruments to alter biomass consumption patterns, there is a need to address some of the characteristics of bio-energy projects, such as high transaction costs (due to their small and dispersed nature); lack of appropriate cost buy-down mechanisms of demonstrated technologies along the learning curve (by increasing their cumulative production and by market aggregation); and lack of market infrastructure to set up financing mechanisms, distribution companies, and maintenance support.

Biomass energy projects under the CDM that are oriented towards altering energy consumption patterns are mostly categorized as small projects. This categorization offers advantages, such as streamlined implementation of projects, and allows them to choose a standardized baseline based on a regional average or a particular technological package.

Studies have proposed methods to enhance the competitiveness of small projects under the CDM. These methods include automatic additionality, formulation of a standardized baseline, project bundling, easier credit calculation methods, and expedited project registration. The potential for reducing carbon emissions would depend on the average percentage of biomass energy used, as well as the size of the biomass energy market.


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c. Wind energy

India has a large estimated potential of 45,000 MW for wind energy utilization. Of this, only 5 percent has actually been realized to date. India is the fifth largest windpower producer in the world after Germany, the United States, Denmark, and Spain, with a windpower generation capacity of 2,483 MW, of which 2,418 MW has come through commercial projects (table 4.10). In addition to the potential in India, there is also a fairly large potential to be tapped in South Asia and the Asia-Pacific region, where a mature Indian wind industry can play a prominent role. This is, therefore, a huge opportunity yet to be fully exploited.

The wind energy potential assessment is based on a host of parameters in a dynamic environment that is continuously changing. The realizable potential is related to the power evacuation infrastructure in the country, the knowledge base in areas with sufficient wind resources, policies in place, technologies in the market, the cost of setting up wind energy projects, and financial engineering aspects. The actual potential, it is felt, could be larger. In the case of off-grid applications, that is, isolated grids, hybrid systems, small power, and water pumping, there is believed to be a huge potential yet to be assessed. Table 4.9. State-wise wind power installed capacity in MW (as of February 28, 2004)

State Demonstration projects Private sector projects Total capacity (MW) Andhra Pradesh 5.44 93.40 98.84 Gujarat 17.30 184.70 202.00 Karnataka 4.60 204.60 209.20 Kerala 2.00 0.00 2.00 Madhya Pradesh 0.60 22.06 22.66 Maharashtra 8.40 399.00 407.40 Rajasthan 6.40 172.10 178.50 Tamil Nadu 19.42 1,342.21 1,361.63 West Bengal 1.10 0.00 1.10 Total 65.26 2,418.07 2,483.33

Source: Ministry of Non-conventional Energy Sources (MNES) 2004.

“Off-grid” applications have remained largely neglected despite a diverse range of applications that can be explored in the vast coastal, inland, and mountainous regions of India. These are lighting and small power for fishing communities, desalination, ice-making, refrigeration, battery-charging for lighthouses, remote communication, pumping of water, pumping of brine, and many other applications. These will benefit marginal and remote communities such as fishermen, salt farm workers, and island and mountain dwellers. Wider use of wind or hybrid systems in these communities will improve their lifestyles and perhaps even enhance incomes.

India has had mixed experience with wind farms set up so far; very few are performing in accordance with initial projections. A comprehensive database for wind resources now exists, but its use and extrapolation in a scientifically correct manner to plan wind energy projects continues to be an area of concern. In fact, several wind farms that were set up in the past are non-performing projects due to lack of detailing of many of these aspects. Further development of wind energy projects requires innovative financing techniques, fine-tuning of policies at the


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state and central government levels, technology optimisation, and up-scaling of the planned projects to benefit from scales of economy.

Wind energy’s potential for reducing GHG emissions makes it one of the most promising technologies for solving the long-term problem of climate change. In regards to reducing GHG emissions and contributing to sustainable development, wind energy has been identified as one of the energy sources that can achieve these dual objectives of the CDM. Additionally, small-scale wind energy projects also have a great potential to achieve sustainable development goals; however, it is unlikely that the CDM will change the prospects for them. In fact, small-scale CDM wind energy projects will face numerous institutional and financial barriers. Therefore, developing countries like India will have to take several domestic actions, such as small-scale CDM projects and bundling, to bring down transaction costs in order to build up their own wind energy markets and facilitate their implementation. Then, the CDM can play a pivotal role supporting the growth of the domestic market through the mobilization of capital flows. Thus, windpower is an interesting alternative for CDM projects in India, as it would avoid or at least postpone the construction of thermal power plants. d. Hydropower

The potential for small-scale hydropower plants in India is 15,000 MW. By March 2004, the installed capacity was reached to the tune of 1,603 MW (table 2.5), and in the tenth five-year plan it is targeted to have an additional 600 MW of small-scale power plants from 2003–2007 (GoI Planning Commission 2002).

Since a large potential for small-scale hydropower plants exists in remote hilly areas, development of small hydropower for decentralized power generation can help in rural electrification and development of these remote areas. The government is offering a number of incentives for the development of this sector, with special emphasis on mini/micro hydel-turbine hydropower projects in remote hilly regions. However, high investment costs for small hydropower development has impeded its penetration. Investment costs are substantially high due to terrain inaccessibility and lack of suitable transportation linkages in locations where the potential exists. Places with high potential have low demand, which implies the setting up of high-cost transmission networks. Institutional issues—such as inadequate state plan allocation, lack of coordination among planning and implementing agencies, delays in clearances and allotment of private sector projects, low priority of utilities to take on the projects, and lack of clear policy for private sector participation—have slowed growth in small hydropower generation capacity. Success of small hydro development depends to a large extent on local capacity-building programmes and setting up institutional arrangements for demonstration, training, and awareness programmes that help in technology adaptation and maintenance.

e. Solar energy

Solar energy represents the Earth's most abundant energy resource. In India the average global radiation is around five kWh per square metre per day, with about 250–300 clear sunny days in a year in most parts of the country, and the same can be judiciously exploited to meet ever-increasing energy requirements. Solar energy can be used in diverse ways and is divided into two principal technologies for its utilization, viz., solar thermal and solar photovoltaic.


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In India, solar photovoltaics (SPV), with an aggregate installed capacity of 151 megawatt peak (MWp), has a three percent contribution of the renewable energy-based power generation capacity. The solar thermal power generation potential in India is about 20 MW per km2. Estimates indicate a potential of 800 MW per year for solar thermal-based power generation in India during the period 2010 to 2015, with worldwide advancements in parabolic trough technology. The government of India has proposed a solar thermal power plant project of about 140 MW to be set up in Rajasthan as a demonstration project. The project will consist of a 35-MW solar thermal power component using parabolic trough collectors and a 105-MW combined-cycle component using gas turbines and naphtha as fuel. This will be the first project of its kind in India and the largest such project in the world.

However, the growth of solar technology in India has been primarily restricted by its high investment costs. Electricity generation costs on a life cycle basis for SPV is over ten times higher compared to coal-fired thermal power. The commercialisation of SPV technology involves high transaction costs, such as expensive and time-consuming project identification; challenging project implementation in a number of small-scale installations; the high costs of credit collection and risks associated with marketing, contracting, and information collection; conducting promotion campaigns and creating after-sales service infrastructure; and the cost of co-financing, conducting feasibility studies, and developing business plans.

Solar energy is particularly appropriate for remote communities in India, where it could reduce or even replace the current stand-alone power generation systems based mainly on oil products. However, government programs require fine-tuning in order to pave the way for photovoltaic power to spread to more isolated parts of the country. Otherwise, fossil fuels will prevail within the context of mandatory universal access to electricity.

4.2.6 Agriculture and livestock

There are mainly two types of energy being used by the agricultural sector, namely, high-speed diesel (HSD)/light diesel oil (LDO) and electricity. Although the amount of energy consumed has increased significantly over the years, the relative share of oil and electricity remained more or less constant at around a 65:35 ratio. The main areas of energy conservation in the agricultural sector are in diesel and electrically operated pump sets, with 16 million of these sets being reported to be in operation in 1991/92. The estimated savings potential considers avoiding such common drawbacks as improper selection of pumps and prime mover, improper installation, poor suction lift characteristics of the pumps, high friction losses in the foot valve and piping system, air leakage in the suction pipes, improper maintenance, and servicing, etc.

Given India's extensive rice cultivation and bovine population, the agricultural sector is a major source of GHG emissions, with methane (CH4) as the dominant GHG. The activities responsible for methane emissions in the agriculture sector include rice cultivation, enteric fermentation in animals, manure management, and burning of agricultural crop residues.

While there is some scope in decreasing emissions from paddy fields through special irrigation strategies and appropriate choice of cultivars, the main target initially could be enteric fermentation. Its methane emissions of approximately eight million tonnes per year can be reduced through proper feed management. A reduction of one million metric tonnes per year in this category means an appreciable reduction of 21,000,000 metric tonnes of CO2e per year. The


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first priority, therefore, could be the area of animal fermentation. The area of CH4 emissions from paddy fields could also figure as a priority, if the effects on changing CO2 concentrations are considered.

In the agriculture sector, GHG emissions are usually exacerbated by inefficient energy consumption practices, tools, and techniques; low digestibility of animal feeds; exposed treatment plants used for anaerobic decomposition of animal manure; cultivation of rice under continuous submergence; and the low efficiency of fertilizer use in agricultural soils. Details of GHG emissions by the agriculture sector are given in table 4.11. Table 4.10. India’s national GHG inventory by the agriculture sector, 1994, in million tonnes/year

GHG source and sink category CH4 emissions N2O emissions CO2e emissions

Enteric fermentation 8.972 188.412 Manure management 9.46 0.001 20.176 Rice cultivation 4.090 85.890 Agriculture crop residue 0.167 0.004 4.747 Emissions from soils 146 45.260 Agriculture 14.175 0.151 344.485

In the twenty-first century, one of the great challenges for Indian agriculture will be to ensure that food production is coupled with both poverty reduction and environmental preservation. The roadmap of sustainable agricultural development may also have to consider two additional important global drivers of change in agriculture in the coming decades—globalization and climate change. The on-going globalization process and economic reforms associated with the World Trade Organization (WTO) are forcing India to make structural adjustments in its agricultural sector to increase competitiveness and efficiency.

Some of the climate-friendly initiatives required in the agriculture sector include the standardization of fuel-efficient irrigation pump-sets, retrofitting existing pump-sets for higher energy efficiency, better water and crop management, improved cultivars, more efficient application of synthetic fertilizers, enhanced organic fertilizer use, improved animal feeds and digesters, and rationalization of power tariffs for the sector. Many of these measures would serve to reduce CO2, CH4, and N2O emissions. However, the establishment of a baseline for the CDM for most agricultural activities is very difficult and requires clearly defined guidelines.

4.2.7 Municipal solid waste management

Present municipal solid waste management and utilization in India has severe limitations. The very high rate of urban growth is a major reason for the increased solid waste management problems. Approximately 0.1 million tonnes of municipal solid waste are generated in India every day. This translates to approximately 36.5 million tonnes of waste annually. Per capita waste generation in major Indian cities ranges from 0.2 kg to 0.6 kg per day.

Urban local governments spend approximately Rs. 500 to Rs. 1,500 per tonne on solid waste for collection, transportation, treatment, and disposal. About 60–70 percent of this amount is spent on collection, 20–30 percent on transportation, and less than 5 percent on final disposal.


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Waste collection efficiency in Indian cities ranges from 50–90 percent. Out of the total municipal waste collected, an average of 94 percent is dumped on land and 5 percent is composted.

Methane emissions from solid waste are a major cause of concern in developed countries, and these countries have started recovering methane from landfills and re-using it for energy recovery. In India, however, there are no such facilities and solid waste is simply discarded in open dump-yards, which does not provide an opportunity for methane recovery. In view of this, other options for waste disposal and recovery of resources from the waste should be tried out so that methane emissions from municipal solid waste are minimized.

In the context of poor enforcement of regulations in India and the lack of financial resources of municipalities in the country, it is expected that there will be only slow, incremental improvement in the way municipal solid waste (MSW) is managed in the foreseeable future. This would mean that unmanaged solid waste disposal sites would continue to be the dominant means of waste management, leading to significant adverse environmental impact. Due to the stacking of waste over the years, anaerobic conditions develop and hence these dump sites generate large quantities of biogas containing a sizeable proportion of methane. Based on secondary data on the type of solid waste produced, per capita waste produced, and the bio-chemical oxygen demand (BOD) content of the waste, it is estimated that in 1994, 0.582 million tonnes of methane were emitted by this source.23 Also, it is expected that with the rapid development that India is presently experiencing, methane emissions from this source will rise significantly in the future.

GHG emissions produced during municipal solid waste management can be tackled by using different measures that ultimately can lead to opportunities under the CDM. The various technological options available to treat MSW are as follows:

• Sanitary landfill • Incineration • Composting • Gasification • Anaerobic digestion • Other types

Sanitary landfill is the scientific method of dealing with MSW in which maturity of the waste material is achieved faster and hence gas collection starts even during the landfill procedure. Incineration technology is the controlled combustion of waste with the recovery of heat to produce steam that in turn can be utilized for generating power. Reductions of about 75 percent in weight and 90 percent in volume are achieved through burning. Composting is a biological process in which the organic portion of wastes is stabilized (or decomposed) to produce a useful product called compost. A gasification technology involves pyrolysis under limited air in the first stage, followed by higher temperature reactions of the pyrolysis products to generate low molecular weight gases with calorific values of 1,000–1,200 kcal/Nm3. These gases could be used in internal combustion engines for direct power generation or in boilers for steam generation to produce power. In bio-methanation, the putrescible fraction of waste is digested anaerobically (in absence of air) in specially designed digesters. Under this active bacterial activity, the digested pulp produces the combustible gas methane and inert gas carbon dioxide. 23. India’s National Communication to the UNFCCC, 2004.


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The remaining digestate is a good quality soil conditioner. Other technologies available are pelletization, pyro-plasma, and flash pyrolysis.

The gasification and bio-methanation technologies are relatively new and appear to be suitable for the treatment of MSW. They do not cause atmospheric pollution, work at a higher efficiency, and at the same time have higher GHG reduction potential (approximately 1.0 to 1.2 tonnes of CO2e per tonne of MSW treated).

All these technologies have merits and demerits. The choice of technology has to be made based on the waste, its quality, and local conditions. The best compromise would be to choose the technology that does the following:

1. Has the lowest life cycle cost 2. Needs the least land area 3. Causes practically no air or land pollution 4. Causes maximum GHG emissions reduction 5. Produces more power with less waste 6. Causes maximum volume reduction

A thorough economic analysis for better waste management and utilization in India is required. Cost-benefit analyses can be carried out with consideration of all possible costs and benefits involved in the waste management and utilization system. This would result in representing the real value of the entire waste management and utilization system and support policy amendments for its improvement. Further cost-benefit analysis can be used to analyse the existing system of the recycling industry and suggest possible policy/economic measures to achieve improved performance, which in turn results in better waste management and utilization.

By selecting a proper mix of technologies in the area of MSW, the reduction of GHG emissions can be achieved through the following:

• Reduction of methane escaping into the atmosphere • Displacement of fossil fuel from power generation either by methane or by MSW itself • Displacement of chemical fertilizers by the organic fertilizers produced during treatment of

MSW

4.2.8 Land use, land-use change, and forestry (LULUCF)

Land-use patterns are influenced by a variety of factors such as population density, expanding urbanization, industrial growth, agriculture, grazing needs, irrigation demands, and natural calamities like floods and droughts. Despite these stresses, the area covered by forests has increased steadily due to the proactive reforestation and afforestation programmes of the government of India over the years aimed at sustainable development. India’s forest cover in 1994 was assessed in 1997 by the forest survey of India through interpreting satellite imagery at 633,397 km2, increasing to 675,538 km2 for the year 2000 (as per the assessment conducted in 2001). An estimated 2.46 billion trees outside forests contributed an additional area of 81,472 km2, making the total tree and forest cover to be 23 percent of the country’s geographical area in 2000, while 44 percent was the net planted area. The remaining one-third is almost equally distributed between fallow land, non-agriculture land, and barren land. The forests in India are a source of fuel and fodder for rural people, an industrial output for a growing economy, habitat for thousands of plant and animal species, a sink for CO2 emissions, and a protective cover for soil.


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Considering gross CO2 emissions and removals for the LULUCF sector, the net CO2 emissions for India for the inventory year of 1994 was estimated to be 14.292 million tonnes of CO2, which is less than 2 percent of national CO2 emissions, as shown in table 4.12.

Table 4.11. India’s national GHG inventory of the land use, land-use change, and forestry sector for 1994, in million tonnes per year*

GHG source and sink category CO2 emissions

CO2 removals

CH4 emissions

N2O emissions

CO2e emissions

Changes in forest and other woody biomass stock

14.252 (14.252)

Forest and grassland conversion 17.987 17.987 Trace gases from biomass burning 0.0065 0.00004 0.150 Uptake from abandonment of managed lands

9.281 (9.281)

Emissions and removals from soils 19.688 19.688 Total for land use, land-use change, and forestry

37.675 23.533 0.0065 0.00004 14.292

Source: GoI MoEF 2004.

*Converted by using global warming potential (GWP) indexed multipliers of 21 and 310 for converting CH4 and N2O, respectively.

a. The Marrakesh Accords

The Seventh Conference of Parties (COP 7) of the UNFCCC, held in Marrakesh, Morocco, in 2001, brought a number of guidelines and accords to implement the climate change convention and the Kyoto Protocol, broadly known as the Marrakesh Accords. They also contain the modalities and procedures for the Clean Development Mechanism, as defined in Article 12 of the protocol.

As per the Marrakesh Accords and the decisions subsequently taken at COP 9 in December 2003, afforestation and reforestation projects in developing countries are eligible to earn credits under the CDM. The sustainable development benefits associated with LULUCF projects are of particular interest to host countries; such projects can potentially create more jobs, satisfy rural biomass needs (e.g., for energy), and provide additional environmental benefits (e.g., biodiversity preservation, local air quality improvement).

It is estimated that the wasteland area in India that could be re-vegetated ranges between 66–130 million hectares (ha) including degraded forests, village commons, and crop land left fallow for long periods. According to the Planning Commission’s report, even if half of the 66 million ha of wasteland is brought under afforestation and reforestation, 825 million tonnes of carbon (MtC) could be sequestered in the next 12 years. The scope from commercial forestry options is estimated to be 122 MtC for the same period (GoI Planning Commission 2003).


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4.3 Comparative assessment of CDM potential

In general, purchasers of carbon emission credits (CERs) prefer CDM projects that satisfy the following three basic criteria: (1) a high possibility of approval by the host country, (2) low transaction costs, and (3) significant GHG reduction potential.

The ongoing and future efforts to mitigate GHG emissions in India clearly indicate that there is a substantial potential in India to achieve emissions reduction. At this stage, although adequate data are not available, it may be prudent to assume that a substantial share of this would be through the CDM route. There are some technical, financial, and policy barriers that inhibit wide-scale adoption of these measures, and perhaps the CDM can aid in the alleviation of these barriers in certain cases.

Although the numbers vary, the estimations made by various sources do reveal that there is a huge potential for CDM projects in India. To realize this CDM potential, however, there is a need to create an environment that promotes low-risk carbon emissions reduction opportunities, while optimising transaction costs. The creation of such an environment requires an understanding of the concerns and apprehensions that various stakeholders have with the existing and proposed regulatory, institutional, and financing mechanisms.

A consolidated summary sheet giving the CDM potential in the various sectors in India along with the related issues that need to be addressed is presented in table 3.13.

Table 4.12. CDM potential of different interventions in various sectors in India

Sector GHG emissions (million tonnes/year)

Possible options for GHG reductions

CDM potential Issues that need to be addressed

Industrial energy efficiency

150.674 • Focus on improving energy efficiency through a mix of measures (i.e., sector-specific technological options, cross-cutting technologies, fuel switch options, and recycling and use of secondary materials) for seven energy-intensive industry sectors, namely, cement, pulp and paper, fertilizer, iron and steel, textiles, aluminium, and refineries

• Energy efficiency improvement for small-scale industry sectors through technology upgrading, information dissemination, and easy availability of credits

15 million tonnes CO2e/annum1

• Lack of awareness and information infrastructure

• Shortage of capital to fund energy conservation projects

• Lack of R&D efforts to achieve energy efficiency

• Lack of access to state-of-the-art technologies

• Market distortions • Absence of proper

institutional set-up for small-scale industries

• Transaction cost for small-scale CDM projects

• Issue of bundling of small-scale projects and the problem of developing baselines


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Power 343.9912 • Coal washing: reduce ash content from 40% to 30%

• Fuel switch: imported LNG in current coastal coal plants

• Move towards critical and super-critical boilers

• Integrated gasification combined cycle (IGCC) technology

24 million tonnes CO2e/annum

• High cost of technology • Poor financial health of

state electricity boards • Technological barriers

Transport 80.286 • Mass rapid transport system

• Fuel switch: CNG for cars and buses

• Design induced energy-efficiency improvement

• Inter fuel substitution • Use of bio-diesel • Use of alternate power

packs (2-stroke in place of 4-stroke, hybrid, fuel cells, etc.)

6.5 million tonnes CO2e/annum3

• Difficulties in calculation of baseline, as transport emissions are usually very dispersed and difficult to monitor

• Absence of standardized guidelines and procedures for baseline calculation

• Technological barriers

Renewable energy

N/A • Wind • Solar • Biofuels • Bagasse cogeneration • Mini hydro • Biomass gasification

90 million tonnes CO2e / annum

• Technological barriers • Investment barriers • Lack of R&D efforts to

promote renewable energy • Lack of awareness and

information infrastructure • Limited servicing and

repair infrastructure • High transaction costs for

biomass-energy projects (due to their small and dispersed nature)

• Lack of market infrastructure for biomass-energy projects to set up financing mechanisms, distribution companies, and maintenance support


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Agriculture and livestock

344.485 • Standardization of fuel-efficient irrigation pump-sets and retrofitting existing pump-sets for higher energy efficiency

• Better water management

• More efficient application of synthetic fertilizers and enhanced organic fertilizer use

• Improved animal feeds and digesters

35 million tonnes CO2e / annum4

• Establishment of a baseline for CDM for agricultural and livestock activities

• Rationalization of power tariffs for the agriculture sector

Municipal solid waste

12.222 • Technological options to minimize municipal solid waste and reduce emissions of GHGs through the following:

• Reduction of methane escaping into the atmosphere

• Displacement of fossil fuels from power generation either by methane or by MSW itself

• Displacement of chemical fertilizers by the organic fertilizers produced during treatment of MSW

1.2 million tonnes CO2e/annum4

• Lack of financial resources with municipalities

• Poor enforcement of regulations

• Lack of awareness of the local bodies, stakeholders, and citizens

Land use, land-use change, and forestry (LULUCF)

14.292 • Re-vegetation (afforestation and reforestation) of wasteland areas

• Promotion of commercial forestry options

• Carbon sink conservation• Fossil fuel substitution

(using biomass as fossil fuel replacement)

947 million tonnes CO2e in 12 years, or 78.175 million tonnes CO2e/annum5

• Complexities in baseline measurement

• Permanence of carbon sequestration

• Lack of institutional capacity and enforcement of appropriate legislation for afforestation and reforestation programmes

• Low private investment in the forestry sector

Sources:GoI MoEF 2004; Raghuraman 2002.; Ramana et al. 2002.; Shukla et al. 2003.

1. It has been estimated through various studies that the total conservation potential of the Indian industry is around 25% of the total energy used by this sector. A conservative estimate is that at least 10% of the total energy used by this sector can be saved through energy-efficiency devices and controls. 2. 28% of total GHG emissions. 3. A conservative estimate is that at least 8% of the total GHG emissions by this sector can be saved through various GHG reduction options. 4. A conservative estimate is that at least 10% of the total GHG emissions by this sector can be saved through various GHG reduction options. 5. Report of the Working Group on National Action Plan for Operationalising CDM in India, Planning Commission 2003, Government of India.


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5. GOVERNMENT AUTHORITIES

5.1 Introduction

India is a party to the United Nations Framework Convention on Climate Change (UNFCCC), and the objective of the convention is to achieve stabilization of greenhouse gas (GHG) concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the world’s climate system. To strengthen the developed country commitments under the UNFCCC, the Parties adopted the Kyoto Protocol, which commits developed country Parties to reduce their emissions of GHGs to an average of approximately 5.2 percent below 1990 levels between the years 2008–2012.

The government of India has been very active in the climate change negotiations since the inception of the UNFCCC. Although it does not have a GHG emissions reduction target, it has actively taken steps to address the climate change issue.

The policy on climate change in India is based on the following basic principles:

1. It recognizes that the Earth’s climate and the adverse effects of climate change are a common concern of all humanity and calls for the widest cooperation from all countries, in accordance with their common but differentiated responsibilities, respective capabilities, and their social and economic conditions.

2. The primary responsibility of reducing GHG emissions is that of developed countries and they should take the lead.

3. Economic and social development and poverty eradication are the first and overriding priorities of the developing countries.

4. The developed countries should transfer resources and technologies at favourable terms to the developing world, thereby facilitating developing countries to move towards sustainable development.

The Kyoto Protocol provides for quantified emission limitations and reduction commitments for the developed countries and mechanisms to facilitate compliance with their targets, as well as reporting and reviewing. It lists six greenhouse gases: carbon dioxide (CO2), methane (NH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

The Kyoto Protocol was ratified by the government of India in August 2002 to strengthen global efforts to meet the challenges adversely affecting the ecosystem. One of India’s objectives in acceding to the protocol was to fulfil the prerequisites for implementation of projects under the Clean Development Mechanism (CDM) in accordance with national sustainable priorities, whereunder developed countries would implement GHG reduction project activities in developing countries—where the costs of GHG reduction project activities are usually much lower—with the purpose of assisting developing country Parties in achieving sustainable development (the ultimate objective of the UNFCCC), and to assist developed country Parties in achieving compliance with their quantified emissions limitation and reduction commitments.


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The Seventh Conference of the Parties (COP 7) to the UNFCCC, held in Marrakesh, Morocco, in 2001, brought out, among other things, modalities and procedures for the CDM. It was decided that Parties participating in the CDM should designate a national CDM authority, and that as per the CDM project cycle, a project proposal should include written approval of voluntary participation from the designated national authority (DNA) of each country and confirmation that the project activity assists the host country in achieving sustainable development.

The key roles of the DNA are the following:

• Develop and modify host country endorsement criteria based on its national sustainable development objectives

• Approval and endorse projects on behalf of the country for submission by respective project proponents/DOEs to the CDM Executive Board

• Form committees to look into specific aspects of the CDM • Verify the financial and technical additionality of the project • Monitor projects for sustainability • Annually report its activities to the CDM Executive Board • Though not mandatory for non Annex I countries, maintain a registry of projects and CER

(certified emission reduction) transactions involved

5.2 Structure of India’s designated national authority

After India’s ratification of the Kyoto Protocol, the central government of India constituted the National CDM Authority (NCA) for the purpose of protecting and improving the quality of the environment in terms of the protocol. The government accorded approval for setting up the DNA in December 2003, coinciding with the Ninth Conference of Parties (COP 9). News from the press indicated that the DNA would be hosted by the Ministry of Environment and Forests (MoEF) and headed by the secretary of the MoEF (The Economic Times, 2003).

Thus, the MoEF, which is the nodal agency for the subject issues of climate change, was made the host of the DNA for dealing with the CDM and other climate change issues. It is ministry responsible for developing an institutional framework for developing CDM projects in the country, as well as endorsing CDM projects.

The DNA was set up by the MoEF (F. No. 4/5/2003-CCC), under the powers conferred on it by sub-section (1) and (3) of section 3 of the Environment Protection Act (EPA), 1986 (29 of 1986) (see appendix VIII). The compositon of India's NCA is shown in table 5.1.


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Table 5.1 Composition of the National Clean Development Mechanism Authority (NCA) 1. Secretary (Environment and Forests) Chairperson

2. Foreign Secretary or nominee Member 3. Finance Secretary or nominee Member 4. Secretary, Industrial Policy and Promotion or nominee Member 5. Secretary, Ministry of Non Conventional Energy Sources or nominee Member 6. Secretary, Ministry of Power or nominee Member 7. Secretary, Planning Commission or nominee Member 8. Joint Secretary (climate change), Ministry of Environment and Forests Member 9. Director, (climate change), Ministry of Environment and Forests Member-secretary

5.2.1 The powers and functions of the National CDM Authority

1. The National CDM Authority (NCA) can take measures related to matters referred to in clauses (viii), (ix), (x), and (xii) of sub-section (2) of section 3 of the EPA, 1986 (see appendix VIII) and may issue directions under section 5 thereof. Section 3 of the EPA outlines the power of the central government to take measures to protect and improve the environment.

Section 5 under section 3 discusses the power to give directions. Under the act, the central government may issue directions to any person, officer, or any authority for non-compliance to the provisions of the act, and such person, officer, or authority shall be bound to comply with such directions. It further clarifies that issuing directions under this section includes (a) the closure, prohibition, or regulation of any industry, operation, or process; and/or (b) stoppage or regulation of the supply of electricity or water or any other service.

2. (a) The NCA accepts project proposals for evaluation and approval as per the guidelines and general criteria laid out in the relevant rules and modalities pertaining to the CDM, in addition to the guidelines issued by the CDM Executive Board, and the UNFCCC. (The guidelines and criteria of the NCA are given in the next chapter, and those of the CDM, CDM Executive Board, and the UNFCCC were already explained in chapter 3.) (b) The CDM project evaluation process will include an assessment of the probability of successful implementation of proposed CDM projects and evaluation of the extent to which projects meet the country’s national priorities and sustainable development objectives. India's planning processes and global climate change concerns are intricately linked. Taking care of the national planning objectives would include addressing many of the concerns about climate change.

It is the prerogative of each host country to ensure that the project is in line with its national priorities, especially from the point of view of sustainable development. A planned approach to development has been a central part of India's democracy, as reflected in its national five-year plans, annual departmental plans, and prospective plans of various ministries of the central and state governments. For the last five-and-a-half decades, the guiding objectives of India's planning process have been sustained economic growth; poverty alleviation; food, health, education, and shelter for all; containing population growth; generating employment; self-reliance; and public participation in planning, programme implementation, and infrastructure development.


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(Chapter 6 further explains the details of India's priorities and sustainable development objectives.)

3. (a) The NCA can recommend certain additional requirements to ensure that CDM project proposals meet India’s sustainable development priorities and comply with the legal framework, so as to ensure that projects are compatible with local priorities and that stakeholders have been duly consulted. (b) It must ensure that in the event of project proposals competing for the same source of investment, projects with higher sustainable development benefits and which are more likely to succeed are accorded higher priority.

4. (a) The NCA will maintain a registry of CDM projects approved and their certified emissions reduction (CER) potential, and confirm that these have been realised. To ensure the accurate accounting of the issuance, holding, and transfer of CERs by Parties. (b) It will carry out activities to ensure that project developers have reliable information relating to all aspects of the CDM, which include creating databases on organizations designated to carry out activities such as validation of CDM project proposals and monitoring and verification of project activities. (c) It will collect, compile, and publish technical and statistical data relating to CDM initiatives in India. The member-secretary of the National CDM Authority shall be responsible for day-to-day

activities of the authority, including organizing committees or sub-groups to coordinate and examine proposals, or to procure detailed examination of project proposals by experts or consulting organizations for consideration by the authority, or to engage or hire any consultant or specialist on a contract basis for such remuneration as may be approved by the central government, and submit reports to the UNFCCC and other authorities.

The National CDM Authority shall have power to do the following:

1. Invite whichever officials or experts from government, financial institutions, consultancy organizations, non-governmental organizations, civil society, the legal profession, industry, and commerce that it may deem necessary for technical and professional input, and it may co-opt other members depending upon need.

2. Interact with concerned authorities, institutions, and individual stakeholders for matters relating to the CDM.

3. Address any environmental issues pertaining to the CDM or sustainable development projects referred by the central government.

4. Recommend guidelines to the central government for consideration of projects and principles to be followed for according host country approval.

The National CDM Authority must furnish a report to the central government at least once every three months to include updates on any of the following activities it is responsible for:

• Disseminate information on the NCA and CDM processes • Maintain records on projects under consideration for CDM benefit • Act as an interface between the NCA and project promoters • Communicate with the CDM Executive Board • Keep track of various baseline methodologies approved by the board and provide further

guidance on how such baselines can be adapted in the context of India


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• Other administrative roles such as collection of processing fees, etc. • General information on the CDM • Status of projects received, approved, rejected, and other relevant details • Further develop the CDM endorsement process being followed by the DNA and periodically

communicate any modifications to the public • Follow the PCN format for CDM endorsement (see appendix VII) • Links to other relevant CDM Web sites • Maintain relevant data in the form necessary for baselines and maintain links with relevant

domestic organizations that collect authentic data, such as relevant state/central authorities • Collect information on domestic organizations working in the CDM field • Link to financial institution Web sites, insurance sector contacts, etc.

Other line ministries and government departments are invited to become involved on an "as needed" basis for their professional input (i.e., technical, sectoral, and legal experts, financial and academic institutions, and non-governmental organizations), depending on the type of project proposals received for endorsement.

The MoEF constituted the Working Group on the UNFCCC to deliberate upon measures and positions that should be taken regarding the various issues emerging out of climate change negotiations. A separate group on the Kyoto mechanisms has also been constituted.

At present, the ministry bears all the costs involved in the functioning of the DNA. The NCA at present does not plan to charge project developers any fee for project assessment, approval, or other services. As well, in order to encourage India's industries to participate in the CDM, the NCA does not plan to levy a tax on CERs at the moment, but it has not ruled out the possibility of levying a tax once the CDM market develops in due course.

5.3 CDM promotion at the state level

Some of India's state governments have shown a keen interest in the CDM, and they have established state-level CDM promotional cells which can be divided into short term and long term frameworks. In the short term, the state-level CDM cells will focus on the following:

• Capacity building of professionals belonging to the CDM cells for developing achievable CDM projects in the respective state

• Networking among government departments and institutions • Enhancing participation of the private sector in the CDM, thereby generating/developing

more CDM projects • Enhancing its capacity and skills in examining and analyzing potential CDM projects • Providing project proponents with match-making services with buyers

In the long run, a CDM promotional cell at the state-level is expected to have capacity in the following areas:

• Understanding the CDM project concept, characteristics, project cycle, baselines, crediting period, contractual issues, banking of CERs, internal CERs registry, and associated procedures

• Identifying achievable CDM projects and suitable promoters


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• Facilitating appropriate services for CDM project promoters in project identification and formulating potential CDM projects, baseline development, quantification of emissions reductions, identifying operational entities, and monitoring project performance

• Continuing to explore possibilities to simplify procedures and optimise transaction costs associated with developing projects

• Identifying and providing intensive capacity building for stakeholders for a better level of understanding of the CDM and for developing projects

• Disseminating information on CDM criteria and procedures • Analyzing national/local sustainable development priorities for identifying projects in

consonance with such priorities • Maintaining a database of technologies, consultants, operational entities, funding agencies,

CER buyers, etc. • Developing state-specific appendices to supplement the DNA's CDM manual for guidance

on eligibility, baselines, estimates of transaction costs, legal issues (contracts, insurance, taxation of CERs, etc.), CERs market, project development, etc.

• Analyzing the state sectoral potential under the CDM • Developing a portfolio of CDM projects to offer potential buyers • Updating stakeholders with ongoing changes in the CDM modalities and procedures of the

CDM Executive Board, Conference of Parties, and subsidiary bodies

A few states in India have taken the lead and established state nodal cells for promoting the CDM:

• Andhra Pradesh • Madhya Pradesh • West Bengal

5.3.1 CDM cell in Andhra Pradesh

The government of Andhra Pradesh has appointed the Environment Protection Training and Research Institute (EPTRI), Hyderabad, as the nodal agency for the CDM and the Centre for Climate Change.

The role of EPTRI in the CDM includes the following:

• Interfacing between the NCA and ground-level stakeholders • Creating awareness about the CDM among stakeholders • Developing a database and disseminating information about cleaner technologies • Assisting the NCA in setting targets, measuring achievements, and monitoring them under

the mechanism

EPTRI is involved in capacity building of industries, government officials, and consultants with regard to the CDM, so that they can avail the benefits of carbon trading under the Kyoto Protocol. 5.3.2 CDM cell in Madhya Pradesh

A CDM cell has been set up at the Madhya Pradesh Pollution Control Board (MPPCB), Bhopal. The MPPCB is closely working with several industries regarding environmental upgrades, and thus it can facilitate promotion of the CDM by working to sensitize industries in the state. The member-secretary of the board will coordinate the CDM cell. In addition, a steering


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committee at the state-level has also been constituted. The cell will act in coordination with the steering committee, government of Madhya Pradesh, and the central government’s Ministry of Environment and Forests.

The cell is mandated to coordinate the following tasks:

• Provide administrative support for project design • Coordinate between industries and the MoEF and between local and regional organizations • Work as a nodal agency to facilitate project implementation • Organize awareness and training programmes related to CDM activities • Act as a consultancy wing that can facilitate development and confer host country approval

by charging a fixed fee • Facilitate buyer/seller meetings and network with brokers to facilitate the carbon credit trade,

thereby benefiting investors 5.3.3 CDM cell in West Bengal

The West Bengal Renewable Energy Development Agency (WEBREDA), the nodal agency for promoting renewable energy and energy-efficiency projects in the state of West Bengal, has been recently designated as the nodal agency for promoting the CDM in the state.

Other states such as Maharashtra, Tamil Nadu, and Karnataka are also planning to establish cells for promoting the CDM. In Tamil Nadu, the Tamil Nadu Energy Development Agency is working to promote the CDM there.

5.4 Operational entities at the national level

A designated operational entity under the CDM is either a domestic legal entity or an international organization that is accredited and designated by the CDM Executive Board as having the following functions (figure 5.1): • Validate and subsequently request registration of a proposed CDM project activity • Verify and certify emission reductions from a registered CDM project activity, and request

that the board issues CERs.

As of July 2005, the CDM Executive Board has given accreditation and provisional designation for validation to ten organizations, and all of the accredited operational entities are multinational companies, with many of them operating in India through their regional offices.

Involvement of international operational entities for validation and verification purposes would mean higher costs for these steps of the project cycle. Therefore, the need for national-level designated operational entities is recognized. The NCA in India also agrees with this view and, keeping in mind the technical capacities resting with some of the organizations, it would encourage the emergence of national-level operational entities. Towards addressing this need, the NCA is planning to support the Indian Council for Forestry Research and Education (ICFRE) to become an operational entity for the land use, land-use change, and forestry (LULUCF) sector. Similar encouragement may also be provided to other organizations in the field of energy and industrial processes to become operational entities.


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Figure 5.1 Schematic view of national-level operational entities in India (as per the Marrakesh Accords)

5.5 Bundling organizations

Most of the CDM projects currently being developed in India belong to the small-scale category of CDM projects. Many of these may have high sustainable development benefits, but due to their smaller size they are not able to bear the high transaction costs related to project development and other steps. Studies on transaction cost have indicated that bundling small projects into one, or bundling project steps, may reduce the transaction cost of such projects.

This creates the need for bundling organizations which can coordinate the preparation of CDM-related documents, validation and registration of projects, and monitoring and verification of emissions reduction on the one hand, and also act as a single contact point for carbon buyers on the other. The consultants and energy service companies may be well-placed to take on this task. Additionally, agencies such as the Small Industries Development Bank of India (SIDBI) and National Bank for Agriculture and Rural Development (NABARD) can also act as bundling organizations for rural and community development-oriented projects. Such organizations may also serve as a seller’s pool, thereby securing the interest of sellers.

A few such examples are already available in the country. For instance, Women for Sustainable Development, an NGO in Karnataka is coordinating the activities of small-scale CDM project developers, providing them technical assistance, and assisting in the sale of the emissions reduction credits from these projects. IT Power, India, the Energy Research Centre of the Netherlands (ECN), and the Netherlands also carried out a study under the Synergy

Comments by local stakeholders taken into account

DESIGNATED OPERATIONAL

ENTITY

Validation and

registration

Verification dcertification

Participation requirements

Environmental impact analysis

Periodic review and expert determination of the monitored reductions in GHGs

Conduct on-site inspection

Review monitoring results

Based on its verification results, certify CERs

Determine the amount of GHGs d iProvide verification results to project

participants, the Parties involved and the board, and make publicly available

Validation of monitoring plan submitted by project participants

Finally the validation of the project activity by the OE and sends validation report to the CDM Executive Board for registration


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Programme of the European Commission to assess the existence and their capacities of potential bundling organizations in the country.

In the initial phase of the CDM, several bundling organizations will need support to build up their capacity and to coordinate, train, and assist local project developers. Such support could come from development agencies interested in fostering sustainable development through the implementation of small-scale projects.

5.6 Role of other stakeholders

While the MoEF is the nodal ministry in the government of India for the CDM and climate change, other ministries and departments have also been actively involved in the CDM through sectoral initiatives, extension services, educational and training input, and providing research support. A list of such organizations is given in appendix I.

5.7 India’s initial national communication

India is a party to the UNFCCC and the government of India attaches great importance to climate change issues. Sustainable development, eradication of poverty, and avoiding risks to food production are three principles embedded in the convention. To implement the provisions of Article 12 of the convention, and in accordance with the relevant decision of the UNFCCC, the government of India executed preparations and submitted India’s initial national communication (NATCOM) to the UNFCCC in 2004. The project has been executed and implemented by the MoEF in India and funded by the Global Environment Facility (GEF) under its enabling activities programme through the United Nations Development Programme (UNDP), New Delhi. A Web site has been developed for dissemination of information and publications arising out of the project.24 Winrock International India (WII) has been appointed by the MoEF as the facilitating agency. Currently, preparation of the second NATCOM is in process.

24. www.natcomindia.org


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6. CDM PROJECT APPROVAL PROCEDURES AND REQUIREMENTS

Article 12 of the Kyoto Protocol states that the purpose of the CDM is “to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emissions limitation and reduction commitments.” Under the CDM, Annex I countries can buy the credits for the emissions reduced through projects in developing countries and use them to meet their Kyoto Protocol targets. All CDM projects must result in a net reduction of GHGs, as in the case of energy-efficiency improvements, renewable energy generation, or carbon sequestration through afforestation and reforestation, and it is essential that GHG mitigation projects be in consonance with the host country’s sustainable development priorities.

6.1 Kyoto Protocol requirements of the CDM

CDM projects may be categorized under the energy, transportation, building, and renewable energy sectors (solar, wind, biomass). But not all projects that result in emission reductions are eligible to qualify as a CDM project. In order to qualify, projects need to have certain characteristics, which are explicit or implicit in the Kyoto Protocol. At the project level, the government of India needs to do the following:

1. Ensure that CDM proposals conform to Article 12 of the Kyoto Protocol 2. Facilitate single-window clearance of CDM projects

CDM projects need to be designed in such a way that they achieve the following:

• Are approved by the governments of the participating Parties and are consistent with and supportive of national environment and development priorities and strategies

• Assist host countries (developing) to achieve sustainable development • Are host country driven • Result in real, measurable, and long-term benefits • Reduce emissions that are additional to any that would occur in the absence of the certified

project activity • Involve private and/or public entities • Have voluntary participation, approved by each party involved • Contribute to the ultimate objective of the United Nations Convention on Climate Change

(UNFCCC) • Benefit developing countries from project activities resulting in certified emission reductions

Assessment of whether or not CDM projects fulfil these criteria requires comparing projects against a baseline. In many cases, it is counter-factual to construct a baseline that may never actually happen. Assessing environmental benefits also requires establishing system boundaries appropriate to the scale and complexity of the project to assess “leakage.” In addition, the CDM project needs to be environmentally sound, economically efficient, and equitable.


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6.2 Endorsement criteria

As per the rules of the UNFCCC, it is the host country’s prerogative to decide whether or not a proposed project activity assists in achieving sustainable development, and accordingly approve projects. Hence, the two aspects that are examined when an India’s designated national authority (DNA) evaluates a CDM proposal are as follows:

• Does the project meet national priorities, set by the India’s five year planning process? • Does it contribute to sustainable development of the country?

6.3 National priorities

Since the Stockholm Conference on the Human Environment and Development in 1972, the government of India has instituted various regulatory and promotional measures for protecting the environment and promoting sustainable development in the country. A planned approach to development has been the central process of India’s democracy, as reflected in its national five-year plans, annual departmental plans, and the prospective plans of various ministries at the central and state government levels. For the last five-and-a-half decades, the guiding objectives of India’s planning process have been sustained economic growth; poverty alleviation; food, health, education, and shelter for all; containing population growth; employment generation; self-reliance; and public participation in planning, programme implementation, and infrastructure development.

The Tenth Five-Year Plan (2002–07) reflects the government of India’s commitment to the United Nations Millennium Development Goals (2002). These goals and related Indian plan targets are shown in table 6.1.

Table 6.1. Millennium development goals and related Indian plan targets

Millennium development goals and global targets India’s tenth plan (2002–07) and beyond targets

Target 1: Halve, between 1990 and 2015, the proportion of people whose income is less than US$1 a day. Target 2: Halve, between 1990 and 2015, the proportion of people who suffer from hunger.

Double the per capita income by 2012. Reduction of poverty ratio by 5% by 2007 and by 15% by 2012. Reduce the decadal population growth rate to 16.2% between 2001–11 (from 21.3% during 1991–2001).

Target 3: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling.

All children to complete five years of schooling by 2007. Increase in literacy rates to 75% by 2007 (from 65% in 2001).

Target 4: Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education, no later than 2015.

At least halve, between 2002 and 2007, gender gaps in literacy and wage rates.

Target 5: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate.

Reduction of the infant mortality rate (IMR) to 45 per 1,000 live births by 2007 and to 28 per 1,000 by 2012 (115 in 1980, 70 in 2000).

Goal 5: Improve maternal health

Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio (MMR)

Reduction of MMR to 2 per 1,000 live births by 2007 and to 1 by 2012 (from 3 in 2001).

Goal 6: Combat HIV/AIDS, malaria, and other diseases

Target 7: Have halted and begun to reverse the spread of HIV/AIDS by 2015.

Have achieved 80% to 90% coverage of high- risk groups, schools, colleges, and rural areas for generating awareness by 2007.


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Millennium development goals and global targets India’s tenth plan (2002–07) and beyond targets

Target 8: Have halted and begun to reverse the incidence of malaria and other major diseases by 2015.

A 25% reduction in morbidity and mortality due to malaria by 2007 and 50% by 2010.

Goal 7: Ensure environmental sustainability.

Target 9: Integrate the principles of sustainable development into country policies and programmes and reverse the loss of environmental resources. Target 10: Halve by 2015 the proportion of people without access to safe drinking water. Target 11: Have achieved by 2020 a significant improvement in the lives of at least 100 million slum dwellers.

Increase forest and tree cover to 25% by 2007 and 33% by 2012 (from 23% in 2001). Sustained access to potable drinking water to all villages by 2007. Electrify 62,000 villages by 2007 through conventional grid expansion and the remaining 18,000 by 2012 through decentralised, non-conventional sources like solar, wind, small hydro, and biomass. Cleaning of all major polluted rivers by 2007 and other identified/designated stretches by 2012. Expeditious reformulation of the fiscal management system to make it more appropriate for the new context.

Goal 8: Develop a global partnership for development

Target 12: Further develop an open, rule-based, predictable, non-discriminatory trading and financial system (includes a commitment to good governance, development, and poverty reduction—both nationally and internationally). Target 16: In cooperation with developing countries, develop and implement strategies for decent and productive work for youth. Target 17: In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries. Target 18: In cooperation with the private sector, make available the benefits of new technologies, especially ICTs.

The Tenth Plan includes a state-wide allocation of these broad developmental targets. Greater integration with the global economy. Create 50 million employment opportunities by 2007 and 100 million by 2012. (The current backlog of unemployment is around 9%, equivalent to 35 million people.)

Note: Millennium Targets13 and 14 refer to the special needs of least-developed, land-locked, and small island countries. India is a party to several international conventions and programmes to assist these countries. It is also implementing policies in line with Target 15 that exhorts amelioration of debt of developing countries, including its own debt, under global cooperation.

Source: GoI MoEF 2004.

As seen in table 6.1, many of India’s national targets are very ambitious, such as doubling national per capita income by 2012, providing all villages with sustained access to potable drinking water by 2007, etc. These reflect the government of India’s commitment to the UNFCCC, the Rio Declaration (1992) on Agenda 21 at the UN Conference on Environment and Development, the Millennium Declaration at the UN Millennium Summit, the Johannesburg Declaration at the World Summit on Sustainable Development (2002), and the Delhi Declaration (2002) at the Eighth Conference of Parties (COP) to the UNFCCC. To achieve the above development priorities, substantial additional energy production and consumption will be necessary. Coal, being the domestic energy resource, will likely continue to be used for a large share of power generation.


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Achieving these targets will require additional resources and new investment from various sources. The economic reforms initiated in the past decade have expanded the choice of policy instruments, technologies, and resources. In the energy and electricity sectors, this has led to improvements in fuel quality, technology stocks, infrastructure, and operating practices. To combat the concerns over increasing energy consumption and fuel import costs, the India’s government initiated various programmes to promote energy efficiency, energy conservation, and renewable energy technologies. This included energy-efficiency improvements in all sectors of the economy, promoting hydro and renewable electricity, power sector reforms including national grid formulation and clean coal technologies for power generation, energy infrastructure development, coal washing, promoting cleaner and less carbon-intensive transport fuel, and environmental quality management.

6.4 Sustainable development and its priorities

Since the adoption of the UNFCCC and Agenda 21 during the Earth Summit held in June 1992 in Rio de Janeiro, many nations around the world have initiated a range of processes aimed at achieving more sustainable development.

The concept of sustainable development was first introduced by the World Conservation Union (IUCN) in 1980 (IUCN 1997). The World Commission on Environment and Development, popularly known as the Brundtland Commission, defined sustainable development in 1987 as a development process that “meets the needs of the present without compromising the ability of the future generations to meet their own needs.” (Bruntland 1997) Sustainable development can also be defined as an evolving process that improves the economy, the environment, and society for the benefit of current and future generations.

The four pillars of sustainable development are social, economic, environmental, and technological well being (World Resources Institute 1992). Poverty alleviation, economic and social development, and environmental protection are overriding sustainable development goals and priorities of India.

It is the prerogative of the host party to assess whether or not proposed CDM project activities will assist sustainable development (appendix VII).

6.5 Projects involving ODA

Overseas development assistance (ODA) is a grant/loan provided by developed countries to developing countries to address issues of critical importance, such as poverty alleviation programmes, etc.

Using ODA by developed countries for acquiring credits for certified emission reductions (CERs) would mean that (1) high-priority issues like poverty alleviation could be neglected and diverted to sectors like transport or energy, (2) may lead to trade disputes on grounds of unfair subsidization, and (3) may force developing countries to tend to lose the ODA benefit.

The Kyoto Protocol already stipulates that no funds under an ODA scheme can be diverted to CDM projects. The flow of funds to CDM projects should be additional to ODA support. India’s National CDM Authority (NCA) ensures that ODA is not used either in part or in full to procure


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CERs from projects in India. Applicants for CDM benefits therefore need to demonstrate this aspect.

6.6 Previous CDM project approval process

The endorsements for CDM projects in India were initially given through an ad hoc committee, which was formed for approving projects under activities implemented jointly (AIJ)25. The ad hoc committee was an inter-ministerial group of which all the important ministries were members. Project developers needed to submit their CDM project proposal to the Ministry of Environment and Forests (MoEF) for further circulation to the committee members for their comments. Based on their input, the final decision of endorsement rested with the MoEF.

Before creation of the DNA, the MoEF announced an interim CDM project approval criteria to guide stakeholders in developing CDM projects (box 6.1). They announced the interim criteria in early 2002 when the first call of CERUPT (Certified Emissions Reduction Procurement Tender) by the Dutch government was announced. The MoEF endorsed 12 projects under CERUPT, out of which six were short-listed for approval by CERUPT authorities. Finally, the following five projects were approved and contracts were signed:

• 7.5-megawatt (MW) biomass power plant in Maharashtra • 7.5-MW biomass power project in Rajasthan • 14.45-MW wind project in Tamil Nadu • 15-MW wind project in Tamil Nadu • 15-MW windpower project in Karnataka

Box 6.1. Major features of the interim approval criteria

Similarly, the MoEF endorsed a few CDM projects in response to the Finnish government’s call for tenders in March 2003. The positive outcome of the CERUPT call encouraged the private sector, and there was a shift towards more CDM project development in the country. CDM projects were also submitted in response to the government of Sweden’s call for tenders under

25 Activities implemented jointly (AIJ) is a pilot programme and a precausor to the today’s JI and CDM. The 1995 First

Conference of Parties (COP1) estalibhsed the AIJ in order to gain experiences in the GHG emisisons reduction activities prior to the Kyoto Protocol. The programme ended in 2000.

1. Eligibility: emissions, financial, and technological additionality 2. Sustainable development:

• Social well-being: generating employment, removing social disparities, and improvement in quality of life

• Economic well-being: the CDM project activity should bring in additional investment consistent with the needs of the people

• Environmental well-being: environmental impact assessment • Technological well-being: transfer of technology

3. Transparent baselines 4. Financial indicators 5. Technological feasibility 6. Risk analysis 7. Credentials of the project developer/CER seller


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the Swedish Climate Investment Program, as well as announcements by the Austrian and German governments for tenders. 6.6.1 India’s designated national authority

The ad hoc procedure of host country endorsement was standardised by formation of India’s DNA in December 2003—the National CDM Authority (NCA)—which is hosted by the MoEF (see chapter 5 regarding its composition). The NCA is the single-window clearance authority for CDM projects in India.

As a procedure for applying for endorsement, project developers are required to submit the following to the DNA:

• One soft copy of the project concept note (PCN) through the online form available at the MoEF’s Web site <http://envfor.nic.in>

• One soft copy of the project design document (PDD) through the online form available at the same Web site

• 20 hardcopies each of the PCN and PDD • Two CDs containing all the information in each of them.26

The project report and CDs must be submitted along with a cover letter signed by the project developer(s), and the project report should be properly bound. The National CDM Authority examines the documents and contacts the project proponents in case of any preliminary queries. The project proposals are then circulated to all the DNA members for consideration and comments. The project developers and consultants are then invited to make a brief PowerPoint presentation on their CDM project proposal. (Normally they are given about 10 to 15 days notice prior to the meeting.) Members usually seek clarification during the presentation, and if any additional clarification and information is required, then the project proponent is obligated to provide it before the process goes any farther. Once the NCA members are satisfied with the proposal, then the host country approval (HCA) is issued by the member-secretary (the project approval process is explained in figure 6.1).

The approval procedure may be different in a few cases. For example, the Austrian tender and the KfW tender announced in 2004 that procurement of CERs did not require submission of a PDD at the time of applying, but they required the submission of a PCN and a letter of endorsement from the host country’s government. In such cases, the NCA provides the letter of endorsement (provisional) after evaluating the project’s PCN. If the tendering authority selects the project, and there is an agreement between the buyer and the project developer regarding the selling of CERs, then a PDD must be prepared and submitted to the NCA for approval.

In any case, before giving approval to a project, the NCA would like to ensure that project developers do not sell the CERs to any agency, company, or organization that purchases CERs using ODA funds. This is to avoid diversion of ODA funds to CDM projects. In other words, any investments in the CDM project should attract foreign exchange over and above the FDI already being invested in India through the ODA programme.

The NCA may also request the seller to inform the NCA about the details of the transaction involving the transfer of CERs within 30 days of the transfer. Project developers are also obligated to provide whatever information the NCA requests, and shall also undertake to obtain

26. The PCN format is enclosed in appendix VII.


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the appropriate approvals and statutory clearances. Note that an approval granted to a project developer is not transferable. The NCA also reserves the right to revoke its approval if the above conditions are not satisfied.

Figure 6.1. Assessment and approval process of the India’s National CDM Authority

PCN and PDD submitted by the

project developer

Initial screening

by the DNAsecretariat

Rejection/ resubmit

In-depth assessment by NCA members and other

consultants

Approval letter

Rejection/ resubmit

Assessment report

Presentation by project developer and public

consultation

DNA decision


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6.7 Approved CDM projects

The NCA has accorded host country approval to 78 CDM PDDs (as of May 2005) for projects in the following sectors:

• Renewable energy (biomass power, cogeneration, small hydro, waste-to-energy, and wind energy)

• Energy efficiency, including waste heat recovery (iron and steel, hotels, and fertiliser) • Fuel switching (power plant) • Industrial process • Solid waste

The sector-wise and state-wise distribution of the projects are given in figures 6.2 and 6.3, respectively. A brief description of these projects is provided in appendix II.

Renewable energy

45 57.69%

Fuel switching 6

7.69%

Energy efficiency 20

25.64%

Solid waste1

1.28%

Industrial process 6

7.69%

Figure 6.2. Breakdown of projects approved by the NCA, by sector (78 as of May 2005)


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Maharashtra2

Uttar Pradesh,7

Tamil Nadu, 7

Rajasthan, 9

Punjab, 5

West Bengal4Uttaranchal,

2

Orissa, 5

MadhyaPradesh,

2

Karnataka,16

AndhraPradesh,

7Chattisgarh,

3

Gujarat,3 Himachal

Pradesh, 3

Jharkhand, 3

Figure 6.3. Distribution of CDM projects, by state

The methodologies that India has submitted to the UNFCCC’s CDM Executive Board so far are given in table 6.1. Two of them have been approved by the Methodology Panel: (1) NM0028: TA sugars cogeneration and fuel switch project (PDD prepared by Winrock International India), and, (2) NM0032: Municipal solid waste treatment cum energy generation (PDD prepared by the Infrastructure Development Finance Corporation [IDFC]).

Table 6.2. Methodologies submitted to the CDM Executive Board by India

Round Number Methodology title Sector Status

Round 11 1 NM0116 Reduction in the use of ordinary Portland

cement for concrete mix preparation

Construction industry

N/A

Round 10 2 NM0071-rev

. Avoiding flaring of waste gases from steel manufacturing operations and its utilization for substituting GHG-intensive fuel in power-generating units and/or generating power to supply to grid

Process waste gas recovery and combustion for electricity generation

B*

3 NM0108 Biodiesel production and switching fossil fuels from petro-diesel to biodiesel in the transport sector

Fuel switch N/A

Round 9 4 NM0045 CDM project for "optimal utilization of clinker

and conversion factor improvement” Cement B*


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5 NM0095 Methodology for increase of additive percentage in PPC-blended cement

Cement N/A

6 NM0097 Improvement in recovery of waste biomass from process streams and use of that biomass in energy generation

Recovery and use of waste biomass from process streams

N/A

7 NM0099 Energy efficiency improvement in process and manufacturing industries

Energy demand N/A

8 NM0101 Grasim baseline methodology for energy-efficiency improvement in heat conversion and heat transfer equipment system

Energy-efficiency improvement projects for heat transfer equipment and heat conversion equipment

N/A

Round 8 9 NM0080 Baseline methodology for grid-connected

electricity generation plants using non-renewable and less GHG-intensive fuel.

Grid-connected electricity generating project using non-renewable fuel in the energy industry

N/A

10 NM0031-rev.

OSIL 10-MW waste heat recovery-based captive power projects

Waste heat recovery in a steel plant

N/A

Round 7 1 NM0062 Natural gas-based combined cycle power plant Power generation in

conventional power sectors

N/A

2 NM0057 PFC emission reductions through installation of point break feeders (PBF) in horizontal stud Soderberg (HSS) cells

Aluminium N/A

Round 6 3 NM0049 Waste heat recovery from BOF gas at Jindal

Vijayanagar Steel Limited through power generation and supply to the Karnataka grid

Waste heat recovery in a steel plant

C*

Round 5 4 NM0045 Birla Corporation Limited: CDM project for

"optimal utilization of clinker and conversion-factor improvement”

Cement B*

5 NM0044 Energy efficiency improvements in municipal water utilities: power factor improvements

Energy efficiency: municipal water utilities

C*

6 NM0042 Energy-efficiency improvements in municipal water utilities: water pumping efficiency improvement

Energy efficiency: municipal water utilities

N/A

7 NM0037 Energy-efficiency project for modification of CO2 removal system of ammonia plant to reduce steam consumption

Energy efficiency: ammonia plant

B*

8 NM0031-rev.

OSIL 10-MW waste heat recovery-based captive power projects

Waste heat recovery in steel plant

N/A

9 NM0030 -rev.

Haidergarh bagasse/biomass-based power projects

Renewable energy: bagasse cogeneration

N/A

Round 4 10 NM0035 TA sugars cogeneration and fuel switch

project: capacity augmentation component Bagasse cogeneration and capacity augmentation

With drawn


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11 NM0032 Municipal solid waste treatment cum energy generation

Municipal solid waste A

12 NM0028 TA sugars cogeneration and fuel switch project: fuel switch component

Cogeneration and fuel switch

A

13 NM0025 18-MW grid-connected biomass power project Renewable energy: biomass power

C

Round 3 Round 2 Round 1 14 NM0011 SCM bagasse/biomass-based cogeneration

power project Cogeneration C

Note: A = Approved; B = Under revision; C = Rejected; N/A = Proposed new methodology is being reviewed at the methodology panel level.

*CDM Executive Board 15th meeting, September 1–3, 2004.


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7. LAWS AND REGULATIONS

7.1. Introduction

This chapter discusses the laws and regulations relevant to Indian CDM projects. As of the date of writing this chapter, there is no legislation which specifically incorporates CDM concepts into Indian law. Accordingly, this chapter includes a general discussion on laws and regulations (as applicable in India) relating to the establishment of a business presence, foreign investment, exchange control, energy, and environmental issues. These laws and regulations apply uniformly to all inbound investment, regardless of its intended purpose or the country of its origin. This chapter also discusses certain contractual issues relevant in drafting and negotiating agreements to purchase certified emission reductions (CER) generated from CDM projects in India. Additionally, it addresses the issues of ownership and title to such CERs.

7.2 Establishing a business presence in India 7.2.1 Entry strategies

An overseas entity planning to invest in India may do so either as a foreign company (i.e., incorporated in any country outside India) or as an Indian company.

As a foreign company. A foreign company could do business in India by establishing a project office, a branch office, or a liaison office in India. In accordance with prevailing exchange control regulations, the establishment of such offices is regulated by the central bank, i.e., the Reserve Bank of India (RBI). If foreign companies secure a contract from an Indian company to execute a CDM project in India, they may set up a temporary project or site office in India, subject to specific approval from the RBI. Such approval is generally accorded in respect to projects approved by appropriate Indian authorities, where the projects are financed by inward remittances from overseas or by a multilateral or bilateral international financial institution. To qualify as a CDM project, a project would need to be approved by the Ministry of Environment and Forests (MoEF), which is the designated national authority (DNA) for India.

Liaison office. The scope of activities permitted to be carried out by a liaison office is very limited, since they are not permitted to undertake any commercial activities or earn any income in India.

Branch office. A branch office is allowed to perform a wider range of activities, but may not perform manufacturing or processing activities, either directly or indirectly.

Therefore, a liaison office and a branch office would not be suitable in the context of foreign investors seeking to invest in CDM projects in India.

As an Indian company. A foreign entity could also invest in India and establish its presence either by incorporating a new company or acquiring or subscribing to shares in an existing one. In either case, the resultant Indian subsidiary could be a 100 percent subsidiary or a joint venture.


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Box 7.1 Process for incorporating a new company

Incorporating a new company. Indian companies are incorporated under the provisions of the (Indian) Companies Act, 1956. To incorporate a company, an application must be filed with the RoC of the relevant region. Once the company has been registered and incorporated, it would become subject to the same Indian laws and regulations as are applicable to other domestic Indian companies, and would be entitled to establish a CDM project after receiving the appropriate government approvals.

Where the resultant Indian subsidiary is a joint venture company, the following shareholding thresholds are significant under the Companies Act:

1. Minority shareholders holding 10 percent of the paid share capital of a company are entitled to apply for relief in the case that the affairs of a company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any shareholder.

2. Minority shareholders holding more than 25 percent of the paid share capital of a company may prevent the passing of a special resolution at a general meeting of the company, which requires a majority vote of not less than three-quarters of the members entitled to vote. Matters that are required to be passed by a special resolution include amending the articles of the association of a company or reducing its share capital.

3. Clearly, a shareholding of over 50 percent permits a shareholder to prevail in all votes on ordinary resolutions.

Acquiring a stake in an existing company. Until very recently, the acquisition of shares by an overseas investor from an Indian entity would have required approval from the Foreign Investment Promotion Board (FIPB) under the Ministry of Commerce and Industry (MoCI). This regulation has been liberalized; now, the transfer of shares from a resident entity to a non-resident entity does not require FIPB approval and is permitted under the automatic route, subject to compliance with the foreign direct investment (FDI) policy of the government of India. 7.2.2 Foreign investment policy

India’s economic policies are designed to attract significant capital inflows into India on a sustained basis and to encourage technical collaboration between Indian and foreign entities. Policy initiatives taken over the last few years have resulted in inflows of foreign investment in diverse sectors of the economy.

Incorporating a company in India is a two-step process. First, the registrar of companies has to approve the proposed name of the company. Then, the necessary incorporation documents such as the memorandum and articles of association of the company and other forms prescribed under the Companies Act are to be prepared. The company must be incorporated within six months of the RoC approving its name. Registration fees payable to the RoC for incorporation depend upon the authorized or nominal share capital of the company. It usually takes 10–40 days to incorporate a company from the date of submitting the name approval form to the RoC. Companies can either be incorporated as private or public limited companies. Private limited companies require a minimum of two shareholders; this number is seven for public limited companies. It is possible to incorporate a company as a private company with both the initial shareholders of such a company being foreign corporate bodies (whether public or private). As the incorporation process requires signing several documents, each foreign corporate body must, through a board resolution, authorize an individual as its representative to undertake the incorporation process, including subscribing to the memorandum and articles of association of the proposed company. Such an authorized signatory could either be a non-resident individual or a resident Indian.


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a. Economic policies and incentives for foreign investment

Following are the select notable features of India’s foreign investment policies and incentives:

• No government approval required for FDI in virtually all the sectors/activities, except a small negative list notified by the government.

• The government has notified “Sector Specific Guidelines for FDI” wherein investments up to specified sectoral caps are covered under the automatic route, with a few exceptions.

• The FIPB considers proposals for foreign participation that do not qualify for automatic approval.

• Decisions on all foreign investment proposals are usually taken within 30 days of application. • Free repatriation of capital investment and profits thereon is permitted, provided the original

investment was made in convertible foreign exchange. • Use of foreign brand names/trademarks for sale of goods in India is permitted. • Indian capital markets are open to foreign institutional investors. • Indian companies are permitted to raise funds from international capital markets. • Special investment and tax incentives are given for exports and sectors such as power,

electronics, software, and food processing. • “Single window” clearance facilities and “investor escort services” have been provided in

various states to simplify the approval process for new ventures. b. Foreign direct investment

India’s policy on foreign direct investment (FDI) sets out the extent of foreign equity permitted in various sectors of the economy in India and the conditions attached to such investments. While foreign entities can freely invest in most sectors, there are still some sectors where the policy either prohibits foreign investments (e.g., in real estate, defence, railway transport, or atomic energy) or does not permit FDI beyond a prescribed investment ceiling (e.g., in the insurance sector, FDI is permitted only up to 26 percent). FDI in relation to most activities can be brought in through the automatic route, i.e., without any prior approval of the government of India or the RBI. For the rest, FDI is permitted with prior government approval, which is issued by the FIPB. It is anticipated that much of the CDM investment in India will be in the power and renewable energy-related infrastructure sectors, in which 100 percent FDI is permitted under the automatic route.

7.2.2.1 Foreign investments

1. Automatic route a. New ventures: 100 percent FDI is permitted under the automatic route for all activities except

the following: i. Foreign equity investments beyond the specified sectoral caps or in sectors in which FDI is

prohibited, ii. Investment proposals for activities that require an industrial license, which is required in the

following cases: • for manufacturing those items requiring an industrial licence under the Industries

(Development and Regulation) Act 1951, including those industries reserved for the public sector;


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• foreign investment in excess of 24 percent of the equity capital of a unit manufacturing items reserved for small-scale industries;

• all items which require an industrial licence in terms of the locational policy notified by the government under the New Industrial Policy, 1991, and

iii. Investment proposals by a foreign investor for activities in a sector in which such an investor already has an existing joint venture, technology transfer agreement, or trademark agreement in India. This is in accordance with Press Note No. 1, dated January 12, 2005, which recently replaced an earlier and more restrictive set of regulations contained in Press Note 18. The new regulations provide that where a foreign investor has an existing business presence in India in the form of a joint venture, technology transfer agreement, or trademark agreement, and wishes to make a new investment in the same field, it must seek approval from the FIPB. However, this restriction does not apply in the following cases where:

• foreign investments are made by venture capital funds registered with the Securities and Exchange Board of India,

• investments by either party in an existing joint venture are less than 3 percent, and • the existing venture is defunct or sick. iv. Proposals relating to acquisition of existing shares in an Indian company by a foreign

investor. b. Existing ventures

Foreign investment in existing Indian companies is also permitted under the automatic route. The following additional requirements are that:

i. the funds for the foreign investment should be remitted in foreign currency, ii. the proposed foreign investment should be in a sector in which FDI is not prohibited and

should not result in breach of any sectoral cap. If the investment fails to meet one or more of these requirements, the proposal will require approval from the FIPB.

c. Reporting requirements

For foreign investments made under the automatic route, irrespective of whether they are in new ventures or existing companies, the company receiving the investments is required to notify and file certain documents with the relevant regional office of the RBI remittances within 30 days.

2. Non-automatic route The government of India considers (on merit) and gives composite clearance to proposals

for foreign investment that are not covered under the automatic approval route. These include proposals seeking other industrial approvals such as industrial license, technical collaboration, etc., along with approval for foreign investment.

7.2.2.2 Foreign technology agreements

The government has set up a Foreign Investment Implementation Authority in the Ministry of Commerce and Industry for providing a single window to foreign investors to facilitate quick translation of foreign investment approvals.

Foreign entities may also participate in the Indian CDM market through the provision of technology. Transfer of CDM-related technology would take place through a foreign technology collaboration agreement between the foreign entity and the Indian company engaged in the proposed CDM project. The contribution of technology could also be by a company in which the foreign entity is a shareholder.


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1. Automatic or approval route Under the FDI policy, foreign technology agreements are permitted either through the

automatic route or with prior approval from the government through the Project Approval Board (PAB). Government approval is required for foreign technology agreements in the following:

• Areas which attract compulsory licensing • Areas of manufacture reserved for the small-scale sector • By foreign entities in a field in which they already have a previous/existing joint venture,

technology transfer, or trademark agreement in India • Where (1) lump sum payments under the foreign technology agreement exceed US$2

million, or (2) royalty payable exceeds 5 percent of domestic sales and 8 percent of exports, subject to a total royalty payment of 8 percent on sales over a ten-year period.

Procedurally, applications under the automatic route must be registered with the RBI and applications submitted to the PAB, Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.

2. Payments under foreign technology collaboration agreements

Payments under foreign technology agreements may be repatriated (as a royalty or lump sum fees) through the automatic route, i.e., without RBI approval under the following conditions:

• Lump sum payments under such foreign technology agreements do not exceed $2 million. • Royalties payable do not exceed 5 percent of the domestic sales and 8 percent of the

exports, subject to a total payment of 8 percent of sales over a ten-year period. Where these remittance limits are exceeded, permission from the MOCI is required.

3. Industrial license

The requirement of obtaining an industrial license for manufacturing activity is limited to the following:

• Industries reserved for public sector (two in number) • Six industries of strategic, social, or environmental concern • Manufacture of items reserved for the small-scale sector by non-small-scale industry units or

units in which foreign equity is more than 24 percent

4. All other industries are exempt from licensing

Subject to certain locational restrictions in metropolitan areas. In the event that locational restrictions are not adhered to, the unit is required to obtain an industrial license. Industrial licensing is compulsory for investing in the following six industries of strategic, social, and environmental importance:

• Distillation and brewing of alcoholic drinks • Cigars and cigarettes of tobacco and manufactured tobacco substitutes • Electronic aerospace and defence equipment • Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose,

and matches • Hazardous chemicals • Drugs and pharmaceuticals


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7.3 Relevant environmental laws and regulations

India has a comprehensive set of environmental statutes and a well-developed jurisprudence, applied by, at times, an activist judiciary. The specific environmental laws that would impact a CDM project would depend on the details of a project. Provided below is an overview of some of the important national environmental statutes that would be of relevance to CDM projects in India. 7.3.1 The Water (Prevention and Control of Pollution) Act, 1974

The Water (Prevention and Control of Pollution) Act, 1974 (Water Act), vests regulatory authority in state pollution control boards and empowers these boards to establish and enforce effluent standards for units discharging pollutants into bodies of water. The boards control sewage and industrial effluent discharges by approving, rejecting, or conditioning applications for consent to discharge. The state boards also advise state governments on appropriate sites for new industries.

Enforcement under the Water Act is achieved through criminal prosecution initiated by the state pollution control boards, which may also close a defaulting industrial plant or withdraw its supply of power or water by an administrative order. 7.3.2 The Air (Prevention and Control of Pollution) Act, 1981

The framework of the Air (Prevention and Control of Pollution) Act, 1981 (Air Act), is similar to the one created by the Water Act. Under the Air Act, all industries operating within designated air pollution control areas must obtain “consents” from the relevant state pollution control board. The states prescribe emission standards for industry after consulting the central pollution control board.

State pollution control boards may close down a defaulting industrial plant or stop its supply of electricity or water. The relevant state pollution control board may also apply to a court to restrain emissions that exceed prescribed standards. 7.3.3 Consequences of breach by a company under the Air Act and the Water Act

Where an offence under the Air Act or the Water Act is committed by a company, every person who, at the time the offence was committed, was directly in charge of and was responsible to the company for the conduct of the business of the company, is deemed to be guilty of the offence and liable to be proceeded against. Further, if it is proved that the offence has been committed with the consent or connivance of, or is attributable to neglect on the part of a director or officer of the company, such director or officer is also deemed to be guilty of that offence and liable to be proceeded against. 7.3.4 The Environment (Protection) Act, 1986

The Environmental Protection Act, 1986 (EPA), is intended to provide a framework for the central government to coordinate the activities of various central and state authorities established under previous laws, such as the Water Act and the Air Act. It also delegates wide powers to bureaucrats to frame necessary rules and regulations. The EPA empowers the central government to take the necessary measures to protect and improve the quality of the environment, and to prevent, control, and abate environmental pollution.

Any person who fails to comply with or contravenes any provisions of the EPA or the rules, orders, or directions issued under it, is liable to be punished, for each failure or contravention,


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with a prison term of up to five years or a fine of up to Rs. 100,000 or both. The EPA imposes an additional fine of up to Rs. 5,000 for every day of continuing violation. If a failure or contravention occurs for more than one year after the date of conviction, an offender may be punished with a prison term of up to seven years. 7.3.5 The Energy Conservation Act, 2001

The Energy Conservation Act, 2001, was enacted in September 2001 to address all matters related to the efficient use of energy and its conservation. A Bureau of Energy Efficiency (BEE) has been set up to discharge the activities entrusted under the act. The bureau is expected to investigate the energy consumption norms for each energy-intensive industry and encourage the proper labelling of energy consumption indicators on every electrical appliance. The responsibilities of the bureau also include providing guidelines for energy conservation building codes, and taking measures to create awareness and disseminate information for the efficient use of energy and its conservation. The BEE is also to develop testing and certification procedures and promote testing facilities for certification and for energy consumption of equipment and appliances. 7.3.6 Reforms in the coal sector

The government has constituted the Expenditure Reforms Commission (ERC) towards reforming the coal sector. Major recommendations of the commission are as follows:

• All restrictions on the entry of the private sector in exploration and production of coal to be removed by amending the Coal Mines Nationalisation Act, 1973.

• The Coal Bearing Areas (Acquisition and Development) Act, 1957, to be amended and an independent regulatory body to be set up.

• The industry to be restructured by doing away with the holding company (Coal India Limited) and coal controller, among other things.

• The Coal Mines (Conservation and Development) Act, 1974, to be amended to empower responsibility to both public and private sectors for scientific mining, conservation, safety and health, protection of environment, etc.

• States to be permitted for developing lignite resources outside the command areas of the Neyveli Lignite Corporation.

• Design strategy to consider the role of coal in energy security.

Before January 2000, the central government was empowered under the Colliery Control Order, 1945, to fix the grade-wise and colliery-wise prices of coal. However, following the Colliery Control Order, 2000, the prices for all grades of coking and non-coking coal have been deregulated. The current basic price of coal varies from Rs. 1,450 per tonne to Rs. 250 per tonne for different grades (GoI MoEF 2004). 7.3.7 The Electricity Act, 2003

The Electricity Act, 2003, enacted by the government of India, has de-licensed the generation of electricity in India. Clause (7) of the act states that “any generating company may establish, operate, and maintain a station without obtaining a license under this Act if it complies with the technical standards relating to connectivity with the grid.”27 The salient features of the act are given below:

27. The Act can be downloaded from http://www.bee-india.nic.in


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• The central government to prepare a national electricity policy in consultation with state governments (section 3).

• Thrust to complete rural electrification and provide for management of rural distribution by panchayats, cooperative societies, non-government organizations, franchises, etc. (sections 4, 5, and 6).

• Provision for licence-free generation and distribution in rural areas (section 14). • Generation being de-licensed and captive generation being freely permitted. Hydro projects

would, however, need clearance from the Central Electricity Authority (sections 7, 8, and 9). • Transmission utility at the central as well as state level to be a government company with

responsibility for planned and coordinated development of the transmission network (sections 38 and 39).

• Provision for private licensees to transmit and enter into distribution through an independent network (section 14).

• Open access for transmission from the outset (sections 38–40). • Open access to distribution to be introduced in phases with surcharges for the current level

of cross subsidy to be gradually phased out, along with cross subsidies and obligation to supply. State electricity regulatory commissions (SERC) to frame regulations within one year regarding phasing of open access (section 42).

• Distribution licensees would be free to undertake generation, and generating companies would be free to take up distribution businesses (sections 7, 12).

• The State Electricity Regulatory Commission is a mandatory requirement (section 82). • Provision for payment of subsidy through budget (section 65) • Trading, a distinct activity, is recognized through the safeguard of the regulatory

commissions being authorized to fix ceilings on trading margins, if necessary (sections 12, 79, and 86).

• Provision for reorganization or continuance of SEBs (sections 131 and 172). • Metering of all electricity supplied made mandatory (section 55). • An appellate tribunal to hear appeals against the decision of the CERC and SERCs (section

111). • Provisions relating to theft of electricity made more stringent (sections 135–150). • Provisions safeguarding consumer interests (sections 57–59, 166) Ombudsman scheme

(section 42) for redressal of consumer grievances. 7.3.8 Environmental impact assessment (EIA)

India’s Ministry of Environment and Forests (MoEF), under the Environmental Protection Act, 1986, promulgated a notification on January 27, 1994, making environmental clearance mandatory for expansion or modernization of any activity or for setting up new projects listed in schedule I of the notification. An environmental impact assessment (EIA) is an important management tool for ensuring optimal use of natural resources for sustainable development. A beginning in this direction was made in India with the impact assessment of river valley projects in 1978/79, and the scope has subsequently been enhanced to cover other developmental sectors such as industry, thermal power projects, mining schemes, etc. To facilitate collection of environmental data and preparation of management plans, guidelines have been evolved and circulated to the concerned central and state government departments in India. EIA has now


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been made mandatory in India under the Environmental Protection Act, 1986, for 29 categories of developmental activities involving investments of Rs. 50 crores and above.

Until 1994, EIA clearance was an administrative requirement for big projects undertaken by the government or public sector. EIA clearance is required for 29 categories of industries from the central government, which can be broadly categorized under the sectors of industry, mining, thermal power plants, river valley, ports, harbours, airports, communications, atomic energy, transport (rail, road, highway), and tourism (including hotels and beach resorts). For some projects, an EIA is not needed. The notification states that the EIA requirement can be dispensed with by the Impact Assessment Agency (IAA), which presently is the MoEF. Environmental appraisal committees constituted by the MoEF for various types of developmental projects include river valleys; multipurpose irrigation and hydroelectric projects; atomic power and nuclear fuel projects; mining, industrial, and thermal power projects; tourism, transport, and miscellaneous projects; and port and harbour projects. The MoEF has developed guidelines for the preparation of EIA reports along with questionnaires and checklists for the following sectors: industry and mining; thermal power; river valley, rail, road, and highways; ports and harbours; airports; communications; new towns; and parameters for determining ecological fragility.

7.4 Intellectual property regime

India is a signatory to the Trade Related Intellectual Property Rights Convention (TRIPS) and has a well-developed legal framework that affords world-class protection to intellectual property. Thus, intellectual property owned by a foreign investor that may be used in India in connection with its CDM project would be safeguarded under the following key legislation:

• Patents Act, 2002. On December 27, 2004, the central government issued an ordinance for introducing a product patent regime for pharmaceuticals and agro-chemicals from January 1, 2005, to fulfil India's obligation to the World Trade Organization.

• Trademarks Act, 1999. Effective since September, 2003, which affords protection to trademarks.

• Designs Act, 2000. Governs industrial design protection in India. • Copyright Act, 1957. Protects copyrights.

7.5 Labour law regime

In India, both the central and state governments may enact laws relating to employment and labour. A wide range of labour statutes in India regulate the conditions of employment and impose several obligations on the employer in relation to the employees and the attitude of the government. The court is typically labour-friendly. The contravention of Indian labour laws invites different types of punishment, ranging from monetary fines to imprisonment.

Employees in India are broadly categorized into (1) workmen and (2) non-workmen. This distinction is based on the nature of work performed and on certain other criteria prescribed in the Industrial Disputes Act, 1947 (ID Act). If an entity running a CDM project in India is governed by the ID Act and its employees are workmen, the closure of such a unit and removal of the workmen engaged therein must be carried out in accordance with procedures specified under the ID Act. Further, the workmen would be entitled to severance compensation determined in accordance with the ID Act. The employment terms of employees who are not "workmen" are largely governed by their employment contracts or letters of appointment.


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There are specific statutes which govern wages and hours of work, primary amongst which are the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, and the shops and establishments acts of various states. While the first two are central legislation applicable to the whole of India, the third is state legislation and therefore varies from one state to the other.

India also has various social security or benefits legislation, most notably the Employees Provident Funds and Miscellaneous Provisions Act, 1952, and the Employees State Insurance Act, 1948. An employer has the option to either formulate its own policy to provide health insurance to its employees or follow the provisions contained in the Employees State Insurance Act, 1948 (ESI Act). However, if an employer chooses to have its own policy, the terms are required to be either equal to or more beneficial than those provided under the ESI Act.

7.6 Property issues 7.6.1 Nature of CERs

The precise legal nature of the emissions reductions created under the Kyoto Protocol is a matter of debate in India. Even globally, the question of what exactly is being bought and sold in a transaction involving emissions reductions is under consideration. Identifying the legal nature of emissions reductions is significant for risk, title, and taxation-related issues in any CER sale and purchase transaction.

Ideally, for India to benefit from emissions trading under the Kyoto Protocol, the Indian government would eventually have to “commoditize,” through appropriate legislation, the cumulative benefits arising from emissions reductions, so as to facilitate international trade in CERs. Until law on the subject is enacted or executive orders are issued, a purchaser of CERs would have to secure, by way of a contractual right, any and all benefits that may arise from the fact that the seller (or some third party from whom the seller purchases the CERs) has reduced its GHG emissions.

As far as the nature of CERs is concerned, in the current legal framework, it may be appropriate to consider them as intangible assets that are capable of being transferred, bought, or sold. In this regard, we can draw an analogy between CERs and other intangible assets such as the goodwill of a business, a trademark or brand name, a statutory or contractual right to manufacture, produce, or process any article or thing, and import licenses.

In certain jurisdictions, the trading of emissions reductions is regulated under securities or financial laws. At the date of writing, however, the term securities, (under Indian law) has not been either expanded or interpreted to include emissions reductions. Of relevance would be a consideration of the Honourable Supreme Court of India's views on the nature of import licenses, which also (like CERs) confer a right upon their holders that may be transferred for value. However, the Honourable Supreme Court was of the view that such import licenses could not be treated as securities in the absence of a specific declaration to this effect by the central government. Accordingly, the central government would have to make a specific declaration under the relevant legislation before CERs may be treated as securities. 7.6.2 Title to CERs

In the absence of any law in India that deals with the legal ownership of CERs, or any determination by the Indian DNA in this regard, it may not be possible at this point to reach any conclusion on this subject. There is a school of thought that believes that CERs are actually


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owned by the countries in which they are produced, because they are instruments of an international treaty of which states are the sole parties. But there is another school of thought that believes that it is the investors in the CDM project who are the legal owners of any CERs produced from such projects.

Accordingly, if the Indian government were to take the former view, owners of Indian CDM projects would have to obtain a cessation of ownership from the Indian government to prove ownership of the CERs that they have produced. If the latter view were to be adopted, however, owners of Indian CDM projects would have the exclusive right to deal with such CERs.

A relevant aspect to this debate is the fact that the Marrakesh Accords do not clarify whether the CDM Executive Board registry will open sub-accounts for public and private entities of non-Annex I Parties (host countries like India). Therefore, the determination of this issue will also have an effect on the ability of public and private entities of non-Annex I Parties to own and/or sell CERs independently of any involvement of the host country.

7.7 Contractual issues in carbon trading contracts

Until the necessary CDM-related laws are enacted in India, foreign investors in Indian CDM projects who intend to transact in CERs generated from such projects would have to rely on contractual mechanisms to protect their rights as sellers/buyers of such CERs. All parties concerned would also need to contractually address the possible consequences of unanticipated changes in Indian policy on CDM projects. Accordingly, we discuss below key issues of relevance to foreign investors entering into joint venture agreements or CER sale and purchase agreements with Indian parties. 7.7.1 Indian law as governing law of contract

It will not be mandatory to choose Indian law as the governing law of the joint venture agreement or the contract for sale and purchase of CERs merely because the CDM project is located in India. Indian law recognizes that parties have the contractual freedom to choose a foreign law as the governing law of the contract.

However, where the contract contains no express provision with respect to governing law and no inference regarding the same can be drawn, the intention of the parties would become irrelevant and the courts would choose the governing law as the one that has the closest and most real connection to the contract. In such a situation, the courts would take into account (a) the place where contract was made, (b) the form and object of the contract, (c) the place of residence or business of the parties, and (d) courts having jurisdiction.

Therefore, as Japanese investors may not be familiar with Indian law, it would be possible for them to choose the law of another country (i.e., English law) as the governing law of the contract. They would also need to ensure that the contract expressly provides for such law as the governing law for the contract. In most cases, however, the choice of Indian law should be acceptable. 7.7.2 Jurisdiction of courts

It is possible for contracts between Indian and foreign entities to provide that disputes thereunder would be subject to the jurisdiction (whether exclusive or otherwise) of a foreign court. However, this would not completely exclude the jurisdiction of Indian courts. It is open to Indian courts to assume jurisdiction in matters where the interests of justice and balance of


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convenience would be best served if the Indian courts adjudicated on the matter. Indian courts have assumed jurisdiction in spite of exclusive/non-exclusive jurisdiction being conferred on foreign courts, though this is not common. 7.7.3 Key contractual terms of CER sale/purchase contract

In the event that the concerned parties choose Indian law as the governing law of the contract for sale/purchase of CERs, the provisions of such a contract would have to be drafted in accordance with Indian contract law, which is largely based on the concepts of English law.

A typical contract for the sale/purchase of CERs would ideally include the following clauses (these will be similar in other such contracts around the world):

• Recitals. These should clearly summarise the purpose and subject matter of the contract and the details of the CDM project.

• Definitions and interpretation. This clause should describe the terms used in the contract and contain an explanation of how to interpret and read the contract.

• Sale and purchase. This clause should outline the unit of measurement in which emission reductions are being calculated, and the number and vintage of the CERs to be sold from the particular CDM project.

• Conditions precedent. At the time of signing the contract for sale and purchase of CERs, certain regulatory approvals from the host country as well as participation requirements of Article 12 of the Kyoto Protocol may be pending. Also, the CDM project itself may not yet be in existence. It is therefore important that the obligations of the parties under the contract become enforceable only upon the occurrence of such events.

• Delivery of CERs. This clause should set out when the CERs accrue to the buyer, the mechanism for delivery of CERs, documents evidencing the delivery of CERs, and the point at which the legal ownership in CERs would transfer to the buyer, etc.

• Price and terms of payment. This clause should cover the price of CERs, manner of invoicing and payment, penalties for late payment, and responsibility for payment of taxes and statutory dues in relation to sale of CERs.

• Representations, warranties and liability. These clauses should cover the usual commercial warranties as well as specific warranties by the seller relating to creation of rights in CERs and warranties by the buyer relating to timely payment. Also, a clause covering indemnity against third-party action and a limitation of liability on the part of both the parties should be included.

• Events of termination of the contract and consequences of such termination. Apart from covering common grounds of termination for both buyer and seller, this clause should address the following; (i) non-payment by buyer, and (ii) shortfall or failure to deliver CERs by the seller.

In fact, one of the more contentious issues in the negotiation of a CER sale agreement is the question of how to treat the shortfall of CERs expected to be generated from the Indian CDM project. Some buyers may insist on provisions for liquidated damages and penalties. The cause of shortfall may, in fact, be outside the control of the seller, and hence sellers should seek protection from the risk of incurring penalties and damages from factors beyond their control. Sellers could also look to procure insurance for such potential shortfalls.


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• Enforceability of liquidated damages and penalties in India. In India, provisions relating to liquidated damages that provide for a specific sum as a reasonable and genuine pre-estimate of damages envisaged by the parties are typically enforceable under section 74 of the Indian Contract Act, 1872. Provisions stipulating penalties on the defaulting party in a contract are also enforceable under the same section. However, courts do examine the reasonableness of such penalties and award what they consider a reasonable sum.

• Dispute resolution. In the Indian context, the parties to a contract should consider arbitration as the preferred means of dispute resolution rather than court proceedings. foreign investors may note that under Indian contract law, parties are free to choose the governing law of arbitration in respect to substantive as well as procedural issues. Where no provision as to the governing law of arbitration is made, the courts presume that the governing law of the contract will also be the governing law of arbitration. Where, however, no mention is made regarding either the law governing the contract or the law governing arbitration, in the absence of any intention to the contrary, Indian courts presume that the law of the place of arbitration is the law governing the contract and arbitration.

• Force majeure. This clause should set out what events would constitute force majeure events and what the consequences of such events would be. Force majeure is a common clause in contracts which essentially frees one or both parties from liabilities when an extraordinary event beyond the control of the parties–such as flood, war, riots, acts of God, etc.– prevents one or both parties from fulfilling their obligations under the contract.

• Boilerplates. These clauses typically cover issues such as confidentiality provisions, severability, waiver, variation, survival, notice, assignment, etc.


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8. FISCAL AND FINANCING ISSUES

8.1 India and economic development

India, the fastest growing free-market democracy in the world, registered a growth rate of 8.2 percent in the financial year 2004. Strong manufacturing and services growth propelled India’s per capita income at current prices to Rs. 23,241 (US$534) in 2004/2005. Today, India is a $650 billion economy. The growth trend was led by several positive movements across sectors, in agriculture, manufacturing, and services.

• Agriculture grew by 9.1 percent in fiscal year 2004, after garnering 16.5 percent and 10.5 percent in the third and fourth quarters.

• Manufacturing grew by 7.3 percent, improving on its 2002/03 figure of 6.7percent. Much of the country’s present economic position is due to its dynamic and highly competitive private sector. It accounts for over 75 percent of its GDP. About 20 percent of Indian automotive production in 2004 was exported to developed countries.

• Other sectors such as electricity, gas, and water supply grew over 5 percent, construction rose by 6.2 percent, trade, hotels, transport, real estate, and business services grew by 6.8 percent, while community, social, and personnel services saw a 6 percent growth (India Brand Equity Foundation (IBEF) 2005b).

One of the world’s largest food producers, India produces 600 million tonnes of food grains every year. Its granaries had a buffer stock of nearly 50 million tonnes of food grains (wheat and rice) in 2003/04. The second largest exporter of rice and fifth largest exporter of wheat in the world, its agricultural exports account for nearly 14.2 percent of its total export figures.

The services sector, which has been growing consistently at a rate of seven percent per annum, accounts for almost half of the country’s GDP. Export revenues from the sector are expected to grow from $8 billion in 2003 to $46 billion in 2007 (IBEF 2005b).

A Goldman Sachs report, Dreaming with BRICs: The Path to 2050, states that among Brazil, Russia, India, and China, India will grow the fastest over the next 30–50 years by leveraging its demographic advantages and through continued development. At its present rates of growth, the burgeoning market in the country “would be adding nearly one France every 3.5 years and one Australia every year (IBEF 2005b).


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However, there are other kinds of concerns at the same time. The World Bank estimates that current losses in the Indian power sector amount to approximately $5 billion per year. Recent studies estimate a 4–12% increase in greenhouse gas (GHG) emissions per metre drop in water tables. Thus, over-exploitation of water resources also becomes a significant contributor to India’s growing carbon emissions (USAID 2005).

These statistics corroborate the fact that India is a country with a stable economy, and with a great potential for being a major supplier of CDM projects. However, in order to enable a large number of high-quality CDM projects yielding certified emission reductions (CERs) from India to be established, the institutional framework in the Indian financial sector has to be suitably prepared. So far, banks and financial institutions have not developed procedures for efficient financing of CDM projects. A prerequisite for greater involvement of the financial sector is the establishment of a transparent, consistent, and credible approval mechanism by regulators at the national and state levels. Further, industry and other project developers would need to enhance their capacity to develop successful projects.

Since the actual emission reduction from a CDM project depends on its satisfactory performance, the money flow takes place post facto, and is adjusted based on performance and its verification by independent agencies. The project finance model (i.e., limited resource-based project financing) is in its infancy in India, and has been applied only to large-size infrastructure projects, albeit with mixed success. Consequently, projects that would be attractive for CDM—such as renewable energy or energy efficiency—would need other financing structures.

But before one goes into the details of finances and investments in CDM projects, it is worth spending a few minutes getting an insight into the way the financial sector is organized in India, its functioning, and the interrelation with economic performance.

8.2 An overview of India’s financial services sector

India’s financial services sector is in the process of rapid transformation and reforms that are continuing as part of the overall structural reforms aimed at improving the productivity and efficiency of the economy. The financial services industry can be broadly divided into banking, capital markets (asset management/mutual funds and portfolio investors), insurance companies, and non-banking financial intermediaries/institutions (Ernst & Young 2003). 8.2.1 Recent changes in banking

Banking today has transformed into a technology-intensive and customer-friendly model with a focus on convenience. The sector is set to witness the emergence of financial supermarkets in the form of universal banks providing a suite of services from retail to corporate banking and


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industrial lending to investment banking. While corporate banking is the largest segment, personal financial services constitute the highest growth segment.

The government, through the Ministry of Finance (MoF), is responsible for the policies of the financial system, and also plays an important role in the domestic banking system through its ownership and control over the management of the 27 public sector banks. Prior to the reforms in 1991, India’s banking system was almost entirely owned by the government, except for about 22 private sector banks and foreign banks. The financial reforms of 1991 led to the banking system’s movement from a totally administered sector into a more market-driven system.

The reforms included progressive tightening of prudential norms for asset quality and capital adequacy (benchmarking international norms), deregulating interest rates, liberalising the entry norms for new intermediaries, and developing new institutions. The entry of the new private sector banks has brought about increased competition, though the public sector banks still continue to dominate the banking system. This also resulted in a significant improvement in the level of technology employed by banks and in their customer service standards.

In a landmark policy shift declared by the MoF in February 2005, public sector banks can now enter into new businesses like insurance, mutual funds and project financing, float subsidiaries, open overseas branches, and decide on mergers and acquisitions without having to receive approval from the ministry. 8.2.2 Reserve Bank of India

The Banking Regulation Act, 1949, provides the legal and institutional framework for the banking industry in India. The Reserve Bank of India (RBI) is responsible for regulating and supervising the banking system in India and is governed by the RBI Act, 1934. The RBI also regulates non-banking finance companies and key financial institutions, and jointly supervises the urban co-operative banks along with the respective state authorities. It acts as the banker to the government and manages its internal debt program. RBI is also the lender of last resort to banks and financial institutions, and is responsible for management of currency and payment systems, foreign exchange, and conduct of monetary and credit policies. 8.2.3 Capital markets

The Indian capital markets have witnessed a transformation over the last decade and India is now placed among the mature markets of the world. The securities regulatory authority is the Securities and Exchange Board of India (SEBI). SEBI was established as a statutory body in 1992 to regulate and promote the development of the Indian securities market and to protect the interests of small retail investors. SEBI regulates the functioning of Indian capital markets and issues detailed guidelines concerning capital markets, disclosures by public companies, and investor protection. SEBI also formulates regulations to govern various intermediaries such as brokers, portfolio managers, merchant bankers, etc., as well as to regulate the mutual fund industry, portfolio investments by financial institutions, and venture capital investments. 8.2.4 Mutual funds

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian retail/corporate investors a wider choice of fund families. The industry size increased from Rs. 470 billion in March 1993 to Rs. 1,218 billion in March 2003 (33 mutual funds operating 382 schemes). The private sector now plays a dominant role and has the largest share in the industry. Historically, the Unit Trust of India was the dominant player in the mutual


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fund industry. Over the years, private sector funds have grown steadily and now comprise the largest segment of the domestic mutual fund industry. 8.2.5 Foreign institutional investors

As at March 2003, there were 502 foreign institutional investors registered with SEBI with total net investment in India of Rs. 610 billion. While the portfolio investments of the foreign institutional investors have traditionally been skewed in favour of equities, recently the markets have also witnessed inflows into debt securities and derivatives. More recently, India has generated a high level of interest among foreign investors and has witnessed a marked increase in foreign portfolio investments. 8.2.6 Insurance companies

The insurance industry in India was traditionally a domain of the government insurance behemoths such as Life Insurance Corporation of India (LIC) in life insurance, General Insurance Corporation (GIC), and its four subsidiaries in the non-life insurance segment, along with Export Credit and Guarantee Corporation in general insurance. However, in August 2000, the insurance sector was opened to private participation and since then 12 new life insurance and eight new general insurance companies have entered the market as joint ventures with major global insurance companies.

The LIC dominates the life insurance sector with a life insurance fund of over Rs. 2,000 billion and market share of 92 percent. The performance of the private sector participants has been robust. The market share of private life insurers in new premiums has increased to eight percent in the financial year 2003 compared to two percent in the financial year 2002, while the share of private general insurers has increased to nine percent in financial year 2003 versus four percent in financial year 2002. The Insurance Regulatory and Development Authority (IRDA), established under an act of Parliament, regulates the insurance and reinsurance business in India. 8.2.7 Non-banking financial institutions • Non-bank finance companies (NBFCs)

They provide loans and hire-purchase finance, mostly for retail assets. NBFCs are required to register with RBI, which has extensive supervisory and regulatory powers over NBFCs. The total assets of the NBFCs (including the non-deposit-taking NBFCs) amounted to Rs. 540 billion (1.9 percent of assets held by financial intermediaries) in March 2001.

• Housing finance companies (HFCs)

As the name suggests, the primary objective of these companies is to extend finance to the public for housing purposes. The sector was earlier dominated by the Housing Development Financial Corporation (HDFC), which had a 66 percent share in 1998. However, large banks have rapidly gained market share in the last two years reducing HDFC’s share to an estimated 42 percent in 2002. Total assets of all HFCs amounted to Rs. 634 billion (2.2 % of assets held by financial intermediaries) as at March 2002. The housing finance industry is the fastest growing segment within the banking and finance sector.

• Credit-rating agencies

The following entities rate corporate debt, including debentures and commercial paper: Credit Rating Information Services of India Limited (CRISIL), India’s first credit rating


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agency—Investment Information and Credit Rating Agency of India (ICRA), and Credit Analysis and Research Limited (CARE). They also rate the credit risk of companies—a factor often used by nationalised banks in evaluating loan applications. 8.2.8 Other aspects of the financial services industry • Key stock exchanges

India has 23 recognized stock exchanges, which operate under government-approved rules, bylaws, and regulations. These exchanges constitute an organized market for securities issued by the central and state governments, public sector companies, and public limited companies. India has modernized the operations of its stock exchanges through the introduction of screen-based trading.

The Stock Exchange at Mumbai—BSE (earlier called Bombay Stock Exchange)—was hitherto India’s premier stock exchange. However, the National Stock Exchange (NSE), which commenced operations in 1994, and which provides nation-wide trading facilities to investors through an established nationwide information technology network, now executes a higher proportion of trades transacted on stock exchanges. In addition, NSE is also the primary exchange for debt securities.

SEBI has initiated the process of demutualisation (i.e., segregating the ownership, management, and trading rights) of stock exchanges for ensuring better functioning of stock exchanges and introducing transparency in their operations.

• Listing requirements

Public limited companies are not statutorily required to list their shares on a recognized stock exchange. However, companies must be listed on a stock exchange if their shares and debentures are offered to the public for subscription. For initial public offerings, companies must abide by stock exchanges’ requirements to have their shares admitted, and if a company is not admitted to the exchange, it must refund amounts received from subscribers. Consequently, companies should apply to one or more recognized stock exchanges for a listing before issuing a prospectus.

• Investor protection

In addition to the SEBI regulations on investor protection, the Companies Act, 1956, and the Securities Contracts (Regulation) Act, 1956, also contain provisions for protecting the interests of investors. Under the SEBI regulations, insider trading is punishable in certain specified circumstances. SEBI is streamlining the guidelines governing takeovers, public issues, and disclosure norms to introduce increased transparency to the capital markets. Aggrieved investors may seek redressal by writing to SEBI and informing the concerned stock exchanges. They may also file complaints with the district forum, state commission, or national commission established under the Consumer Protection Act, 1996.

8.3 Investment climate and foreign trade in India

The government is rewriting the rules of foreign investment to remove the distinction between foreign direct investment (FDI) and that made by foreign institutional investors (FII). This is because the government is convinced that the existing rules of registration for FIIs in India and the safeguards put in place by SEBI to prevent unregistered overseas entities from tapping the markets here are reasonable defenses to prevent a run on capital from domestic companies.


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Therefore, there is no reason to make any distinction between FDI inflow and FII inflow (IBEF 2005b).

The government has accordingly given the go-ahead to a proposed second report on FII investment. It has identified several sectors where FII investments should not be subject to the sectoral limits for FDI. In the telecom sector, for instance, the revised FDI cap of 74 percent subsumes FII investment. The government has already indicated its intention to push for more foreign investment in the economy, and it is felt that burdening sectors with more entry rules could be counter productive (IBEF 2005b). 8.3.1 Foreign investment framework

The FDI regime has been progressively liberalized during the course of the 1990s (particularly after 1996). Most restrictions on foreign investment have been removed and the procedures have been simplified. With very limited exceptions, foreigners can invest directly in India, either wholly or as a joint venture. Today, there are very few industries wherein foreign investment is prohibited. It is allowed in virtually all sectors, subject to government permission in certain cases. Moreover, investment ceilings, which are applicable in certain cases, are gradually being removed. 8.3.2 Foreign portfolio investment

Besides direct investment in India, non-residents can also make portfolio investments. FIIs are allowed to invest in the primary and secondary capital markets in India under the Portfolio Investment Scheme (PIS). The term FII is defined as an institution established or incorporated outside India for making investment in Indian securities and also includes a sub-account of an FII. All FIIs must register themselves with SEBI and comply with the exchange control regulations of the RBI.

Foreign pension funds, mutual funds, investment trusts, asset management companies, nominee companies, and incorporated/institutional portfolio managers or their power-of-attorney holders, are allowed to invest in India as FIIs. They may invest in securities traded in both the primary and secondary markets. These securities include shares, debentures, warrants, units of mutual funds, government securities, and derivative instruments.


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8.3.3 Investment limits

The investment limits as laid down in the FII guidelines and the RBI regulations are as follows:

• An FII and each of its sub-accounts can individually invest up to ten percent of the paid-up share capital of an Indian company. However, an FII together with all its sub-accounts (Appendix IX) cannot hold more than 10 percent of the paid-up capital of an Indian company. A lower limit of five percent applies to foreign corporations and foreign individuals as sub-accounts.

• FIIs can cumulatively hold up to 24 percent of the paid-up share capital of a company, but they may increase their holding up to the applicable sectoral limits in various sectors with the approval of the board of the investee Indian company. The shareholders of the investee Indian company must also pass a special resolution to approve such an increase. The foreign investment under PIS is in addition to amounts invested as FDI in the Indian company.

• Unless an FII is registered as a debt fund, the total investment in equity and equity-related instruments should not be less than 70 per cent of the aggregate of all its investments. An FII registered as a debt fund can invest the entire amount in debt securities. The above investment restrictions do not include investments made by an FII through

offshore funds, global depository receipts (GDRs), American depository receipts (ADRs) or euro-convertible bonds28. FIIs are allowed to tender their shares in the case of an open offer following a takeover bid by an acquirer. They are also permitted to take forward cover on their equity and debt exposures to hedge against currency fluctuations. However, they are not allowed to short sell and can only engage in delivery-based trading. 8.3.4 Foreign investment promotion board

The FIPB is a specially empowered board chaired by the Secretary, MoF, set up specially for expediting the approval process for foreign investment proposals. There are no prescribed application forms for applying to the FIPB, except in the case of purely technical collaboration. Proposals for foreign direct investment may be sent to the FIPB Unit, Department of Economic Affairs, MoF, or through any of India’s diplomatic missions abroad. The government has started a mailbox facility for accepting FDI proposals through the Internet and providing an acknowledgement number for the same, with the condition that a hard copy should be received in original before the proposal is considered by the government.

The FIPB has flexibility to examine all proposals in totality, free from predetermined parameters or procedures. Its approach is liberal for all sectors and all types of proposals. While applications are subject to stages of negotiations, it is important for the investors to convince the FIPB of the benefits to the Indian economy from the project. Some of the other parameters that the FIPB considers while evaluating proposals are the levels of investment proposed, the

28. American depository receipt (ADR) is the securities issued by commercial banks that represent the shares of a foreign

company. ADRs trade just like normal stocks on various US stock exchanges. Their performance usually parallels that of the parent company on its domestic exchange. Global depository receipt (GDR) is a bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. It also means a financial instrument used by private markets to raise capital denominated in either US dollars or euros. A GDR is very similar to an ADR; these instruments are called EDRs when private markets are attempting to obtain euros.


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technology to be inducted, the export potential or the import substitution factors, and employment potential.

Recommendations of FIPB in respect to proposals falling in the non-automatic route and involving an investment of Rs. 6 billion (US$130 million) or less are considered and approved by the finance minister. Projects with an investment greater than Rs. 6 billion are submitted by the FIPB to the Cabinet Committee on Economic Affairs (CCEA) for approval. 8.3.5 Foreign investment implementation authority (FIIA)

The government has set up the FIIA in the Ministry of Industry, pursuant to announcement in the Union Budget Speech for 1999/00. The FIIA facilitates quick translation of FDI approvals and implementation and provides a proactive, one-stop after-care service to foreign investors by helping them: obtain necessary approvals, sort out operational problems and meet with various government agencies to find solutions to problems, and maximize opportunities through a partnership approach.

The FIIA, in accordance with its mandate, assumes the following roles:

• understand and address concerns of investors, • understand and address concerns of approving authorities, • initiate multi-agency consultants, and • refer matters not resolved at the FIIA level to higher levels on a quarterly basis, including

cases of project slippages on account of implementation bottlenecks.

Table 8.1 summarizes the functions and modalities of functions of the FIIA. As evident below, there are six major functions that the FIIA engages in.


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Table 8.1. Functions and modalities of FIIA

Functions of FIIA Modalities of Functions of FIIA

Expediting various approvals/ permissions

The FIIA has set up a Fast Track Committee (FTC) to review and monitor mega-projects.

Fostering partnership between investors and government agencies concerned

The FIIA has initiated inter-ministerial consultations to make appropriate recommendations to the competent authority, i.e., ministry /department concerned at the central government level and the state government, as the case may be, on issues requiring policy intervention.

Resolve difference in perceptions The FIIA acts as a single point interface between the investor and government agencies including administrative ministries, state governments, pollution control board, DGFT, regulatory authorities, tax authorities, and Company Law Board.

Enhance overall credibility The FIIA meets regularly to review cases involving investment of Rs. 1 billion or more, consider references received from the FTC, and monitor the functioning of various FTCs. It also entertains any complaint regarding implementation bottlenecks from FDI approval holders regardless of the quantum of investment.

Review policy framework The FIIA makes recommendations from time to time on any issue relating to speedy implementation of FDI projects and also to provide transparency in government functioning with respect to FDI projects.

Liaise with the Ministry of External Affairs for keeping India’s diplomatic missions abroad informed about translation of FDI approvals into actual investment and implementation.

8.3.6 Other foreign alliances

A number of foreign companies have established operations in the country on their own, and others have successfully teamed up with local companies and leveraged their presence in the country. Several organizations help foreign players team up with Indian partners. These include the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry, and several consulting firms, which also assist in chalking out entry strategies, undertaking feasibility studies, etc. Indian embassies and missions abroad closely assist foreign investors in their initiative to participate in infrastructure projects in India. “Escort services” are provided to the foreign investor, guiding him through till the realisation of the project. 8.3.7 Foreign exchange controls Foreign exchange policy

India’s journey on the exchange control front is well travelled. Since 1991, the country’s foreign exchange reserves have surged from US$2 billion to approximately US$89 billion in September 2003. This achievement has been well supported by an increasingly liberalized exchange control policy of the government. Prior to 1999, India had stringent exchange control regulations under its Foreign Exchange Regulation Act, 1973 (FERA). In 1999, the government replaced controls under FERA with regulations under the Foreign Exchange Management Act, 1999 (FEMA).

FEMA virtually provides for full convertibility on capital and current account transactions for non-residents, while it allows residents to avail of non-convertibility on capital account transactions only. The key changes under FEMA relate to the removal of rigid and stringent


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controls over transactions with non-residents. Under the FERA regime, a majority of them required prior sanction from the RBI. With the introduction of FEMA, the objective of the government has shifted from the conservation of foreign exchange to promoting an orderly development and maintenance of the foreign exchange market in India.

8.4 Ease of investing in India

A series of ambitious economic reforms aimed at stimulating foreign investment has moved India into the front ranks of the rapidly growing Asia Pacific region.

• The finance minister cleared 46 proposals of foreign direct investment (FDI) amounting to Rs. 408.22 crore29 (US$93.4 million) in July 2004.

• With a half-billion strong middle class, consumer demand in India will grow sky high. According to some estimates, 487 million middle-class Indians will spend an additional $420billion during the next four years (IBEF 2005b).

India’s foreign exchange reserves rose US$700 million to a record high of $120.78 billion in July 2004. India is on the fast track to becoming an important economic force. According to Frank G. Wisner, former US Ambassador to India and the American International Group External Affairs Vice President, “…the centre of gravity is moving eastwards to Asia, away form Europe and North America, and India will be the motor force in globalisation” (IBEF 2005b).

AT Kearney, one of the largest high-value management-consulting firms in the world, named India as the third most attractive FDI destination in the world after China and the USA in their FDI Confidence Index released in November 2004 (IBEF 2005a). The bottlenecks that discouraged people from bringing their money into India are being attended to swiftly, and are on their way out. In a series of moves, the Indian government has been cracking down on two major problem areas—policy and infrastructure—that have been long-standing deterrents to foreign investment in India.

In 2005, the government allowed sponsored American depository receipts and global depository receipts (ADRs/GDRs) issued by companies through the automatic route, set up an investment commission that will garner investments in the infrastructure sector among others, and plans to increase the limit for investment in the infrastructure sector. While existing joint ventures will continue to be guided by earlier policies like the Press Note 18, the government has issued Press Note 1—a set of safeguarding guidelines that pays attention to the interests of both partners and will be valid for all future investments. Companies no longer need the approval of the FIPB for issuing the sponsored ADRs/GDRs, they only need to inform the RBI.

The investment commission will attempt to attract investments worth US$150 billion in the next ten years with a focus on infrastructure, financial services, and agriculture. Finally, the Committee of Secretaries, on expediting the clearance of infrastructure projects, has recommended an increase in the limit for investment approval from the Cabinet Committee on

29 Crore is a unit equivalent of 10 million.


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Economic Affairs (CCEA) to Rs. 1,500 crore (US$344 million) up from the current level of Rs. 100 crore (US$23 million) (IBEF 2005a).

These moves have resulted in unprecedented inflows of foreign investment into India. The US National Intelligence Council names India as the new economic star of the century, along with China, in its study called the Mapping of the Global Future. The paper states that India’s GNP will overtake that of Italy by 2014, France by 2020, Germany in 2023, and Japan by 2033 (IBEF 2005a).

8.5 Introduction to financial aspects of the CDM

The potential market size for certified emission reductions (CERs) from CDM projects is enormous; an estimated amount of about 430 million tonnes of CO2 must be reduced globally in order to meet the Kyoto Protocol’s emission reduction targets (CERES 2004). It is hoped that a significant share of this volume will emerge from CDM projects. This will require significant financial resources. Consequently, the financial sector will have to play a vital role—to provide project financing, and/or insurance coverage for CDM projects.

The design of a CDM project has a major bearing on its success. Though there is increasing interest in CERs, the current level of interest for banks and insurers to be involved is low. At present, the activities in the CDM market are dominated by multilateral institutions (e.g., World Bank) and national governments, which have to meet different risk/return requirements compared to corporate players. Clearly, the low level of engagement is due to the risk structure of CDM projects, institutional barriers, and the complexity and uncertainty in implementing CDM projects.

At present, only a few developing countries have the wherewithal and institutions to develop and approve CDM projects. The leaders include Latin American countries like Brazil and Costa Rica. Large developing countries with significant potential for CDM projects—notably China, India, and Indonesia—are lagging far behind. This lack of competitiveness hinders their ability to grow, and can only be overcome through quick implementation of specific policies (Humburg Economic Research Institute (HWWA) 2003).

Any developing nation wanting to establish a national strategy for CDM would be advised to carry out a three-point check:

1. What is the amount of synergy possible between emission reduction and national development goals? Also, is there a national sustainable development plan?

2. Will it be able to provide a financially attractive pipeline for CDM projects? 3. Does it have appropriate and adequate human and institutional capacity to sustain a CDM

strategy, or build one with the help of bilateral/multilateral aid agencies? This involves a good understanding of the international CDM rules and procedures, knowledge of its own competitors, contacts in donor agencies, and the like (HWWA 2003).


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8.5.1 Current status of financing structures for CDM eligible projects in India

Conventionally, projects that qualify for CDM investments have been making use of the following standard financial instruments offered by banks and FIs:

• Equity financing

They are basically company owners’ funds raised either through a fresh share issue or brought in through re-investment of profit. At any point in time, cash generating companies look for ways and means for investment so as to improve their profitability. Any project that delivers the best in terms of return on capital will get a priority in the use of equity capital. However, many companies have policies that freeze a base rate of return below which the money will be invested in short-term deposits or other safe securities. The return on investment bar varies from company to company, and so does the risk appetite. Many organizations have policies by which they prefer certain sectors. Generally, using investments to upgrade or expand their own operations (e.g., setting up a captive power plant) are most attractive as they improve overall operational efficiency.

Most Indian companies—especially the large ones—are not eager to establish clean energy projects. This is more evident for renewable energy projects because of the high proportion of overhead involved. Luckily this trend appears to be reversing due to awareness of energy costs and energy efficiency. A good case in point here would be Tata Steel, which has converted most of its recent energy efficiency and modernization plans into emission-offset projects, with foreign investors. As carbon markets mature, investments in CDM projects by such top-end companies will be increasingly in the form of equity capital. Global investors perceive the higher ability of these companies to absorb liabilities in a positive manner.

• Venture capital and special mutual funds

The last 10–12 years have seen the progressive growth of mutual funds, including those in collaboration with international fund managers. Some of these have been in specialised sectors such as pharmaceuticals and telecommunication. Likewise, venture capital funds have also grown, including a few in the energy sector. Going along the same vein, a CDM fund may well be considered despite the low awareness among managers of current mutual and venture capital funds about the CDM.

• Corporate finance

Currently banks consider the company as a whole for credit rating purposes, for which they look at capital investments, payments for voluntary retirement schemes, and other fund requirements. The primary security for any corporate loans would be the balance sheet. While the actual investments in individual purposes would be left to the corporate house, the financial institution could consider CDM projects as a part of the overall investment programme of the corporate client. Nevertheless, separate monitoring and verification of these projects would need to be conducted.

• Lending

Till a few years ago, development finance institutions dealt in pure lending for fail-safe projects. This was done by conducting a detailed appraisal of the promoter, as well as of the market for the product or service, the project cost, profitability, and the like. Currently only few long-term lending institutions like Power Finance Corporation (PFC), Indian Renewable Energy


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Development Agency (IREDA), Infrastructure Development Finance Corporation (IDFC), and some banks engage in this activity. Nevertheless, most of the renewable energy projects that have been cleared in India have succeeded in getting loans from the same institutions. This is mainly due to the mandates and subsidies in place by the government given to the FIs promoted by it. Such institutions are already considering the CDM benefits that a project may be able to obtain. What is not known yet is the manner in which the CER revenues can be integrated into the profitability analyses of the CDM projects.

Another major lending instrument is debenture issued by the companies. These are debt instruments that are issued through public or limited offer, and are rated by the credit rating agencies such as ICRA and CRISIL. Similarly, large corporate houses raise money in the financial market by issuing commercial paper because their credit rating enables them to borrow on short-term at market rates. There are many companies that enjoy good standing in the market and on the bourses.

• Merchant financing—lease and equipment finance

In this case the assets leased out remain on the balance sheet of the lessor who is then able to claim the benefit of depreciation. The implicit interest rates would be higher than in the case of equity, and likely also as compared to corporate financing. Though this is not prevalent in the case of CDM projects, this could be one possible route for investors, especially those supplying equipment and/or technology.

• Project finance

This route has emerged mainly for infrastructure projects involving large investments and where revenues accrue over a long period (15–20 years). Ultimately this future income stream is securitized and funding is provided to the proponent who could be a specially floated new entity or even a special purpose vehicle (SPV). Usually, with the income stream is an underlying contract or a concession that comforts the lenders and strategic investors. This structure is most suitable for CDM projects since the CERs accrue every year and an emission reduction purchase agreement (ERPA) may provide the necessary underlying contract.

8.6 Evolution of the CDM in India

The CDM project development process in India started in late 2001 when the Dutch government tender Carbon Emission Reduction Unit Procurement Tender (CERUPT) was announced. Seventeen projects sought approval from the MoEF; and an ad hoc group of officials approved 12 of them, of which the Dutch accepted six, and ultimately five were provided with an ERPA. Similar clearances were also provided for projects submitted for the Swedish Climate Investment Programme (SICLIP) in mid–2002, the Finnish tender in March 2003, and some other one-time-only opportunities (GoI Planning Commission 2003b; GoI MoEF 2004).

Then came the World Bank’s Prototype Carbon Fund (PCF), which accepted projects prepared or assisted by the Infrastructure Development Finance Corporation (IDFC) under their MoU of October 2002. The World Bank relied on IDFC for carrying out the promoter due diligence, and an initial investment of US$10 million was fixed. The World Bank also launched


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the Community Development Carbon Fund (CDCF) and the BioCarbon fund (BCF) (Rabo India 2003).

After India ratified the Kyoto Protocol in August 2002 and hosted COP 8 in New Delhi (October–November 2002) when small-scale projects received support from all developing nations, the CDM movement in India picked up momentum. The working group of the planning commission of India dealt with the implementation of CDM projects in India, and submitted its report to the prime minister’s office. Soon after, India announced its designated national authority (DNA) in December 2003. Subsequently, with the Russian instrument of ratification in end–2004, the field for a CDM market was well and truly established. India has already provided host country approvals for about 56 CDM projects.

The year 2005 began with the coming into force of the EU Emission Trading Scheme (ETS) and the Kyoto Protocol on February 16. There are groups like the Indian Carbon Market Group that are trying to create the necessary involvement of the major players in the CDM field in India. With the selection of India to the CDM executive board there is a great responsibility towards other developing nations as well.

Several organizations in India are into the CDM playing field and have been active in the last two–three years. They range from a wide spectrum of organizations, as shown in the indicative list below:

• Apex industry bodies (Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce and Industry (FICCI), Associated Chambers of Commerce (ASSOCHAM)

• NGOs (Development Alternatives, WWF, TERI, Winrock) • Consulting firms (TUV, PriceWaterhouse Coopers, Ernst and Young) • ESCOs (DSCL) • Big companies in the private and public sectors (Tata Steel, National Thermal Power

Corporation (NTPC), Excel) • International development organizations (CIDA, GTZ) • International/multilateral lending agencies (World Bank, ADB).

Awareness about the environment and CDM—though low—has grown in the financial sector. Banks such as ICICI rely on catering to each business in a unique manner, and offer tailored and innovative financial products to suit the needs of the off-taker. Examples here are credit enhancements through trusts, securitization, and the like. Banks like the State Bank of India (SBI), Bank of Baroda (BoB), and Syndicate Bank have formed separate groups to finance energy efficiency, renewable energy, and environmental projects. The Small Industries Development Bank of India (SIDBI) supports similar themes for small and medium-sized enterprises. Institutions like the IREDA, PFC, and some others, stress emission reduction for projects funded by them.

The government of India has also reviewed insurance in the context of disaster management and is considering a unified legislation. In end–2003 the high-level task force on Insurance and Climate Change was created to identify specific national needs and concerns pertaining to insurance and related issues arising from the adverse impacts of climate change. While there is


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no information available yet on the strategies and approaches to be developed by the task force, it illustrates the right course of action to manage such issues.

8.7 CDM project financing A. Transaction costs

As far as industry in India is concerned, these are usually up-front and significant. The numbers vary, and can be as much as US$200,000 (estimated by PCF). This is actually additional investment required to be made by a company. A rule of thumb often used is that a project (other than small projects) needs to achieve a reduction of 50,000 CERs per year to be viable (Rabo India 2003).

The various components of transaction costs may be listed as follows:

a. project documentation development b. negotiation and development of legal contracts c. professional fees (validation, brokerage, etc.) d. host nation approval e. CDM registration f. internal monitoring g. contribution to adaptation fund (2 % of CERs). B. Other costs

Table 8.2 indicates estimates of additional costs involved in CDM projects as compared to conventional project costs.

Table 8.2. Additional costs involved in CDM projects as compared to conventional project costs

# Conventional project activities Additional activity for CDM Estimated additional cost component ($)

1 Project feasibility activities Screen CDM project Develop baseline Develop monitoring plan

20,000–60,000

2 Project planning + basic design Complete PDD and seek host country approval

5,000–40,000

3 Project approval activities Validation 15,000–40,000 4 Detailed design, procurement,

and final contracting Marketing of carbon credits Internal costs, or if brokers are

used, payments will be due when payment for the credits is made.

5 Negotiation of PPA Development of ERPA Likely to be lengthy and expensive exercise until standard ERPAs are developed. Estimated cost 10,000–40,000.

6 — Up-front registration fee with CDM Executive Board

5,000–30,000 (depending on size of project)

7 Operation, sales, maintenance, administration

Internal monitoring and external verification

Not fully known; 3,000–15,000 per year/ 2 years

8 — Transfer of carbon credits Assuming brokers are utilized, 3–20% of CER value

9 — Share of proceeds, Exact amount not yet determined;


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# Conventional project activities Additional activity for CDM Estimated additional cost component ($)

registration fee with CDM Executive Board

could be % of CERs, or their value.

10

— Adaptation fee (not applicable to least developed countries (LDCs))

2% of CER

11

— Credit sharing with host country

Determined on country and project basis.

Source: Ecosecurities 2003.

One may be informed that the proposed registration fees range from US$5,000 (for 15,000 or lower tCO2e reduced) to US$30,000 (for projects resulting in emission reduction of over 200,000 tCO2e). In total, the developmental costs of a CDM project range from US$55,000–200,000; the operational phase alone accounts for about US$3,000–15,000 per annum (or bi-annually) plus a share of the proceeds, credit sharing, and success fees (Ecosecurities 2003).

8.8 The concept of risk

Global climate change poses major risks and investment opportunities for shareholders and companies. The risks come primarily in two forms: physical risks and policy risks. Some statistics that are interesting and worth noting are as follows (CERES 2004; UNEP FI Climate Change Working Group 2005; Point Carbon 2004):

• Munich Reinsurance estimates that weather-related catastrophes topped $55 billion in 2003. With global warming continuing, this figure could well reach $150 billion in the next ten years.

• The French insurance company AXA estimates that 20 percent of the global GDP is now influenced by climate-related events, and that climatic risk in numerous branches of industry is more important than the risk of interest rates or foreign exchange risk.

• Market capitalisation of major oil companies could decline by as much as six percent as a result of CO2 emission constraints, while companies with large reserves of natural gas stand to benefit.

• Among auto companies, costs of compliance with climate policies could vary by a factor of 25, adding a new competitive dimension to the industry that could cause some major global companies’ earnings to increase by up to eight percent while others fall by as much as ten percent.

The risk exposure of investments is of high concern for equity investors in CDM projects, as well as for the lenders that give credit for CDM projects. This section deals with risks involved for conventional project development for potential CDM project types. In India the main potential areas for CDM projects are as follows:

a. renewable energy technologies (mainly for biomass, wind, solar, small hydro, biomass)


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b. energy efficiency c. highly efficient clean energy technologies in the power plant sector (includes combined cycle

natural gas, integrated gasification combined cycle coal power plants) d. switching to alternate fuels e. waste management (especially waste-to-energy projects) f. oil and gas g. agriculture h. forestry and carbon sequestration.

If one were to look at the kinds of CDM projects approved by India’s DNA in the past few months, they all fall under the above list. Some of these project types are subject to high risks during project development itself. Examples here would be projects that require a power purchase agreement (PPA), and projects that need a reliable supply of fuel.

Projects requiring a PPA are typically the grid-connected renewable energy technologies (RETs) and waste-to-energy projects. In 1994 the Ministry of Non-conventional Energy Sources (MNES) issued guidelines to the state electricity boards (SEBs) to pay Rs. 2.25/kilowatt-hour (kWh) (base year 1994/95) for electricity from renewable energy technologies with an annual escalation rate of five percent. Had all states followed the guidelines, electricity from renewable energy would attract a price of Rs. 3.66/kWh in 2003.

It is evident the SEBs that buy power from grid-connected renewable energy power plants are not in a state of financial health to be able to afford the tariffs recommended by MNES. Further, as per the planning commission’s compilation of annual reports of SEBs in 2002, SEBs argue that the gap between sales and purchase prices of power is widening, and is currently at Rs. 1.10/kWh. As a result, each state offers a different tariff. For example, project developers in Tamil Nadu receive a tariff of Rs. 2.70/kWh but with no escalation of rate. In Himachal Pradesh, however, the SEB pays only Rs. 1.80/kWh, thereby making the project non-bankable.

Electricity from large private power projects, such as medium-to-large scale hydro and large-scale thermal power plants (TPPs), must either be sold to the SEBs, or in the case of TPPs generating over 1,000 MWs and supplying more than one SEB, it can be sold to the Power Trading Corporation (PTC). While the latter ensures the payment for the electricity is guaranteed even if the SEBs fail to pay, in the former case the project relies heavily on the payments from the SEBs. This is a great risk to all investors, as the SEBs do not enjoy good financial health.

Another important risk is related to the fuel supply that is of special concern for biomass projects. Market information reveals that though the biomass availability may appear to be high, in reality the quality of the material is suspect. The past few years have seen a steady rise in prices of “quality” waste biomass; consequently some biomass energy projects failed to survive or take off. However, biomass projects that rely on energy crops generally carry less risk as long as the water supply for irrigation can be sustained throughout the year. Finally, since agro-residue collection is not an organized activity, enforceable forward sales agreements are difficult to enter into.

A project type that is important for all developing countries is waste-to-energy from municipal solid waste (MSW). Some of these are planned as CDM projects. The best example here would be the Lucknow project under the Prototype Carbon Fund (PCF) of the World Bank by the Infrastructure Development Finance Corporation (IDFC). Another would be the SWERF project


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in Tamil Nadu that faced non-clearance from the State Pollution Control Board (SPCB) as well as resistance from some NGOs. The recent trend is to have small biomethanation projects (handling 20–40 tonnes MSW/day) for which technologies are available in India.

In contrast, energy-efficiency projects in industry may be considered to be low risk since they are dependent on few external factors with not many variables. Similar is the case for wind energy projects—as long as they are planned in states with efficient and transparent PPA procedures.

8.9 CDM project risks

There are a number of requirements, including legal, and agreements that would have to be fulfilled or negotiated when developing a CDM project. Any contracts and agreements will have to be integrated into the overall project structure to ensure not only successful implementation and operation of the CDM project but also to share risks (e.g., non-delivery of CERs), responsibilities (e.g., monitoring of individual projects), and benefits (e.g., sharing of CERs). The exact types of agreements or contracts will vary project to project. However, some template documents for the sale of CERs are available as a starting point for project developers and buyers (IT Power Group 2005).

In addition to legal requirements, there are several risk factors that have to be taken into account. These may be categorized as normal project risks and CDM-related risks. It is perhaps more relevant to delve into the latter type here first.

• CDM licensing/regulatory: These risks are associated with the CDM project cycle itself as at all stages—appraisal (PDD), monitoring, verification, certification, and registration—there is risk of delay (e.g., if the application of the baseline methodology needs revising), or non-approval (e.g., for registration). The largest risk will be that the project does not make it to registration with some transaction costs already paid out and an agreement for sale of CERs already in place. There are also risks associated with the crediting period itself, with no concrete system in place post–2012 and for projects with a crediting period of 21 (3x7) years there could be risks, after seven and 14 years. For example, reductions in the crediting of emission reductions when the project baseline is reviewed.

• Political risk: These are risks associated with those factors under the control of the government in the country of implementation. These include the risk of failure to gain host country approval, particularly as many countries are still in the process of setting up a fully functioning DNA or criteria for approval, such as sustainable development criteria that are still to be fully developed. Other risk factors include regulatory change which could affect the viability of a project and in some cases the baseline (particularly in projects to be renewed after seven years), and changes in tax which could affect the CER revenue, for example if a country introduced a tax on CERs.

• Carbon market /financial: As the carbon market is still non-fluid and only beginning to mature, there is still great uncertainty about the prices. This means that the sale of CERs bears the risk of market prices for CERs rising above the price set in the contract. However, it is expected that trading activity will increase with the increasing number of registered CDM projects and the full strength implementation of the European Union Emissions Trading


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Scheme (EU ETS). The uncertainty about the price of carbon credits will decrease as the market becomes more fluid. Furthermore, some buyers are offering more flexible and dynamic emission reduction purchase agreement (ERPA) terms with prices indexed to market prices, allowing the buyer and seller to share this risk. Other financial risk relates to the currency used for sale of CERs, however, in some cases having revenue from CERs in a hard currency (e.g., US dollars, Euros, etc.) can offset some of the main project risk related to the currency of the host country which is likely to be more open to large fluctuations in relative value. Furthermore, the project developer runs the normal project risks, which include:

• Cost/delay: These risks relate to long delays or extra costs due to licensing and permitting barriers with different probabilities at different stages of the project, such as the development, construction, start-up, and operation phases.

• Technology: Lower than expected performance of the project as a result of, for example, poor technology performance, could result in lower GHG reductions and therefore fewer revenues from the CDM project, and in some cases, cost penalties for non-delivery.

Contractual arrangements, if properly structured, can be used to minimise risk or allocate those risks to an entity that is better able to control them. For example, where a project bundle includes a large number of small installations, such as solar systems, operation and maintenance contracts to installers or standard seller warranties and indemnities to technology providers may be included to minimise project performance risk as well as ensure regular monitoring. The price of CERs agreed upon with a carbon buyer will usually reflect risk sharing in the contract.

The risks discussed above are generally found in any normal CDM project, and it is important to realise that there are additional risks when bundling is involved. These are mainly due to the increased number of parties, locations, often technologies, and a whole host of uncertainties that are increased with a project bundle compared to a single CDM project. For example, when submitting a project bundle for registration, a request for review of an individual component of the project would lead to the whole project bundle being affected. Similarly, the failure of individual projects can threaten the viability of the whole bundle, and risk mitigation techniques will be important to minimise the risk of shortfalls in expected yearly CER generation.

8.10 Government and CDM financing and taxation

While the next section deals in detail about the issue of taxation of CERs, one may like to know about some sample policies of the (state) governments in India on the way they would like to encourage the use of non-fossil fuels to meet energy requirements. For example, the government of Maharashtra has decided to levy a “green cess” of Rs. 0.04/kWh to industrial and commercial consumers of public and private utilities in order to promote non-conventional energy projects in the state. The funds would be utilized for promoting such projects in the state by providing infrastructure and giving subsidies to the promoters of these projects.

One may also like to learn from the approach of some developed countries in their outlook towards climate change regulation (Sin et al. 2005). They prefer to adopt market-based instruments for their climate change policy. Specifically, they have examined the potential net


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benefits of shifting to a permit system for emission reduction, and the pre-conditions necessary for this change. Price-based instruments such as taxes and permits are ideally suited to homogenous long-term-pollutants such as carbon dioxide. They allow maximum spatial and temporal flexibility at no environmental cost. However, in the case of India, such concepts may be woven into existing environmental regulations.

8.11 Taxation treatment of transactions involving CERs 8.11.1 Business asset vs. capital asset

The lack of clarity on the precise legal nature of emissions reductions makes it difficult to conclusively comment on whether the income received from the sale of CERs would be treated as business income or a capital gain. Though normally, the revenue stream generated from the sale of CERs would be viewed as business income, under the current income tax regime in India, such income could also perhaps be treated as a capital receipt chargeable to capital gains tax.

CERs as a business asset

1. Business asset and business income

The term "business asset" is not defined under the Income Tax Act but includes all assets (such as stock-in-trade) which, when sold in the ordinary course of business, generate a revenue receipt. Profits made on such revenue receipts are taxed as business income in accordance with the provisions of the Income Tax Act.

Typically, when a person disposes of a part or the whole of his assets in the ordinary course of business or as part of a trading/business (ongoing revenue generating) transaction, the profits earned by such disposal are taxable as business income. Further, in the event that a transaction of sale is intrinsically related to the normal business of the taxpayer, profits arising from such transaction are assessable as business profit.

Therefore, the likelihood of the tax authorities treating CERs as a business asset and any income generated from sale of such CERs as business income may be influenced by the fact that CERs produced by a CDM project would be intrinsically related to the normal business of the investor/project owner. Such CERs would accrue as part of an ongoing revenue-generating business activity. For most CDM projects, the generation and consequent sale of CERs may be one of the primary objectives for which the CDM project has been implemented. Separately, as discussed above, CERs could be equated to "import licences" that are granted to persons in the course of their export and import activities. Profits made on the sale of such import licenses are taxed as business income in accordance with the Income Tax Act.

2. Taxation of business income

As indicated earlier, the business income of an Indian company is taxed under the heading "profits and gains of business or profession" at the rate of 35 percent plus surcharge.

CERs as a capital asset

1. Definition of a capital asset

The Income Tax Act defines a "capital asset" to mean property30 of any kind held by an assessee, whether or not connected with its business or profession, except for the following:

30. This term has been interpreted widely by the courts and includes movable assets, immovable assets, tangible assets,

and intangible assets/rights.


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a. any stock-in-trade, consumable stores, or raw materials held for the purpose of the assessee's business or profession,

b. personal effects, c. agricultural land of the type specified in this section, and d. certain bonds specified in the section.

Therefore, unless it can be shown that CERs would fall under these exceptions, it is likely that CERs would be treated as capital assets. Exceptions b, c and d are clearly not applicable in the case of CERs. The term "stock in trade" would also not apply to CERs since Indian courts have interpreted this term to include all goods and commodities in which an entity deals in the sense of buying and selling in the course of its business activity.

An argument for CERs being treated as capital assets is that intangible assets such as the goodwill of a business, its trademark, and brand name are also treated as capital assets in accordance with the Income Tax Act.

2. Capital gains

Under the Income Tax Act, any profit or gain arising from the transfer of a capital asset is chargeable to income tax under the head "capital gains". Accordingly, in the event that CERs are treated as capital assets, all monies received on account of the transfer of such CERs would be taxed as capital gains.

In this regard, it may be noted that the term "transfer" has been defined under the Income Tax Act to include, inter-alia sale, exchange, or relinquishment of an asset. Thus, from the above definition it is clear that not only a "sale" of CERs, but any form of "relinquishment" of such CERs or "extinguishment" of any right therein, would be treated as a "transfer" for the purpose of computing capital gains under the Income Tax Act.

3. Computation of capital gains

Under the Income Tax Act, capital gains are computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset as per the following:

a. the expenditure incurred wholly and exclusively in connection with such transfer; and b. the cost of acquisition of the capital asset and the cost of improvement thereto.

In 1981, the Honourable Supreme Court of India held that if it were not possible to ascertain the cost of acquisition and/or the cost of improvement of an intangible capital asset, the gains made on the transfer of such asset would not be taxable under the Income Tax Act. This decision was interpreted to mean that gains made on the transfer of any "self-generated asset" (such as CERs) would not be chargeable to capital gains tax since the cost of acquisition/improvement of such assets would not be ascertainable. However, in response to this decision of the Supreme Court, the Income Tax Act was amended to provide that to compute capital gains, the cost of acquisition/improvement of certain specified self-generated assets such as goodwill, trademark, brand name of a business, is to be taken as “nil”. Therefore, the entire consideration received for the transfer of these specified self-generated assets is charged to tax as capital gains.

However, for the transfer of any other self-generated assets (that are not specified under the Income Tax Act) the consideration received for such transfer would not be chargeable to capital


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gains tax, unless it is possible to ascertain the cost of acquisition and/or cost of improvement of such capital assets.

Accordingly, if a part of the capital invested in a CDM project is specifically capable of being attributed to the objective of generating CERs, it may be possible to allocate a portion of such capital investment towards the cost of acquisition of the CERs, which might result in the transfer of CERs being chargeable to capital gains tax. If, in the future, CERs are brought within the purview of the specific list of self-generated assets, the above logic could be used to structure the investment in a CDM project in a manner that would reduce the incidence of capital gains tax. 8.11.2 Possible business models for CER transactions

This section looks at three possible models through which CERs may be transacted in India and analyses the potential tax implications of each such model. Each of these models assumes that the foreign investors' business presence in India would be in the form of a wholly-owned subsidiary ("Indian subsidiary"). Trader model

1. Mechanism

Under the trader model, the Indian subsidiary would purchase CERs produced from an Indian CDM project ("generator") and sell them to third party purchasers in Annex I countries. Here, there would be two related contracts: one under which the Indian subsidiary would promise to sell (export) CERs to an overseas buyer, and the other under which the Indian subsidiary would purchase the CERs from the generator. The other possibility is that the Indian subsidiary would purchase CERs produced from various Indian CDM projects and then sell them as a single package to an overseas buyer.

2. Legal and tax implications a. Income tax

• The sale of CERs by the generator could either attract capital gains tax (if the right being sold is treated as a capital asset), or yield business income for the generator, which would be taxed as such (please refer to discussion under Section 8.1 above).

• The Indian subsidiary would also earn income upon the further sale of CERs to an overseas buyer and would be required to pay income tax on the amount earned at the applicable rate.

b. Sales tax • The sales tax implications of a sale of CERs would vary depending upon the facts and

circumstances of each case. Typically, in the case of a sale within a state of India (an intra-state sale), the generator's sales tax liability for the sale of CERs would depend upon whether the local laws of that state impose tax on the sale of intangible goods or rights. However, in the case of inter-state sales, (where the generator and the Indian subsidiary are registered in separate states), sales tax liability would have to be determined under the Central Sales Tax, 1956 (CST Act). Sales tax is typically passed through to the customer–the Indian subsidiary in this case.

• The Indian subsidiary would not be required to pay any sales tax on the sale of CERs to an overseas buyer, since sales “in the course of export” are not subject to sales tax in India.

• Even the sales by the generator to the Indian subsidiary (discussed above) could be outside the purview of sales tax if the Indian subsidiary successfully establishes a link between its


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contracts with the overseas buyer and the generator. This is because the CST Act views the last sale of any goods immediately preceding the actual export of those goods as a "sale in the course of export", if such last sale took place in furtherance of an agreement in relation to such export. This issue will have to be kept in mind at the time of drafting the CER sale/purchase contracts.

Broker model

1. Mechanism

Under the broker model, the Indian subsidiary would neither purchase nor sell the CERs. Instead, it would introduce prospective buyers and sellers/generators of CERs for a commission, which could be earned either in the form of cash or CERs. This business model may be preferable in transactions involving large volumes of CERs, where the Indian subsidiary would not want to act as a trader and expose itself to the risk of downward market fluctuations between the time it buys the CERs from the generator and sells them to an overseas buyer.

2. Legal and tax implications

a. Income tax • As stated above, the generator would have to pay either capital gains tax or income tax

depending upon whether the proceeds arising out of the sale of CERs are treated as capital gain or business income.

• The commission received by the Indian subsidiary (whether in the form of cash or CERs) would be treated as business income and chargeable to income tax at the applicable rate.

b. Sales tax • The sale of CERs by the generator to the overseas buyer would be in the “course of export”

and would therefore not be chargeable to sales tax. • The Indian subsidiary would not be required to pay any sales tax since it would not be selling

any CERs. Primary owner model

1. Mechanism Under this business model, the Indian subsidiary would become a capital investor in the

main CDM project by providing either funds or technology to the project and by taking a share in the CERs produced. This would make the Indian subsidiary the primary owner of its share of the CERs produced. The Indian subsidiary would then sell these CERs to overseas buyers or to other traders of CERs within India.

2. Legal and tax implications a. Income tax • The transfer of CERs by the generator to the Indian subsidiary, in lieu of the investments

made by the Indian subsidiary in the CDM project, may be viewed by the tax authorities as the relinquishment of rights in such CERs by the generator, which could have tax implications for the generator. If CERs are treated as a capital asset by the tax authorities, any relinquishment of such capital asset or any rights therein by the generator would be subject to capital gains tax. This model would be similar to the trader model from a tax perspective, except that the Indian subsidiary would be exposed to the additional risk associated with the operations of the generator and the Indian subsidiary's investments therein.


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• The income that the Indian subsidiary would earn from such sale of CERs to an overseas buyer would be chargeable to income tax at the applicable rate.

b. Sales tax · Once the Indian subsidiary holds the CERs as a primary owner, and sells them to an

overseas buyer (in the course of export), such sale would be exempt from sales tax for the reasons discussed above.

Table 8.3. Comparative analysis of business models Trader model Broker model Primary owner model

Applicable taxes

Sale from generator to Indian subsidiary

Sale from Indian subsidiary to overseas buyer

Generator Broker Generator Broker

Capital gains

Applicable if CERs treated as capital asset

N.A. Applicable if CERs treated as capital asset

N.A. Applicable if transfer of CERs treated as relinquishment

N.A.

Income tax Applicable if CERs treated as business asset

Applicable Applicable if CERs treated as business asset

Applicable N.A. Applicable

Sales tax Applicable, unless sale facilitates export

N.A. N.A. N.A. N.A.


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9. GOVERNMENT INCENTIVES

9.1 Introduction

India’s Ministry of Environment and Forests (MoEF) is the nodal ministry for all matters related to climate change, both national and international, including the UNFCCC, the Kyoto Protocol, and CDM activities and processes in India. The government has constituted its designated national authority (DNA), the National CDM Authority, and has established other enabling conditions to provide incentives for CDM project developers and investors to implement CDM activities in India.

9.2 Enabling environment 9.2.1 At the centre (Government of India)

The National CDM Authority (NCA), chaired by the secretary, the Ministry of Environment and Forests, along with the secretaries of various governmental departments, provides the information on facilitating CDM activities in India on request. This enabling environment and the proactive role of the government have sound infrastructure and excellent incentives for CDM activities, particularly for project developers from India and foreign investors, who are already playing a very proactive role in CDM capacity building in India.

This enabling environment at the centre facilitates project activities and works toward removing any hurdles and barriers to CDM project development. The government takes on such tasks for project developers and investors on request. It has already approved a number of CDM capacity building initiatives in India by countries like Japan (IGES), Germany (GTZ), etc. 9.2.2 At the state level

There is large potential for implementing the CDM in various states in India; some of these, such as Andhra Pradesh, Madhya Pradesh, West Bengal, Maharashtra, Tamil Nadu, and Rajasthan, have already set up CDM cells to strengthen their capacity for CDM activities. Such arrangements at the state level provide incentives for both project developers and investors, which supplement the incentives provided by the central government, provide facilitation at the state level to project developers and investors, and also help to overcome other hurdles and barriers.

9.3 Government measures that provide direct/indirect incentives for CDM project developers and investors in India 9.3.1 Government energy-efficiency programs across all industrial sectors

Energy efficiency

Energy-efficiency programmes across all industrial sectors, including power generation, transmission, and distribution, hold promise for cost–effective CO2 abatement under existing government policies, and provide unique incentives and opportunities for developing CDM projects in India. (also see section 3.2.2. on on energy efficiency in the industrial sector.)


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Various reforms in the electricity sector

Various reforms in the electricity sector, such as the Energy Conservation Act 2001, the Electricity Act 2003, and reforms in the coal sector provide the necessary incentives for the private sector to enter into CDM activities in India. 9.3.2 The Government of India’s proactive role in the renewable energy sector

The DNA has so far accorded host country approval to 78 CDM projects (up to May 2005), of which there are as many as 45 projects in the renewable sector (appendix II). Projects in the biomass/cogeneration and hydropower sectors constitute the CDM proposals that the majority have been approved of.

The Ministry of Non-Conventional Energy Sources (MNES) has played a crucial role in promoting renewable energy (RE) technologies in India and has provided various policy incentives to promote RE power projects in India (see section 9.4.)

9.4 Incentives to establish renewable energy power projects 9.4.1 Policy incentives

The policy incentives announced by the MNES to promote RE power projects include the following:

• No clearance is required from the Central Electricity Authority for power generation projects up to 1,000 million rupees (Rs).

• A tax holiday is allowed for RE power generation projects. • A consolidated rate of customs duty has been made applicable for all items imported for a

project under the "project imports" scheme, irrespective of the nature of the goods imported and their customs classification.

• Customs duty concessions are available for RE parts and equipment, including machinery required for renovation and modernization of power plants.

• The excise duty on a number of capital goods and instruments in the RE sector has been reduced or exempted.

To encourage investment by private and public sector companies in renewable energy electricity generation, the MNES has issued guidelines to the states, which require the relevant state electricity boards, (SEB) to ensure the following:

1. Wheeling. Each SEB is required to undertake to transmit on their grid power generated by an RE power project, and make such power available to the producer for captive use or to a third party within the state at a uniform wheeling (distribution) charge of 2 percent of the energy fed to the grid, irrespective of the distance from the generating station. The third party must be a "high tension" consumer of the SEB, unless this stipulation is relaxed specifically by the SEB.

2. Banking. The SEB is required to permit the electricity generated to be banked for a period of up to one year.

3. Sale of power. The SEB is required to purchase electricity offered by the producer at a minimum rate of Rs. 2.25 per unit, with no restriction on the time or quantity of electricity supplied for sale. This rate is to be reviewed every year and will be linked to standard criteria such as the wholesale price index. Producers also have the option to sell the electricity they generate to third parties within the state at a rate to be mutually agreed upon.


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4. Exemption from duty. Consumption of electricity generated by producers is exempt from the electricity duty.

5. Sales tax benefits are available to producers that own their project. 6. Income tax benefits, such as accelerated depreciation, are available to RE power projects. 7. Concessions given to industrial units in underdeveloped areas are provided, such as

exemption from taxes and duties, capital subsidies, etc. 8. Infrastructure facilities such as access roads, water supply, cranes, power during

construction period, etc., are provided, as is done with industrial estates. 9.4.2 Specific fiscal incentives

The largest number of proposals for CDM projects in India relate to biomass/cogeneration projects and windpower projects. Accordingly, following is a brief list of fiscal incentives that will be available to such projects.

1. Biomass/cogeneration projects • An 80 percent depreciation may be claimed in the first year for specified equipment

required for cogeneration systems • A five-year income tax holiday with a 30 percent exemption for power generation

projects with power purchase agreements • A customs duty leviable for RE projects of less than 50-MW capacity (under the "project

import" scheme) is 20 percent ad valorem, • Sales tax exemption is available in certain states • Banking, wheeling, and third-party sales benefits

2. Windpower projects • An 80 percent depreciation may be claimed in the first year for specified equipment

required for windpower projects • Income tax holiday, • Concessional import duty on specified wind turbine parts • Sales tax, excise duty relief • Nine states have introduced specific policies to encourage such projects31 • Banking, wheeling, and third-party sales benefits

9.5 The bundling requirement of small-scale CDM projects in the small-scale sector

The Indian Renewable Energy Development Agency (IREDA) of the central government has been designated the bundling organization for bundling CDM projects in India to bring down transaction costs.

9.6 Rural energy policy

The central government’s rural electrification programme provides additional incentives to CDM project developers and investors. It has embarked on a major rural electrification programme that aims to electrify more than 50,000 villages through the use of renewable energy-based distributed generation by the year 2012. The various renewable energy technology options being considered are wind, mini/micro hydro, solar photovoltaic, and biomass.

31. Andhra Pradesh, Gujarat, Karnataka, Kerala, Madhya Pradesh, Maharastra, Rajasthan, Tamil Nadu, and West

Bengal.


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Along with these options, bio-fuel powered diesel-generator sets are also being considered. The main source of raw materials for bio-fuels is oil-bearing seeds of jatropha and pongomia trees. The use of bio-fuels as an energy source leads to no net addition of CO2 to the atmosphere, and therefore provides incentives for CDM project developers and investors to initiate CDM project activities in the area of rural electrification in India.


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APPENDICES

I. List of contacts II. Project pipelies III. Process of Project development from planning to approval IV. List of Annex I and Annex B Parties

V. List of consolidated and approved methodologies VI. Simplified baseline and monitoring methodologies VII. Project concept note required by the designated national authority of India VIII. Gazette (Ministry of Environment and Forests) IX. Glossary


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Appendix I. List of contacts

Ministries/ Government DepartmentsBureau of Energy Efficiency The Director General Hall No. IV, 2nd Floor, NBCC Tower 15, Bhikaji Cama Place New Delhi - 110 066, India Tel: +91-11-26179699 Fax No. +91-11-26178352/26178328 Website: http://www.bee-india.nic.in/Central Ground Water BoardThe Secretary Jam Nagar house Mansingh Road New Delhi 110011, India Tel +91-11-23383561 Fax +91-11-23386743 Website: http://www.cgwber.nic.in/

Central Pollution Control Board (CPCB)The Chairman Parivesh Bhavan CBD-cum-Office Complex East Arjun Nagar, Delhi 110032, India Tel +91-11- 22305792/ 23303717 Fax +91-11- 22304948 Website: http://www.cpcb.nic.in/

Central Water Commission (CWC)The Chairman Sewa Bhawan, R K Puram New Delhi – 110066, India Tel +91-26108855/ 26187232 Website: http://cwc.nic.in/

Council for Advancement of People's Action and Rural Technology (CAPART)The Director General CAPART, Core 5A, II Floor India Habitat Centre Lodhi Road, New Delhi 110 003, India Tel: +91-11-2464 2390 Fax: +91-11-2463 3546 Website: http://capart.nic.in/

Council of Scientific & Industrial Research (CSIR)The Director-General CSIR Headquarters 2 Rafi Marg, New Delhi - 110001, India Tel +91-11-23711978

Fax +91-11-23710340/ 23714788

Website:

Forest Research InstituteThe Director General PO New Forests Dehradun -248006, Uttaranchal , India Tel: +91-135-756827/ 752682/ 753225-28 Fax: +91-135-756865/ 758614/ 750297 Website: http://www.icfre.org/institutes2/fri.htm

Forest Survey of India The Director Kaulagarh Road, P.O., IPE Dehradun 248195, Uttar Pradesh, India Tel: +91-135-756139/ 755037/ 754507 Fax: +91-135-759104 Website: http://www.fsiorg.net/

India Meteorological DepartmentThe Director General Mausam Bhavan Lodhi Road New Delhi 110003, India Tel: +91-11-24611068/ 24631913 Fax: +91-11-24611451 Website: http://www.imd.ernet.in/

Ministry of Agriculture The Secretary Krishi Bhavan, Dr. Rajendra Prasad Road, New Delhi - 110 001, India Fax: +91-11-23386004 Website: http://agricoop.nic.in

Ministry of Commerce & Industry The Secretary Udyog Bhavan, Rafi Marg, New Delhi - 110 011, India Tel.: +91-11-23015521 Fax: +91-11-23014335/ 23014418 Website: http://commerce.nic.in

Ministry of Environment & ForestsThe Secretary Paryavaran Bhavan CGO Complex, Lodhi Road New Delhi 110003, India

Appendix I. List of contacts


135

Tel: +91-11-24361896/ 24360721 Fax: +91-11-24360678

http://envfor.nic.in

Ministry of External AffairsThe Foreign Secretary South Block New Delhi - 110 011, India Tel +91-11-23012318 Fax +91-11-23016781 Website: http://www.mea.gov.in/

Ministry of Non-Conventional Energy SourcesThe Secretary B-14, CGO Complex, Lodhi Road New Delhi - 110 003, India Tel +91-11-24361481 Fax +91-11-24362772 Website: http://mnes.nic.in

Ministry of Petroleum & Natural Gas The Secretary Government of India "A" Wing, 2nd Floor, Shastri Bhawan Dr. Rajendra Prasad Road New Delhi - 110 001, India Tel.: +91-11-23386407/ 23383679 Fax: +91-11-23383585 Website: http://petroleum.nic.in

Ministry of PowerThe Secretary Shram Shakti Bhawan Rafi Marg New Delhi -110 001, India Tel +91-011-23711316/ 23710271 Fax +91-011-23721487 Website: http://powermin.nic.in

Ministry of Road Transport & Highways The Secretary Transport Bhavan, 1 Sansad Marg, New Delhi - 110 001, India Tel: +91-011-23714104/ 23356669 Website: http://morth.nic.in

Ministry of Rural Development The Secretary Government of India Krishi Bhavan, Dr. Rajendra Prasad Road New Delhi - 110 001, India Tel: +91-11- 23384467 Fax: +91-11-23017584

Website: http://www.rural.nic.in

Ministry of Science and Technology The Secretary Department of Science and Technology Science and Technology Bhavan New Mehrauli Road New Delhi 110016, India Tel: +91-11-26567373/ 26962819 Fax: +91-11-26864570/ 26862418 Website: http://mst.nic.in; http://dst.gov.in/

Ministry of Small Scale Industries, Agro and Rural Industries The Secretary Government of India Udyog Bhawan, Rafi Marg New Delhi - 110011, India Tel: +91-11- 23012107 Fax: +91-11-23011770/ 23012626 Website: http://ssi.nic.in

Ministry of Steel The Secretary Government of India Udyog Bhavan, Maulana Azad Marg New Delhi - 110 011, India Fax: +91-11-23013236 Website: http://steel.nic.in

National Remote Sensing AgencyHead, Forestry & Ecology Division (Dept. of Space, Govt. of India) Balanagar, Hyderabad - 500 037 Andhra pradesh, India Tel: +91-40-23878842/ 23884218 Fax: +91-40-23879677 Website: http://www.nrsa.gov.in/

Oil Coordination CommitteeThe Executive Director Scope Complex Lodi Road New Delhi 110 003, India Tel: +91-11-24360349 Fax +91-11-24364504/ 24361105

Planning CommissionJt. Advisor Room No. 2222, Yojana Bhavan Sansad Marg, New Delhi, India Tel: +91-11-23096677/ 23096666/ 96 Fax: +91-11-3717681/ 3725491 Website: http://planningcommission.nic.in


136

Industry Associations

The Associated Chambers of Commerce and Industry of India (ASSOCHAM)The Secretary General 11, Community Centre Zamrudpur, New Delhi - 110048, India Tel: +91-11-26292310/ 26292311 Fax: +91-11-2629 2319/ 2645 1981 Website: www.assocham.org

Ahmedabad Textile Industry’s Research Association (ATIRA)The Executive Director P.O. Ambavadi Vistar Ahmedabad – 380015, Gujarat, India Tel.: +91 - 79-630 6365/ 644 2671-3 Fax: +91 - 79-6300966/ 656 9874 Website: http://www.atira-tex-rnd.org/

Alkali Manufacturers Association of India 3rd Floor, Pankaj Chambers, Preet Vihar Commercial Complex Vikas Marg, Delhi -110092, India

All India Brick & Tile Manufacturers Federation Zone 6, IIIrd Floor, India Habitat Centre Lodhi Road, New Delhi - 110003, India Tel: +91-11-24641853 Fax +91-11-24648740

All India Mini Cement Manufacturers' Association6-2-976, Pavani Estates Flat No. 202, Raj Bhavan Road 'Kapitol', Khairatabad, Hyderabad, 500 004 Andhra Pradesh, India Tel: + 91-40-23314490 Fax +91-40-23395482

Aluminium Association of India118, 1st Floor, Ramanashree Arcade 18, M. G. Road, Bangalore-560 001, India Tel: +91 80 25582197/ 25582757 Fax: +91 80 25594535 Website: http://www.aluminium-india.org

Automotive Research Association of India (ARAI) The Director

Survey No. 102, Vetal Hill Off Paud Road Kothrud, Pune – 411038 Maharashtra, India Website: http://www.araiindia.com/

Cement Manufacturers' AssociationThe Secretary General Vishnu Kiran Chamber 2142-47, Gurudwara Road (Karol Bagh) New Delhi - 110005, India Tel: +91-11- 25732332/ 25763206 Fax: +91-11- 25738476 Website: http://www.cmaindia.org/

Confederation of Indian Industry (CII)The Director General The Mantosh Sondhi Centre 23, Institutional Area, Lodi Road New Delhi – 110 003, India Tel: +91-11- 24629994-7 Fax: 91 11 24626149 Website: www.ciionline.org

Federation of Indian Chambers of Commerce and Industry (FICCI)The Secretary General Federation House, Tansen Marg New Delhi 110001 Tel: +91-11-23738760 - 70 Fax: +91-11-23320714/ 23721504 Website: http://ficci.com/ficci/index.htm

Indian Chemical Manufacturers Association Sir Vithaldas Chambers 16 Mumbai Samachar Marg Mumbai – 400 023, India Tel: +91-22-22047649/ 22048043/ 22846852 Fax: + 91-22-22048057 Website: www.icmaindia.com

Indian Pulp and Paper Technical Association Executive Secretary Indian Pulp and Paper Technical Association CPPRI Campus, P. O. Box 47, Saharanpur – 247001, Uttar Pradesh, India Tel: +91 - 132-2721904 (O) Webpage: http://www.ippta.org


137

Indian Sugar Mills Association'C' Block, 2nd Floor, Ansal Plaza A.K. Road, Andrews Ganj, New Delhi- 110049, India Tel: +91-11-2626 2294-97 Fax: +91-11-2626 3231 Website: http://www.indiansugar.com/

Northern India Textile Research Association (NITRA) Sector – 23, Rajnagar Ghaziabad – 201002, India Tel: +91 - 120- 2786451/ 2783586 Fax: +91 - 120-2783596 Website: http://nitratextile.org/

Society of Indian Automobile Manufacturers (SIAM)The Executive Director Core 4B, 5th Floor IHC, Lodhi Road

New Delhi – 110 003, India Tel: +91-11-24647810/ 24647811 Website: http://www.siamindia.com/

The Fertiliser Association of India 10, Shaheed Jit Singh Marg New Delhi 110 067, India Tel: +91-11-26517305/ 26517183 Fax: +91-11-26960052 Website: http://www.fadinap.org/india/

The South India Textile Research Association (SITRA) The Executive Director P.B.No.: 3205, Coimbatore Aerodrome Post, Coimbatore - 641 014, Tamilnadu, India. Tel: +91 - 422 - 2574367-9 Fax: +91 - 422 - 2571896 Website: www.sitra.org.in/


138

Research Institutes / Technical Consultancy Organizations / Consulting Firms

Administrative Staff College of India (ASCI) The Director-General Bella Vista Raj Bhavan Road Khairatabad Hyderabad - 500 082, India Tel: +91-40-23324365/ 23310952 Fax: +91-40-23312954 Website: http://www.asci.org.in/

APITCO LtdThe Managing Director 8th Floor, Parisrama Bhavanam Basheerbagh, Hyderabad - 500 029 Andhra Pradesh, India Tel:: +91-40-23237333/ 23273611/ 23237981Fax: +91-40-23298945 Email: [email protected]: www.apitco.org

Central Building Research Institute (CBRI)The Director Roorkee - 247 667 Uttar Pradesh, India Tel +91-01332-72235/ 82429 Fax +91-01332-72272/ 72543 Website: http://www.cbri.org/

Central Electro Chemical Research InstituteThe Director Karaikudi - 630 006 Tamil Nadu, India Tel: +91-4565-27777/ 27778 Fax: +91-4565-27779 Website: www.cecri-india.com/

Central Fuel Research InstituteThe Director Dept. of S&T, Govt. of India PO FRI, Dhanbad 828108, Jharkhand, India Tel: +91-0326-381111 Fax: +91-0326-381113/ 381385/ 460395 Website: http://www.cfrindia.com/

Central Glass and Ceramic Research Institute (CGCRI)The Director P.O. Jadavpur University Kolkata 700032, West Bengal, India Tel: +91-033-4735829/ 4662973/ 4662951

Fax: +91-033-4730957 Website: www.cgcri.res.in

Central Leather Research InstituteThe Director Adyar, Chennai 600 020, India Tel: +91-044-4910897/ 4910846 Fax: +91-044-4912150/ 4911589 E-mail: [email protected] / [email protected]

Central Mining Research InstituteThe Director Barwa Road, Dhanbad 826001 Jharkhand, India Tel: + 91-326-2202326/ 2203043/ 2203070/ 2203090/ 2203010 Fax: +91-326 2202429,2205028 Gram: MINSEARCH, DHANBAD E-mail [email protected]

Central Rice Research InstituteThe Director Indian Council of Agricultural Research Cuttack, Orissa - 753 006, India Tel: +91-671-643015 Fax: +91-671-641744 Website: http://ricecuttackindia.tripod.com/

Central Road Research Institute (CRRI)The Director Delhi-Mathura Road New Delhi 110020, India Tel: +91-11-26848917/ 26823437 Fax: +91-11-26845943/ 26830480 Website: http://www.crridom.org/

Centre for Mathematical Modelling & Computer Simulation (C-MMACS)The Director Bangalore - 560037, India Tel: +91-080-25274649/ 25269612/ 25268635 Fax: +91-080-25260392 Website: http://www.cmmacs.ernet.in

Deloitte Deloitte Touche Tohmatsu India Private Limited MCT House One Okhla Centre, Block A Okhla Institutional Area New Delhi – 110025, India


139

Tel: +91-11-55622000 Fax: +91-11-55622011 Website: http://deloitte.com

Ernst & Young Pvt. Ltd.Ernst & Young Tower B-26, Qutab Institutional Area New Delhi 110 016, India Tel.: +91- 11- 2661 1004 Fax: +91- 11- 2661 1012 Email: [email protected]

G B Pant Institute of Himalayan Environment and DevelopmentThe Director Kosi - Katarmal District: Almora - 263643, Uttaranchal, India Tel: +91-5962-41014/ 41041 Fax: +91-5692-31360/ 31507 Website: http://gbpihed.nic.in/main.htm

Indian Agricultural Research InstituteThe Director NRL Building Pusa, New Delhi - 110012, India Tel: +91-11-25781492/ 25854595 Fax: +91-11-25766420/ 25751719 Website: http://www.iari.res.in

Indian Grassland and Fodder Research Institute (IGFRI)The Director Pahuj Dam, Jhansi-Gwalior Road Uttar Pradesh – 284003, India Tel: +91-517-444771 Fax: +91-517-440833 E-mail: [email protected]

Indian Institute of Chemical TechnologyThe Director Hyderabad-500 007, Andhra Pradesh, India Tel: +91-40-7173874 Fax: +91-40-7173387 Website: http://www.iictindia.org/

Indian Institute of PetroleumThe Director P.O. IIP, Mohkampur, Dehradun 248 005 Uttaranchal, India Tel: +91-135-660098/ 674508 Fax: +91-135-671986/ 660098 E-mail: [email protected]

Indian Institute of Tropical Meteorology (IITM)The Director Dr Homi Bhabha Raod, Pashan, Pune 411008 Maharashtra, India Tel:: +91-20-5893924 Fax: +91-20-5893825 Website: http://www.tropmet.res.in/

Industrial Toxicology Research Centre The Director Post Box No. 80, Mahatma Gandhi Marg Lucknow - 226 001, Uttar Pradesh, India Tel: +91-522-2621856/ 2628227/ 2613357 Fax: +91-522-2628227/ 2611547 Email: [email protected]

IT Power India Pvt. Ltd. No. 6 Romain Rolland Pondicherry - 605 001 IndiaTel: +91-413-2342488/2227811 Fax: +91-413-2332776 E-mail: [email protected] Website: www.itpi.co.in

Kerala Forest Research Institute (KFRI)The Director Peechi - 680653, Thrissur, Kerala, India Tel: +91-487-282037/ 282061-64/ 282884/ 282365 Fax: +91-487-282249 Website: http://www.kfri.org/

KPMGBlock no 4B DLF Corporate Park, DLF City Phase III, Gurgaon Haryana 122002, India Tel: +91-124-2549191/9192 Fax: +91-124-2549101 Website: http://www.in.kpmg.com

Maharashtra Industrial & Technical Consultancy Power DivisionThe Managing Director. PO Box 923, Kubera Chambers Shivaji Nagar Pune - 411 004, Maharashtra, India Website: http://www.mitconindia.com/greenpowerdivision (CCPP). Htm


140

Malaria Research CentreThe Director 22, Sham Nath marg Delhi 110 054, India Tel: +91-11-23981690/ 23946150 Fax: +91-11-23946150 Website: http://www.mrcindia.org/

National Botanical Research Institute (NBRI)The Director Lucknow 226001 Uttar Pradesh, India Tel: +91-0522-271031 Fax: +91-0522-282849 E-mail: [email protected]

National Bureau of Soil Survey & Land Use PlanningThe Director Regional Centre, Hebbal Bangalore - 560 024, Karnataka, India Tel: +91-80-23412242/ 23415683 Fax: +91-80-23510350 E-mail: [email protected]

National Chemical Laboratory (NCL)The Director Dr Homi Bhabha Road Pune – 411008, Maharashtra, India Tel: +91-20-5893030 Fax: +91-20-5893355 Website: http://www.ncl-india.org/index.jsp

National Council for Cement & Building Material (NCCBM)The Group Manager Environment & Pollution Control 34 Km Stone, Delhi-Mathura Road (NH-2) Ballabgarh- 121004, Haryana, India Tel: +91-0129-5246174-75/ 5242051-56 Fax: +91-0129-5242100 Website: http://www.ncbindia.com/ National Dairy Research Institute (NDRI)The Director Karnal-132001, Punjab, India Tel: +91-0184-252800 Fax: +91-184 250 042 Website: http://karnal.nic.in/res_ndri.asp

National Environmental Engineering Research Institute (NEERI)The Director NEERI Colony Nehru Marg, Nagpur- 440020

Maharashtra, India Tel: +91-0712-226071-75 Fax: +91-0712-226252 Website: http://www.neeri.nic.in/National Geophysical Research Institute (NGRI)The Director Uppal Road, Hyderabad Andhra Pradesh 500 007, India Tel: +91-040-23434700 Fax: +91-040-27171564 Website: http://www.ngri.org.in/docs/home.html

National Institute of HydrologyThe Director Jalvigyan Bhawan Roorkee - 247 667, Uttaranchal, India Tel: +91-1332-272106 Fax: +91-1332-272123 Website: http://www.nih.ernet.in/

National Institute of Occupational Health (NIOH)The Director Meghani Nagar Ahmedabad - 380016, India Tel +91-79-2867351/ 2867352 Fax: +91-79-2866630 Website: http://www.nioh.org/

National Institute of Oceanography (NIO)The Director Dona Paula, Goa 403004, India Tel: +91-0832-221322/ 226253 Fax: +91-0832-223340/ 229102 E-mail: [email protected]: www.nio.org

National Metallurgical LaboratoryThe Director Burmamines, Jamshedpur 831007 Jharkhand, India Tel: +91-0657-270096 Fax: +91- 0657-270527 Website: http://www.nmlindia.org/

National MST Radar FacilityThe Director National MST Radar Facility P.O.Box No. 123 Tirupati – 517502, Andhra Pradesh, India Tel: +91-8585-42410 Fax: +91-8585-28614 E-mail: [email protected]


141

National Physical Laboratory The Director Dr. K.S Krishnan Marg New Delhi - 110 012, India Tel: +91-11-25742610/ 25742611/25742612 Fax: +91-11-25726938/25726952 Website: http://202.141.140.37/ksk_library/index.php

National Productivity Council The ChairmanUtpadakta Bhavan, 5-6 Institutional Area, Lodhi Road,New Delhi – 110003, IndiaTel: +91-11- 24690331/ 24690332/ 24690333/ 24625447/ 24694156Gram: PRODUCTIVITY Fax: +91-11-24615002Website: http://www.npcindia.org/

PricewaterhouseCoopers Pvt Ltd 2nd Floor, 252 Veer Savarkar Marg Shivaji Park, Dadar Mumbai 400 028, India Tel: +91-22-5669 1000 Telecopier: +91-22-5654 7800/01/02 Website: http://www.pwcglobal.com/in/eng/main/home/index.html

Regional Research Laboratory The Director Bhubaneshwar - 751013 Orissa, India Tel: +91-674-581636/ 581635/ 581638-39 Fax: +91-674-581637 E-mail: [email protected]

Remote Sensing Application CentreThe Director Kursi Road Lucknow – 226021, Uttar Pradesh, India Tel +91-522-360530/ 361453/ 381015/ 385096 Fax +91-522-361535 E-mail: [email protected]

Wildlife Institute of India (WII)Director P.O.Box No. 18 Chandrabani, Dehradun – 248001Uttaranchal, India Tel: +91-135-640112-15 Fax: +91-135-640117 Website: http://www.wii.gov.in


142

Non Government Organizations

Action for Food Production (AFPRO)The Programme Director 25/1A, Institutional Area Pankha Road D- Block, Janak Puri New Delhi – 110058, India Tel: +91-11-25555412/ 25553652 Website: www.afpro.org/

Centre for Science and EnvironmentThe Director 41, Tughlakabad Institutional Area, New Delhi. India - 110062 Tel: +91-11 29955124/ 29956110/ 29956394 Fax: +91-11 29955879 E-mail:[email protected]

Committee on Science and Technology in Developing Countries (COSTED)The Director 24, Gandhi Mandapam Road Chennai 600025, India Tel: + 91-44-4901367/ 4430228/ 4419466 Fax: +91-44-4914543 E-mail: [email protected]

Development AlternativesThe President B-32, Taracrescent , Qutab Institutional AreaNew Delhi 110016, India Tel: +91-11-2696-7938/ 2685-1158 Fax: +91-11-26866031 Website: http://www.devalt.org/

ERM India Pvt. LtdThe Vice Chairman & CEO 2nd Floor, 3 Palam Marg, Vasant Vihar New Delhi - 110 057, India Tel: +91-11-2615 4547/ 2615 4549-53 Fax: +91-11-615 45478 E-mail: [email protected]

M.S. Swaminathan FoundationThe Chairman 3rd Cross Street, Taramani Institutional Area (CPT Campus) Chennai - 600 113, India Tel: +91- 44 - 254 2790/1698/ 2698/ 2699/ 1229 Fax: +91-44-254 1319/ 254 1229 Website: http://www.mssrf.org/

The Energy and Resources Institute (TERI)The Director-General Darbari Seth Block Habitat Place, Lodi Road New Delhi - 110003, India Tel: +91-11-24682121/ 24682122 Fax: +91-11-24682144/ 4682145 Website: http://www.teriin.org/

Winrock International IndiaThe President 1 Navjeevan Vihar New Delhi - 110017, India Tel: +91- 11- 26693868 Fax: +91-11-26693881 E-mail: [email protected]: www.winrockindia.org


143

Financial Institutions

HUDCO The CMD (Chairman cum Managing Director) HUDCO Bhavan India Habitat Centre, Lodhi Road New Delhi - 110 003, India Tel: +91-11-24649610-27; After office hours: +91-11-24648193-95 Telex: 031-61037 HUDC IN Gram: HUDCO Fax: +91-11-24625308 Voice Mail: +91-11-24648160/63-64 Website: http://www.hudco.org/

ICICI LtdGeneral Manager NBCC Place, Bhisham Pitamah Marg Lodhi Road New Delhi - 110 003, India Tel: +91-11-439 0022 Website: http://www.icicibank.com/

Indian Renewable Energy Development Agency Limited (IREDA)The Managing Director India Habitat Centre Core-4A, East Court, 1st Floor Lodhi Road, New Delhi - 110 003, India Tel: +91-11- 2468 2201 Fax: +91-11-2468 2202 Website: http://iredaltd.com/

Infrastructure Development Finance Company Ltd (IDFC)The Vice President ITC Centre, 3rd Floor 760 Anna Salai Chennai - 600 002, India Tel: +91-44 -28559440/48/56 Fax: +91-44-28547597 Website: http://www.idfc.com/

Infrastructure Leasing & Financial Services LtdThe Asst. Vice President India Habitat Centre Core-4B, Lodhi Road New Delhi - 110 003, India Tel: +91-11-2468/2060-64 Fax: 91-11- 468 2070 Website: http://ilfsindia.com/


144

Academic Institutes

Alternate Hydro Energy CenterHead Indian Institute of Technology Roorkee - 246 667, Uttaranchal, India Tel: +91-1132-74254 E-mail: [email protected], [email protected]

Anna UniversityThe Director Centre for Environmental Studies Chennai - 600 025, India Tel: +91-044 - 235 4296/ 235 1723 Extn. 3192 Fax: +91 -044 - 235 4717 Website: http://www.annauniv.edu/

Calcutta UniversityThe Head, Institute of Radio Physics and Electronics 92, Acharya Prafulla Chandra Road Kolkata - 700 009, West Bengal, India Tel: +91-33-2350 9115-6, 350 9413 Fax: +91-33-23515828 Website: http://www.caluniv.ac.in/

Centre for Biochemical TechnologyDelhi University Campus Delhi 110007, India Tel: +91-11-7256156 Fax: +91-11-7257471 Website: http://www.informatics.co.in/Bioinformatics/CBT_Detail.htm

Delhi School of Economics University of Delhi Delhi 110007, India Tel: +91-11-2766-6533/34/35 Website: http://econdse.org/

Indian Institute of Forest ManagementThe Director, IIFM P.O.Box: 357, Nehru Nagar Bhopal, Madhya Pradesh - 462003, India Tel: +91-755-775998 Fax: +91-755-772878 Website:http://www.iifm.org/

Indian Institute of Management, AhmedabadPublic Systems Group Wing – 3, Vastrapura Ahmedabad, Gujarat - 380015, India

Tel: +91-079-632 4827 Fax: +91-079-630 6896 Website: http://www.iimahd.ernet.in/

Indian Institute of Plantation ManagementJnana Bharathi Campus P.O. Malathalli, Bangalore - 560 056. Karnataka, India Tel: 91-80-23211716 / 23212767 Fax: 91-80-23212775 Website: http://iipmb.com/

Indian Institute of Science Centre for Ecological Sciences Bangalore - 560 012, Karnataka, India Tel: +91-80-3600985/ 3092506 Fax: +91-80-3601428/ 3600683 Website: http://www.iisc.ernet.in/

Indian Institute of Technology, Delhi (IITD)Head ACSS Department of Civil Engineering Hauz Khas, New Delhi 110016, India Tel: +91-11-26591186 Fax: +91-11-26581117 Website: www.iitd.ernet.in/

Indian Institute of Technology, MumbaiSJ Mehta School of Management Powai- Mumbai - 400076, India Tel: +91-022-5720780 Fax: +91-22-5723480 Website: www.iitb.ac.in

Indira Gandhi Institute of Development Research (IGIDR)The Director Gen. A.K.Vaidya Marg Goregaon (East), Mumbai - 400065, India Tel: +91-22- 840 0919/ 0920/ 0921 Fax: +91-22- 840 2752/ 2026 E-mail: [email protected]: www.igidr.ac.in

Jadavpur UniversityThe Vice Chancellor Jadavpur University Kolkata: 700032, West Bengal, India Tel: +91-33-4735508 Fax: +91-33-4137121 Website: http://www.jadavpur.edu/


145

Jawaharlal Nehru UniversitySchool for Environmental Science New Delhi - 110067, India Tel: +91-11-61-7676 Extn. 3315 Fax: +91-11-6165886 Website: http://www.jnu.ac.in/

Tamil Nadu Agricultural UniversityDepartment of Agricultural Meteorology Tamil Nadu Agricultural University Coimbatore - 641003 Tamil Nadu, India Website: http://www.tnau.ac.in/


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e, K

ullu

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trict

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enew

able

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ergy

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ydro

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utar

ew &

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tner

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acha

l Pr

ades

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usta

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rop

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idue

bas

ed P

ower

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ject

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lwar

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enew

able

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ergy

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iom

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ener

atio

n A

lwar

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er

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pany

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5R

ajas

than

31

6,36

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910

50 M

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atur

al g

as b

ased

grid

con

nect

ed c

ombi

ned

cycl

e po

wer

gen

erat

ion

proj

ect a

t Akh

akho

l Fu

el

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itchi

ng

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er

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ent P

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at11

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mas

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asifi

er B

ased

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er P

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ased

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er

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iffer

ent l

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ergy

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iom

ass

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ener

atio

n W

omen

for

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aina

ble

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elop

men

t

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rnat

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#Pr

ojec

t Nam

e Se

ctor

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dust

rial

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or

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oter

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apac

ity

in M

W

Stat

eC

ERs

until

20

12

11JC

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MW

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all S

cale

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mas

s P

roje

ct

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ewab

le

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gy

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mas

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ogen

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ion

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ited

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0

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nerg

y E

ffici

ency

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ovem

ent i

n a

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ent P

lant

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ergy

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ffici

ency

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emen

t Ja

ypee

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ocia

tes

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hya

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esh

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.0 M

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ehar

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al V

illage

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mba

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trict

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enew

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ergy

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roje

cts

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ited

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imac

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esh

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t bas

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MW

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tive

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er P

lant

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Silt

ara

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rgy

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cien

cy

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pat G

odav

ari

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iom

ass

base

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wer

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ject

by

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hu R

ama

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ewab

le E

nerg

y Li

mite

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amil

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u.

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ewab

le

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mas

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rat E

nerg

ies

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il N

adu

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se b

ased

cog

ener

atio

n po

wer

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ject

s at

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aida

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h C

hini

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enew

able

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ergy

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iom

ass

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ener

atio

n H

aide

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ugar

M

ills20

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rPr

ades

h 90

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FC 2

3 D

ecom

posi

tion.

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dust

rial

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cess

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inda

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el L

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gy

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eat R

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ergy

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n &

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el

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al V

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r S

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atak

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20M

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ipal

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id W

aste

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W) p

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m p

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nera

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P) b

y A

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ener

gy

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id w

aste

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hane

E

nkem

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inee

rs

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rPr

ades

h 16

20,0

00

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odel

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ject

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ncre

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g th

e ef

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se o

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rgy

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148

#Pr

ojec

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ctor

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dust

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or

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apac

ity

in M

W

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ERs

until

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imite

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AP

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ir C

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ant a

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ast G

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.P.

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ra

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nerg

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vt

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PG

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rgy

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mil

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2510

MW

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te h

eat R

ecov

ery

base

d C

aptiv

e P

ower

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lant

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sha

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tin L

imite

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ergy

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ffici

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el

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lim

ited

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arkh

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t of C

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the

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st F

urna

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ting

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ace

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ire R

od M

ill

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gy

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cien

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sha

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tin li

mite

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arkh

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100,

423

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tiliz

atio

n of

bio

mas

s fu

els

for P

yro-

pro

cess

ing

Ren

ewab

le

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gy

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er B

iom

ass

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e C

emen

t R

ajas

than

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7,92

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ptim

al U

tiliz

atio

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ker,

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ee C

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ited

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stria

l P

roce

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emen

t Sh

ree

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ent

Raj

asth

an

566,

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298

MW

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te h

eat R

ecov

ery

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tive

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er P

roje

ct

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gy

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cien

cy

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ent

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e C

emen

t 8

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asth

an

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alli

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gas

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gram

me,

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nata

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TS

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ewab

le

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gy

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er B

iom

ass

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ultu

ral

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elop

men

t &

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ning

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iety

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atak

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0

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iom

ass

base

d po

wer

gen

erat

ion

,Mal

avili

P

ower

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nt P

vt L

imite

d R

enew

able

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ergy

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iom

ass

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ener

atio

n M

alav

alli

pow

er

4.5

Karn

atak

a 33

1,54

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bio

mas

s ba

sed

pow

er p

lant

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. Pow

erge

n P

vt.

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enew

able

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ergy

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iom

ass

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ener

atio

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.K. P

ower

gen

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ited

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rnat

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,975

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ter b

ased

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lant

, Raj

a B

hask

ar

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er P

vt. L

td.,

Ren

ewab

le

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gy

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mas

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ogen

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ion

Raj

a B

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450,

000


149

#Pr

ojec

t Nam

e Se

ctor

In

dust

rial

Sect

or

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oter

C

apac

ity

in M

W

Stat

eC

ERs

until

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pla

nt, S

anto

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ata

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er P

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Ren

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mas

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ogen

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tosh

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ower

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er p

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rix P

ower

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. Ltd

. R

enew

able

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ergy

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iom

ass

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ener

atio

n M

atrix

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er

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Andh

ra

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esh

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eat R

ecov

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base

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aptiv

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pl

ant b

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rissa

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nge

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ited

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lant

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ergy

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ffici

ency

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n &

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el

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sa S

pong

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n 10

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se/ B

iom

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base

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ener

atio

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ojec

tR

enew

able

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ergy

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iom

ass

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ener

atio

n Tr

iven

i Eng

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ring

22U

ttar

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esh

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agas

se b

ased

cog

ener

atio

n fa

cilit

y by

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ee R

enuk

a S

ugar

s Lt

d. a

t the

ir pl

ant i

n B

elga

um D

istri

ct,

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nata

ka.

Ren

ewab

le

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gy

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mas

sC

ogen

erat

ion

Shre

e R

enuk

a Su

gars

35.6

Karn

atak

a 67

2,90

0

396

MW

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all H

ydro

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er p

roje

ct a

t Som

anam

arad

i V

illage

, Deo

durg

a Ta

luk,

Rai

chur

dis

trict

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enew

able

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ergy

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ydro

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aray

anpu

r Pow

er

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pany

6

Karn

atak

a 10

8,60

5

40B

agas

se b

ased

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ener

atio

n P

ower

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ject

with

E

xpor

t of S

urpl

us P

ower

at D

ham

pur

Ren

ewab

le

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gy

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mas

sC

ogen

erat

ion

Dha

mpu

r Sug

ar M

ills

30U

ttar

Prad

esh

560,

114

4112

MW

Bio

mas

s ba

sed

pow

er p

roje

ct a

t Pra

kasa

m

Ren

ewab

le

Ener

gy

Bio

mas

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ogen

erat

ion

Cla

rion

Pow

er

12An

dhra

Pr

ades

h 28

0,61

5

426

MW

Bio

mas

s ba

sed

pow

er p

roje

ct a

t Chi

ttoor

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enew

able

En

ergy

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iom

ass

Cog

ener

atio

n R

itwik

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rgy

6An

dhra

Pr

ades

h 17

8,43

3

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MW

Win

d po

wer

pro

ject

at C

hitra

durg

a di

stric

t R

enew

able

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ergy

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ind

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n 3

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atak

a 44

,450

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nerg

y E

ffici

ency

pro

ject

by

mod

ifica

tion

of C

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rem

oval

sys

tem

of A

mm

onia

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nt to

redu

ce s

team

co

nsum

ptio

n at

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dish

pur

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gy

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cien

cy

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erIn

dust

ries

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f Fer

tiliz

ers

Utta

rPr

ades

h 20

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asse

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ed C

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ject

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ivity

at

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Cha

mun

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ugar

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ited,

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dya,

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arna

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mun

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ugar

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ited.

Ren

ewab

le

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gy

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mas

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ogen

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ion

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mun

desw

ari

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ars

22Ka

rnat

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377,

423


150

#Pr

ojec

t Nam

e Se

ctor

In

dust

rial

Sect

or

Prom

oter

C

apac

ity

in M

W

Stat

eC

ERs

until

20

12

467.

7 M

W R

ice

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k B

ased

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er P

lant

at V

anda

na

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Lim

ited,

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spur

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enew

able

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ergy

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iom

ass

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ener

atio

n V

anda

na V

idhy

ut

7.7

Cha

ttisg

arh

294,

120

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epla

cem

ent o

f coa

l as

fuel

by

proc

ess

flue

gase

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r el

ectri

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gen

erat

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at I

ndus

trial

Gro

wth

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tre,

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ara,

Rai

pur

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gy

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cien

cy

Iron

& S

teel

C

hatti

sgar

h E

lect

ricity

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hatti

sgar

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315,

715

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agas

se b

ased

cog

ener

atio

n po

wer

pro

ject

s at

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alra

mpu

r Chi

ni M

ills L

td. B

alra

mpu

r. R

enew

able

En

ergy

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iom

ass

Cog

ener

atio

n Ba

lram

pur C

hini

Mills

20

Utta

rPr

ades

h 1,

070,

609

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5 M

W M

aujh

i SH

P in

Kha

nyar

a V

illag

e, K

angr

a D

istri

ctR

enew

able

En

ergy

H

ydro

D

harm

shal

a H

uydr

o P

ower

Ltd

4.

5H

imac

hal

Prad

esh

1,20

5,73

0

50W

aste

Hea

t bas

ed 8

MW

Cap

tive

Pow

er P

roje

ct a

t O

CL

Indi

a Li

mite

d S

pong

e Iro

n W

orks

at R

ajga

ngpu

r, D

istri

ct S

unda

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rissa

.

Ener

gy

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cien

cy

Iron

& S

teel

O

CL

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mite

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Oris

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1,94

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513.

5 M

W R

ice

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k ba

sed

Cog

ener

atio

n P

roje

ct a

t D

hand

ari K

alan

at L

udhi

ana

R

enew

able

En

ergy

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iom

ass

Cog

ener

atio

n N

ahar

Spi

nnin

g M

ills

3.5

Punj

ab

148,

323

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ice

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k ba

sed

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ener

atio

n P

roje

ct a

t S

herp

ur W

oolle

n M

ills, L

udhi

ana,

R

enew

able

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ergy

B

iom

ass

Cog

ener

atio

n O

swal

Woo

len

Mills

3.

5Pu

njab

14

8,32

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5316

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nerc

on B

undl

ed W

ind

Pow

er P

roje

ct a

t C

hitra

durg

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istri

ct

Ren

ewab

le

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gy

Win

d E

nerc

on In

dia

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ited

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atak

a 1,

007,

426

543

MW

bio

mas

s ba

sed

Pow

er P

roje

ct a

t vill

age

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ara,

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istt.

Gun

a

Ener

gy

Effi

cien

cy

Bio

mas

sC

ogen

erat

ion

Dee

pak

Spi

nner

s 3

Mad

hya

Prad

esh

137,

816

557.

5 M

W B

iom

ass

Cha

mba

l Pow

er L

imite

d R

enew

able

En

ergy

B

iom

ass

Cog

ener

atio

n C

ham

bal P

ower

7.

5R

ajas

than

38

5,88

9

566

MW

Bio

mas

s P

ower

Pla

nt, S

atya

mah

arsh

i Pow

er

Cor

pora

tion

Ltd.

R

enew

able

En

ergy

B

iom

ass

Cog

ener

atio

n Sa

tyam

ahar

shi

Cor

pora

tion

6An

dhra

Pr

ades

h 15

1,41

3


151

#Pr

ojec

t Nam

e Se

ctor

In

dust

rial

Sect

or

Prom

oter

C

apac

ity

in M

W

Stat

eC

ERs

until

20

12

5737

MW

Mid

dle

Kol

ab S

mal

l Hyd

roel

ectri

c pr

ojec

t lo

cate

d at

(i) T

entu

ligum

a V

illage

, Kor

aput

Dis

trict

O

rissa

- 25

MW

Mid

dle

Kol

ab p

roje

ct a

nd (i

i) U

degi

ri V

illage

, Mal

kaon

giri

Dis

trict

Oris

sa -

12 M

W L

ower

K

olab

pro

ject

by

M/s

Mee

naks

hi P

ower

Lim

ited

Ren

ewab

le

Ener

gy

Hyd

ro

Mee

naks

hi P

ower

37

Oris

sa86

9,19

2

5825

MW

Nat

ural

Gas

Cap

tive

Pow

er p

lant

Fu

el

Sw

itchi

ng

Pow

er

Cor

oman

del E

lect

ric

25Ta

mil

Nad

u 44

9,22

1

59W

aste

hea

t rec

over

y P

ower

pla

nt a

t JK

Cem

ent W

orks

(U

nit o

f JK

Cem

ent L

imite

d)

Ener

gy

Effi

cien

cy

Cem

ent

JK C

emen

t Lim

ited

Raj

asth

an

435,

144

60E

lect

ricity

Gen

erat

ion

from

Mus

tard

Cro

p R

esid

ues-

K

alpa

taru

Pow

er T

rans

mis

sion

Lim

ited

R

enew

able

En

ergy

B

iom

ass

Cog

ener

atio

n K

alpa

taru

Pow

er

7.8

Raj

asth

an

294,

828

61M

etha

ne E

xtra

ctio

n an

d fu

el C

onse

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154

Appendix III. Process of Project development from planning to approval

Project Design Document (PDD)

Submission by project

Initial screening by DNA

Secretariat

Rejection/ Resubmit

In-depth assessment by

Technical Working Groups

Approval letter By DNA

(MoEF)

Public consultation

DNA Board

Decision

AssessmentReport

Project Participants

Designated Operational Entity

UNFCCC Executive Board

Project Participants

Designated Operational Entity

Executive Board

Certified Emission Reductions (CER)

Project

Participants

Validation / Registration

Monitoring

Verification / Certification

Issuance of

CER


155

Project developers with assistance from

consultants

• Technical evaluation • Sustainable development position • GHG emissions • Baseline • Additionality • Technical • Financial • Project duration and crediting period • Sharing of credits • Monitoring and verification plan • Environmental impact assessment (EIA) • Environmental clearance • Stake holder Opinion • Sustainable Development Position • GHG Emissions • Baseline • Additionality • Technical • Financial • Project duration and crediting period • Sharing of credits • Monitoring and Verification Plan • EIA • Environmental Clearance • hnical Evaluation • Sustainable Development Position • GHG Emissions

B li Approval / Endorsement

Project developers with assistance from

consultants Participation requirements EIA Baseline Emission reduction Monitoring and verification plan Stakeholder comments

Validation Designated National Authority

(DNA)

Issuance of CERs

Verification and certification

Designated Operational

Entities (DOE)

CDM Executive Board

Project promoters

Monitoring

Implementation CDM Executive Board

Registration Designated Operational

Entities (DOE)

Project idea note (PIN)

Project design document (PDD)

Steps in project cycle

Project developers

Entities responsible

Steps involved in a CDM project


156

Financing CDM projects: Issues and concerns N Y D Babu, TERI Clear Skies !17 February 2005 Source World Bank

Host Country

LendersSponsor/ Project

CFERPA

Financing Agreement

Letter of Approval

ERsER payment

Debt service

SPV

Permits, etc.


157

Appendix IV. List of Annex I and Annex B Parties*

European Union (15 member states) Economies in Transition****

Party Target** 1990 emissions (million tCO2e)

Party Target** 1990 emissions (million tCO2e)

Portugal 27.0% 61.4 Russian Federation 0% 3,040.1 Greece 25.0% 104.9 Ukraine 0% 919.2 Spain 15.0% 287.6 Poland –6.0% 564.4 Ireland 13.0% 53.2 Romania –8.0% 264.3 Sweden 4.0% 72.8 Czech Republic –8.0% 192.0 Finland 0.0% 77.2 Bulgaria –8.0% 157.1 France 0.0% 568.2 Hungary –6.0% 101.6 Netherlands –6.0% 210.0 Slovakia –8.0% 72.2 Italy –6.5% 508.6 Lithuania –8.0% 51.0 Belgium –7.5% 144.4 Estonia –8.0% 43.5 United Kingdom –12.5% 744.1 Latvia –8.0% 29.0 Austria –13.0% 78.1 Slovenia –8.0% 20.2 Denmark –21.0% 69.2 Croatia*** –5.0% 32.0 Germany –21.0% 1,213.5 Belarus*** 133.6 Luxembourg –28.0% 13.4 EU –8.0% 4,225.1 Other Parties Iceland 10.0% 2.8 Japan –6.0% 1,187.1 Australia*** 8.0% 425.2 United States*** –7.0% 6,139.6 Norway 1.0% 52.0 Switzerland –8.0% 53.1 New Zealand 0% 61.8 Liechtenstein –8.0% 0.2 Canada –6.0% 607.6 Monaco*** –8.0% 0.1 Turkey*** Source: MoE, Japan, and IGES 2005.

Note:* Croatia, Slovenia, Liechtenstein, and Monaco have GHG emissions reduction targets, but they are not Annex I Parties to the UNFCCC.

**The target is the percentage amount of GHG emissions to be reduced from the 1990 level.

***Countries that have not ratified the Kyoto Protocol as of March 2005.

****Some Parties of the EU’s Economies in Transition do not have their base year for GHG emissions set as 1990, such as Bulgaria (base year is 1988), Hungary (1985–87 average), Poland (1988), Romania (1987), and Slovenia (1986).


158

Appendix V. List of consolidated and approved methodologies

Methodology number

Methodology title (including baseline and monitoring methodologies)

Sectoral scope

Consolidated sources or approval history of methodologies

Consolidated methodologies

ACM0001

Consolidated methodology for landfill gas project activities. (The additionality of the project activity shall be demonstrated and assessed using the tool for the demonstration and assessment of additionality.)

13

AM0002 AM0003 AM0010 AM0012

ACM0002

Consolidated methodology for grid-connected electricity generation from renewable sources. (The additionality of the project activity shall be demonstrated and assessed using the tool for the demonstration and assessment of additionality.)

1

NM0001-rev NM0012-rev NM0023 NM0024-rev NM0030-rev NM0036 NM0043 NM0055

ACM0003 Emissions reduction through partial substitution of fossil fuels with alternative fuels in cement manufacture 4 NM0040

NM0048-rev

Approved methodologies

AM0001 Incineration of HFC-23 waste streams 11 NM0007-rev

AM0002 Greenhouse gas emission reductions through landfill gas capture and flaring where the baseline is established by a public concession contract

13 NM0004-rev

AM0003 Simplified financial analysis for landfill gas capture projects 13 NM0005-rev

AM0004 Grid-connected biomass power generation that avoids uncontrolled burning of biomass 1 NM0019

AM0005 Small grid-connected zero-emissions renewable electricity generation 1 NM0023

AM0006 GHG emission reductions from manure management systems 13, 15 NM0022-rev

AM0007 Analysis of the least-cost fuel option for seasonally-operating 1, 4 NM0028

AM0008 Industrial fuel switching from coal and petroleum fuels to natural gas without extension of capacity and lifetime of the facility

4 NM0016-rev

AM0009 Recovery and utilization of gas from oil wells that would otherwise be flared 10 NM0026

AM0010 Landfill gas capture and electricity generation projects where landfill gas capture is not mandated by law 1, 13 NM0010-rev

AM0011 Landfill gas recovery with electricity generation and no capture or destruction of methane in the baseline scenario

13 NM0021

AM0012 Biomethanation of municipal solid waste in India, using compliance with MSW rules 13 NM0032

AM0013 Forced methane extraction from organic wastewater treatment plants for grid-connected electricity supply 13 NM0039

NM0085 AM0014 Natural gas-based package cogeneration 1, 4 NM0018-rev

AM0015 Bagasse-based cogeneration connected to an electricity grid. (The additionality of the project activity shall be demonstrated and assessed using the tool for the demonstration and assessment of additionality.)

1 NM0001-rev


159

Methodology number

Methodology title (including baseline and monitoring methodologies)

Sectoral scope

Consolidated sources or approval history of methodologies

AM0016 Greenhouse gas mitigation from improved animal waste management systems in confined animal feeding operations

13, 15 NM0034-rev2

AM0017 Steam system efficiency improvements by replacing steam traps and returning condensate 3 NM0017-rev

AM0018

Steam optimization systems. (The additionality of the project activity shall be demonstrated and assessed using the tool for the demonstration and assessment of additionality.)

3 NM0037-rev

AM0019

Renewable energy project activities replacing part of the electricity production of one single fossil-fuel-fired power plant that stands alone or supplies electricity to a grid, excluding biomass projects. (The additionality of the project activity shall be demonstrated and assessed using the tool for the demonstration and assessment of additionality.)

1 NM0053

AM0020

Baseline methodology for water pumping efficiency improvements. (The additionality of the project activity shall be demonstrated and assessed using the tool for the demonstration and assessment of additionality.)

3 NM0042-rev

AM0021 Baseline methodology for decomposition of N2O from existing adipic acid production plants 5 NM0061

AM0022 Avoided wastewater and on-site energy use emissions in the industrial sector 13 NM0041-rev2

Source: UNFCCC 2005b.


160

Appendix VI. Simplified baseline and monitoring methodologies Type I. Renewable energy projects AMS-I.A. Electricity generation by the user AMS-I.B. Mechanical energy for the user AMS-I.C. Thermal energy for the user AMS-I.D. Renewable electricity generation for a grid Type II. Energy-efficiency improvement projects AMS-II.A. Supply side energy efficiency improvements - transmission and distribution AMS-II.B. Supply side energy efficiency improvements - generation AMS-II.C. Demand-side energy efficiency programmes for specific technologies AMS-II.D. Energy efficiency and fuel switching measures for industrial facilities AMS-II.E. Energy efficiency and fuel switching measures for buildings AMS-II.F. Energy efficiency and fuel switching measures for agricultural facilities and activities Type III. Other project activities AMS-III.A. Agriculture AMS-III.B. Switching fossil fuels AMS-III.C. Emission reductions by low-greenhouse gas emitting vehicles AMS-III.D. Methane recovery AMS-III.E. Avoidance of methane production from biomass decay through controlled combustion

Source: UNFCCC 2005c.


161

Appendix VII: Project concept note required by the designated national authority of India

The National CDM Authority (NCA) is hosted by the Ministry of Environment and Forests (MoEF). Presently the NCA comprises nine members from six ministries and the planning commission (Box 1). The major functions of the NCA are to accord host country approval (HCA) for CDM projects and to facilitate information dissemination. Composition of NCA

Chairperson: Secretary, MOEF

Members or their nominee:

• Foreign Secretary • Finance Secretary • Secretary, Industrial Policy and Promotion • Secretary, Ministry of Non-Conventional Energy Sources • Secretary, Ministry of Power • Secretary, Planning Commission • Joint Secretary, (Climate Change),MOEF

Member Secretary: Director (Climate Change), MOEF Steps for evaluation

The NCA endeavors to provide approval within 60 days. To guide the stakeholders in developing CDM projects, the MoEF has also announced interim CDM project approval criteria(http://envfor.nic.in/cc/cdm/criteria.htm). So far the NCA has provided host country approvals for 78 projects. The steps followed for according host country approval by NCA are listed below:

1. 20 copies of the project concept note and two copies of the CDM PDD have to be submitted in the proper formats along with soft copies.

2. The documents are circulated to all the NCA members for comments and evaluation. 3. A meeting of the NCA is held with the project promoters and their CDM advisors where the

promoters give a brief presentation. 4. Any queries and issues are clarified in the meeting with the project promoters. 5. If the NCA members have no additional queries and are satisfied with the project, host

country approval (HCA) is issued, preferably within 60 days. 6. If the NCA members have any enquiries, the information has to be submitted at the earliest.

The appraisal is then redone for approval. Eligibility criteria

Purpose The purpose of the clean development mechanism (CDM) is defined in Article 12 of the KyotoProtocol to the United Nations Framework Convention on Climate Change. The CDM has atwo-fold purpose: (a) to assist developing country Parties in achieving sustainable development,


162

thereby contributing to the ultimate objective of the Convention, and (b) to assist developedcountry Parties in achieving compliance with part of their quantified emission limitation andreduction commitments under Article 3.

Eligibility The project proposal should establish the following in order to qualify for consideration as CDMproject activity:

Additionalities

Emission additionality: The project should lead to real, measurable and long term GHGmitigation. The additional GHG reductions are to be calculated with reference to a baseline.

Financial additionality: The procurement of certified emission reduction (CERs) should not befrom official development assistance (ODA)

Sustainable development indicators

It is the prerogative of the host party to confirm whether a clean development mechanism project activity assists it in achieving sustainable development. The CDM projects should also beoriented towards improving the quality of life of the poor from the environmental standpoint. The following aspects should be considered while designing CDM project activity:

Social well being: The CDM project activity should lead to alleviation of poverty by generatingadditional employment, removal of social disparities and contribution to provision of basicamenities to people leading to improvement in quality of life of people.

Economic well being: The CDM project activity should bring in additional investment consistentwith the needs of the people.

Environmental well being: This should include a discussion of impact of the project activity on resource sustainability and resource degradation, if any, due to proposed activity; bio-diversity friendliness; impact on human health; reduction of levels of pollution in general;

Technological well being: The CDM project activity should lead to transfer of environmentally safe and sound technologies that are comparable to best practices in order to assist in upgradation ofthe technological base. The transfer of technology can be within the country as well from otherdeveloping countries also.

Baselines The project proposal must clearly and transparently describe methodology of determination ofbaseline. It should confirm to following:

• Baselines should be precise, transparent, comparable and workable;

• Should avoid overestimation;

• The methodology for determination of baseline should be homogeneous and reliable;

• Potential errors should be indicated;

• System boundaries of baselines should be established;

• Interval between updates of baselines should be clearly described;

• Role of externalities should be brought out (social, economic and environmental);


163

• Should include historic emission data-sets wherever available;

• Lifetime of project cycle should be clearly mentioned;

The project proponent could develop a new methodology for its project activity or could use one of the approved methodologies by the CDM Executive Board. For small-scale CDM projects, the simplified procedures can be used by the project proponent. The project proposal should indicatethe formulae used for calculating GHG offsets in the project and baseline scenario. Leakage, ifany, within or outside the project boundary, should be clearly described. Determination ofalternative project, which would have come up in absence of proposed CDM project activityshould also be described in the project proposal.

Procedure fo submitting CDM project reports to the National CDM Authoriy

The National CDM Authority is a single window clearance for CDM projects in the country. The project proponents are required to submit one soft copy of project concept note (PCN) and project design document (PDD) through online form and 20 hardcopies each of PCN and PDD along with two CDs containing all the information in each of them.

The project report and CDs should be forwarded through covering letter signed by the project sponsors. The project report submitted should be properly bound. The National CDM Authority examines the documents and if there are any preliminary queries the same are asked from the project proponents. The project proposals are then put up for consideration by the National CDM Authority. The project proponent and his consultants are normally given about 10–15 days notice to come to the Authority meeting and give a brief power point presentation regarding their CDM project proposals. Members seek clarifications during the presentation and in case the members feel that some additional clarifications or information is required from the project proponent the same is informed to the presenter. Once the members of Authority are satisfied, the host country approval (HCA) is issued by the Member-Secretary of the National CDM Authority.


164

Process of host country approval by NCA

Source: Ministry of Environment and Forest, India.

Format for project concept note

The project concept note for endorsement from the DNA should include the following information.

1. Name of project 2. Location of project (village, district, state) 3. Name of project sponsor(s) and contact details

Submission of PCN & PDD with 2 CDs & Online

submission to NCDMA

Circulation among NCDMA members

Presentation by project developers during NCDMA

meeting

Clarification / addition information from project developer if required by

NCDMA members

Host country approval letter

NCDMA Chairperson Secretary, Environment & Forests Members • Foreign Secretary • Finance Secretary • Secretary, Department of

Industrial Policy and Promotion.

• Secretary , Ministry of Non- Conventional Energy Resources

• Secretary , planning Commission

• Joint Secretary (Climate Change) , Environment & Forests

Member Secretary Director (Climate Change). MoEF

NCDMA meets once a month

60 Days


165

4. Name of project (developer/consultant) and contact details 5. Ownership details of project sponsor(s) company 6. CER sharing arrangements amongst project sponsors 7. Project description 8. Technology to be employed (state of art or technological innovation) 9. Transfer of technology (methodology) 10. Project start date 11. Project completion date 12. Project life time 13. Status of project clearances 14. Status of resource inputs 15. Financing details of the project 16. Total CDM contribution sought 17. CDM contribution expected upfront 18. Indicative CER price 19. Name and address of buyer of CER’s 20. Cost of CER to the company 21. IRR and DSCR without CER revenue 22. IRR and DSCR with CER revenue 23. Whether any ODA is flowing to the project 24. Subsidy element if any in the project & source 25. Total cost of the project

a. in Indian rupees. b. breakdown of foreign currency

26. Transaction cost 27. Whether project appraised by any financial institution 28. Financial closure 29. Expected date of first CER delivery and CER (revenue) flow, annually 30. Crediting period 31. Estimate of GHG abatement in tCO 2 e (annual) 32. Baseline methodology (approved or new) 33. Whether EIA conducted for the project 34. Sustainable development criteria 35. Specific global & local environmental benefits 36. Socio –economic aspects 37. Local stake holders comments 38. Environment management program 39. Project risks (economic, legal, political, social and environmental) 40. Project promoter credentials (number of projects promoted in the past and their status) 41. Developer/consultant credentials 42. Comments from MoEF/line ministry


166

Appendix VIII. Gazette (Ministry of Environment and Forests)

MINISTRY OF ENVIRONMENT AND FORESTS (Climate Change Division)

ORDER New Delhi, the 16th April 2004

S.O.515(E) – whereas, India is a party to the United Nations Framework Convention on Climate Change (UNFCCC) and the objective of the Convention is to achieve stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system;

And whereas, to strengthen the developed country commitments under the Convention, the parties adopted Kyoto protocol in 1997 which commits developed country Parties to return their emissions of greenhouse gases to an average of approximately 5.2% below 1990 levels over the period 2008-12;

And whereas, the Kyoto protocol provides for quantified emission limitations and reduction commitments for the developed countries and mechanisms to facilitate compliance with these targets, reporting and reviews and it lists six greenhouse gases – Carbon dioxide (CO

2), Methane (CH

1), Nitrous

oxide (N2O), Hydrofluorocarbons (HFCs), Perfluorocarbons (PFCs) and Sulphur hexafluoride (SF6 );

And whereas, India acceded to the Kyoto Protocol in August 2002 and one of the objectives of

acceding was to fulfill prerequisites for implementation of Clean Development Mechanism (hereinafter referred to as CDM) projects, in accordance with national sustainable priorities, where-under, a developed country would take up greenhouse gas reduction project activities in developing countries where the costs of greenhouse gas reduction project activities are usually much lower with the purpose to assist developing country parties in achieving Sustainable Development and in contributing to the ultimate objective of the Convention and to assist developed country Parties in achieving compliance with their quantified emission limitation and reduction commitments;

And whereas, the CoP-7(seventh Conference of Parties) to the UNFCCC decided that parties participating in CDM should designated a National Authority for the CDM and as per the CDM project cycle, a project proposal should include written approval of voluntary participation from the Designated National Authority of each country and confirmation that the project activity assists the host country in achieving sustainable development;

And whereas, the Central Government considers it necessary and expedient to constitute a National Clean Development Mechanism (CDM) Authority for the purpose of protecting and improving the quality of environment in terms of the Kyoto Protocol;

Now, therefore in exercise of the powers conferred by sub-sections (1) and (3) of section 3 of the Environment (Protection) Act,1986 (29 of 1986), the Central Government hereby constitutes the “National Clean Development Mechanism (CDM) Authority” with the following composition, namely:-


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1. Secretary (Environment and Forests) Chairperson 2. Foreign Secretary or his nominee Member 3. Finance Secretary or his nominee Member 4. Secretary, Industrial Policy and Promotion or his nominee Member 5. Secretary, Ministry of Non-conventional Energy Sources or his

nominee Member

6. Secretary, Ministry of Power or his nominee Member 7. Secretary, Planning Commission or his nominee Member 8. Joint Secretary (Climate Change), Ministry of Environment and

Forests Member

9. Director (Climate Change), Ministry of Environment and Forests Member-Secretary II The National Clean Development Mechanism (CMD) Authority shall exercise and perform the

following powers and functions, namely:- (i) to take measures with respect to matters referred to in the clauses (viii), (ix), (x), (xii) of sub-section

(2) of section 3 of the said Act and may issue directions under section 5 thereof. (ii) (a) To receive projects for evaluation and approval as per the guidelines and general criteria laid

down in the relevant rules and modalities pertaining to CDM in addition to the guidelines issued by the Clean Development Mechanism Executive Board and Conference of Parties serving as Meeting of Parties to the United Nations Framework Convention on Climate Change.

(b) The evaluation process of CDM projects would include an assessment of the probability of eventual successful implementation of CDM projects and evaluation of extent to which projects meet the sustainable development objectives, as it would seek to prioritize projects in accordance with national priorities.

(iii) (a) To recommend certain additional requirements to ensure that the project proposal meet the national sustainable development priorities and comply with the legal framework so as to ensure that the projects are compatible with the local priorities and stakeholders have been duly consulted. (b) To ensure that in the event of project proposal competing for same source of investment, projects with higher sustainable development benefits and which are likely to succeed are accorded higher priority.

(iv) Financial review of project proposals to ensure that the project proposals do not involve diversion of official development assistance in accordance with modalities and procedures for Clean Development Mechanism and also ensure that the market environment of the CDM project is not conducive to under-valuation of Certified Emission Reductions (CERs) particularly for externally aided projects.

(v) (a) To maintain a registry of CDM projects approved, and their Certified Emission Reduction

potential and confirm that these have been realized.

(b) To carry out activities to ensure that the project developers have reliable information relating to all aspects of Clean Development Mechanism which include creating databases on organizations designated for carrying out activities like validation of CDM project proposals and monitoring and verification of project activities, and


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(c) To collect, compile and publish technical and statistical data relating to CDM initiatives in India.

III The Member-Secretary of the National Clean Development Mechanism (CDM) Authority shall be

responsible for day-to-day activities of the Authority including constituting committees or subgroups to coordinate and examine the proposals or to get detailed examination of the project proposals conducted through experts or by consulting organizations for consideration by the Authority or to engage or hire any consultant or specialist on contract basis on such remuneration as may be approved by the Central Government and submission of report to UNFCCC and other authorities.

IV The National Clean Development Mechanism (CDM) Authority shall have power (a) to invite officials and experts from Government, financial institutions, consultancy organizations,

non-governmental organizations, civil society, legal profession, industry and commerce, as it may deem necessary for technical and professional inputs and may co-opt other members depending upon need.

(b) to interact with concerned authorities, institutions, individual stakeholders for matters relating to

CDM. (c) to take up any environmental issues pertaining to CDM or Sustainable Development projects as may

be referred to it by the Central Government, and (d) to recommend guidelines to the Central Government for consideration of projects and principles to be

followed for according host country approval. V The National Clean Development Mechanism (CDM) Authority shall furnish report about its activity

at least once in three months to the Central Government.

[F. No. 4/52003-CCC] R K Vaish, Jt Secretary

Note: This is a reproduction of the gazette, and not the original.


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Appendix IV. Glossary

Clean Development Mechanism (CDM). Article 12 of the Kyoto Protocol defines the CDM. “The purpose of the clean development mechanism shall be to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the UNFCCC, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3.” At its seventh session, the Conference of the Parties (COP) adopted modalities and procedures for the CDM (see annex to Decision 17/CP.7, document FCCC/CP/2001/13/Add.2) and agreed on a prompt start of the CDM by establishing the CDM Executive Board and agreeing that until the entry into force of the Kyoto Protocol (a) this board should act as the executive board of the CDM and (b) the Conference of the Parties (COP) should act as the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (COP/MOP), as required by the Protocol and the CDM modalities and procedures.

attributable. See “measurable and attributable.”

approval by Parties involved. A written approval constitutes the authorization by a designated national authority (DNA) of specific entity(ies) participation as project proponents in a specific CDM project activity. The approval satisfies the requirements of paragraphs 33 and 40(a), (f) of the CDM Modalities and Procedures. The DNA of a party involved in a proposed CDM project activity shall issue a statement including the following: (1) the party has ratified the Kyoto Protocol, (2) the approval of voluntary participation in the proposed CDM project activity, (3) in the case of host party(ies), a statement that the proposed CDM project activity contributes to sustainable development, and (4) the written approval shall be unconditional with respect to the above. Multilateral funds do not necessarily require written approval from each participant’s DNA. However, those not providing a written approval may be giving up some of their rights and privileges in terms of being a party involved in the project. A written approval from a party may cover more than one project, provided that all projects are clearly listed in the letter. The DOE shall receive documentation of the approval.

authorization of a private and/or public entity to participate in a CDM project activity. See “approval by Parties involved”

AAU. assigned amount unit (exchanged through emissions trading).

abatement. Refers to reducing the degree or intensity of greenhouse gas (GHG) emissions.

accession. An act whereby a State accepts the offer to become a party to a treaty already negotiated and singed by other States; has the same legal effect as ratification.

Adaptation fund. A fund to be managed by the GEF to finance practical adaptation projects once the Kyoto Protocol enters into force.


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activities implemented jointly (AIJ). Activities carried out to mitigate climate change through partnerships between an investor from a developed country and a counterpart in a host country under a pilot phase that ended in the year 2000. The purpose was to involve private-sector money in the transfer of technology and know-how. See also Joint Implementation.

adaptation. Actions taken to help communities and ecosystems cope with changing climate conditions, such as the construction of flood walls to protect property from stronger storms and heavier precipitation, or the planting of agricultural crops and trees more suited to warmer temperatures and drier soil conditions.

Ad hoc Group on Article 13 (AG13). A subsidiary body (committee) created by COP 1 to explore how to help governments overcome difficulties experienced in meeting their commitments under the UNFCCC (1995–1998).

Ad hoc Group on the Berlin Mandate (AGBM). A subsidiary body created by COP 1 to conduct the talks that led to the adoption of the Kyoto Protocol; the AGBM concluded its work on November 30, 1997.

afforestation. Planting of new forest on lands that historically have not been forested

AG13. Ad Hoc Group on Article 13.

AGBM. Ad Hoc Group on the Berlin Mandate.

AIJ. activities implemented jointly.

Alliance of Small Island States (AOSIS). An ad hoc coalition of low-lying and island countries. These nations are particularly vulnerable to rising sea levels and share common positions on climate change. The 42 members and observers are American Samoa, Antigua and Barbuda, Bahamas, Barbados, Belize, Cape Verde, Comoros, Cook Islands, Cuba, Cyprus, Dominica, Federated States of Micronesia, Fiji, Grenada, Guam, Guinea-Bissau, Guyana, Jamaica, Kiribati, Maldives, Malta, Marshall Islands, Mauritius, Nauru, Netherlands Antilles, Niue, Palau, Papua New Guinea, Samoa, Sao Tome and Principe, Seychelles, Singapore, Solomon Islands, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Tonga, Trinadad and Tobago, Tuvalu, US Virgin Islands, and Vanuatu.

amendments. The COP may change the text of the UNFCCC by amendment. If consensus cannot be reached, an amendment must win three-quarters of the votes of all Parties present and casting ballots.

Annex I Parties. The industrialised countries listed in the annex to the UNFCCC sought to return their GHG emissions to 1990 levels by the year 2000, as per article 4.2(a, b). They have also accepted emissions targets for the period 2008–12 as per Article 3 and Annex B of the Kyoto Protocol. They include the 24 original OECD members, the European Union, and 14 countries with economies in transition. (Croatia, Liechtenstein, Monaco, and Slovenia joined Annex I at COP 3, and the Czech Republic and Slovakia replaced Czechoslovakia.)


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Annex II Parties. The wealthy countries listed in this annex to the UNFCCC have a special obligation to help developing countries with financial and technological resources. They include the 24 original OECD members plus the European Union.

anthropogenic emissions. GHG emissions resulting from human activities.

AOSIS. Alliance of Small Island States.

Article 4.1. An article of the UNFCCC stipulating general commitments assumed by all Parties, whether developing or developed.

Article 4.2. An article of the UNFCCC stating the specific commitments of developed country (Annex I) Parties only—notably that they would take measures aimed to return GHG emissions to 1990 levels by the year 2000.

Article 6 Supervisory Committee. A committee providing international oversight of "second-track" joint implementation projects intended to reduce GHG emissions. Joint implementation projects are carried out by sponsoring and recipient developed countries under Article 6 of the Kyoto Protocol—with the recipient likely to be a country with an "economy in transition.” Second track JI is used if one or both countries have not yet met requirements for the standard joint implementation program. Second track JI involves more oversight.

baseline. See “baseline scenario.”

baseline approach. A baseline approach is the basis for a baseline methodology. The CDM Executive Board agreed that the three approaches identified in sub-paragraphs 48 (a–c) of the CDM Modalities and Procedures are the only ones applicable to CDM project activities. They are: (1) existing actual or historical emissions, as applicable; or (2) emissions from a technology that represent an economically attractive course of action, taking into account barriers to investment; or (3) the average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental, and technological circumstances and whose performance is among the top 20 percent of their category.

baseline methodology. A methodology is an application of an approach as defined in paragraph 48 of the CDM Modalities and Procedures, to an individual project activity, reflecting aspects such as sector and region. No methodology is excluded a priori so those project participants have the opportunity to propose a methodology. In considering paragraph 48, the executive board agreed that, in the two cases below, the following applies: (a) The case of a new methodology: In developing a baseline methodology, the first step is to identify the most appropriate approach for the project activity and then an applicable methodology, and (b) The case of an approved methodology: In opting for an approved methodology, project participants have implicitly chosen an approach.

baseline, new methodology. Project participants may propose a new baseline methodology established in a transparent and conservative manner. In developing a new baseline


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methodology, the first step is to identify the most appropriate approach for the project activity and then an applicable methodology. Project participants shall submit a proposal for a new methodology to a designated operational entity by forwarding a completed “Proposed New Methodology: Baseline (CDM-NMB),” along with a completed “Proposed New Methodology: Monitoring (CDM-NMM),” and the project design document (CDM-PDD), with sections A to E completed, in order to demonstrate the application of the proposed new methodology to a proposed project activity. The proposed new methodology will be treated as follows: If the designated operational entity determines that it is a new methodology, it will forward, without further analysis, the documentation to the executive board, which shall expeditiously, if possible at its next meeting, but not later than four months, review the proposed methodology. Once approved by the board, the new methodology shall be made publicly available, along with any relevant guidance, and the designated operational entity may proceed with the validation of the project activity (applying the approved methodology) and submit the project design document for registration. In the event that the COP/MOP requests the revision of an approved methodology, no CDM project activity may use this methodology. The project participants shall revise the methodology, as appropriate, taking into consideration any guidance received.

baseline, approved methodology. A baseline methodology approved by the executive board is publicly available, along with relevant guidance on the UNFCCC CDM Web site (http://unfccc.int/cdm) or through a written request sent to [email protected] or fax: (49-228) 815-1999.

baseline scenario. The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of GHG that would occur in the absence of the proposed project activity. A baseline shall cover emissions from all gases, sectors, and source categories listed in annex A of the Kyoto Protocol within the project boundary. A baseline shall be deemed to reasonably represent the anthropogenic emissions by sources that would occur in the absence of the proposed project activity if it is derived using baseline methodology referred to in paragraphs 37 and 38 of the CDM modalities and procedures. Different scenarios may be elaborated as potential evolutions of the situation existing before the proposed CDM project activity. The continuation of a current activity could be one of them; implementing the proposed project activity may be another; and many others could be envisaged. Baseline methodologies must include a narrative description of all reasonable baseline scenarios. To elaborate the different scenarios, different elements shall be taken into consideration, including related guidance issued by the CDM Executive Board. For instance, the project participants should take into account national/sectoral policies and circumstances, ongoing technological improvements, investment barriers, etc. (see appendix C, paragraph b(vii) and paragraphs 45 (e), 46, 48(b) of Decision 17/CP.7).

Berlin Mandate. Adopted at COP 1, the mandate that launched negotiations leading to the adoption of the Kyoto Protocol.

biomass fuels. Energy sources that are renewable as long as the vegetation producing them is maintained or replanted, such as firewood, alcohol fermented from sugar, and combustible


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oils extracted from soybeans. Their use in place of fossil fuels cuts GHG emissions because the plants that are their sources recapture CO2 from the atmosphere.

Bonn Agreements. The political deal reached at COP 6 in Bonn, Germany, in 2001, by which governments signed off on the most politically controversial issues under the Buenos Aires Plan of Action.

Bonn Fund. A special contribution from the government of Germany to cover costs of UNFCCC events held in Bonn.

Brazilian Proposal. A proposalnot accepted—for distributing the burden of GHG emission reductions among UNFCCC Annex I Parties, based on the effect of cumulative historical emissions from 1840 on the global average surface temperature. The proposal also contained a proposed emission reduction target for Annex I Parties of 30 percent based on 1990 emissions levels.

bunker fuels. Fuels supplied to ships and aircraft for international transportation, irrespective of the flag of the carrier.

Bureau. Responsible for directing the work of the COP. Its 10 members are delegates elected by each of five regional groups. The bureau includes the COP president, six vice presidents, the chairs of SBI and SBSTA, and a rapporteur. Each of the convention's subsidiary bodies also has a bureau.

crediting period. The crediting period for a CDM project activity is the period for which reductions from the baseline are verified and certified by a designated operational entity for the purpose of issuing of certified emission reductions (CERs). Project participants choose the starting date of a crediting period to be after the date the first emission reductions are generated by the CDM project activity. A crediting period shall not extend beyond the operational lifetime of the project activity. The crediting period may only start after the date of registration of the proposed activity as a CDM project activity. In exceptional cases, for project activities starting between January 1, 2000, and the date of the registration of a first CDM project, the starting date of the crediting period may be prior to the date of registration of the project activity if the project activity is submitted for registration before December 31, 2005 (please refer to paras 12 and 13 of Decision 17/CP.7, paragraph 1(c) of Decision 18/CP.9 and clarifications by the CDM Executive Board, available on the UNFCCC CDM Web site). The project participants may choose between two options for the length of a crediting period: (1)fixed crediting period, or (2) renewable crediting period, as defined in paragraph 49 (a,b) of the CDM M&P

crediting period, fixed (also fixed crediting period). The Fixed Crediting Period is one of two options for determining the length of a crediting period. In the case of this option, the length and starting date of the period is determined once for a project activity with no possibility of renewal or extension once the project activity has been registered. The length of the period can be a maximum of ten years for a proposed CDM project activity. (paragraph 49(b) of CDM Modalities and Procedures).


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crediting period, renewable (also renewable crediting period). The Renewable Crediting Period is one of two options for determining the length of a crediting period. In the case of this option, a single crediting period may be of a maximum of seven years. The crediting period may be renewed at most two times (maximum 21 years), provided that, for each renewal, a designated operational entity determines that the original project baseline is still valid or has been updated, taking account of new data, where applicable, and informs the CDM Executive Board accordingly (paragraph 49[a] of the CDM Modalities and Procedures). The starting date and length of the first crediting period has to be determined before registration.

certification. Certification is the written assurance by the designated operational entity that, during a specified time period, a project activity achieved the reductions in anthropogenic emissions by sources of GHGs as verified.

conservative. See “transparent and conservative.”

CACAM. The Negotiating coalition of countries of Central Asia and the Caucasus, Albania, and the Republic of Moldova.

capacity building. The process of developing technical skills and institutional capability in developing countries and economies in transition to enable them to effectively address the causes and results of climate change.

carbon market. A popular but misleading term for a trading system through which countries may buy or sell units of GHG emissions in an effort to meet their national limits on emissions, either under the Kyoto Protocol or under other agreements, such as that among member states of the European Union. The term comes from the fact that CO2 is the predominant GHG and other gases are measured in units called carbon dioxide equivalents (CO2e).

carbon sequestration. The process of removing additional carbon from the atmosphere and depositing it in other "reservoirs," principally through changes in land use. In practical terms, carbon sequestration occurs mostly through the expansion of forests.

CBD. Convention on Biological Diversity.

CC:TRAIN. Training methodology for assessing vulnerability to climate change.

CDM. Clean Development Mechanism.

CER. certified emission reductions.

certified emission reductions. A certified emission reduction (CER) is a unit issued pursuant to Article 12 and requirements there under, as well as the relevant provisions in the CDM modalities and procedures, and is equal to one metric tonne of carbon dioxide equivalent, calculated using global warming potentials defined by Decision 2/CP.3 or as subsequently revised in accordance with Article 5 of the Kyoto Protocol. A unit equal to one metric tonne of CO2 equivalent, which may be used by Annex I countries towards meeting their binding emission reduction and limitation commitments under the Kyoto Protocol.


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CFC. chlorofluorocarbon.

CGE. Consultative Group of Experts on National Communications from Parties not included in Annex I to the UNFCCC.

CG-11. Central Group 11 (negotiating coalition of Central European Annex I Parties).

CH4. methane.

chair (or chairman, chairperson, etc.). The participating governments elect chairs for the UNFCCC's subsidiary bodies from among national delegates. Different chairs may be elected for other informal groups. The chair is responsible for facilitating progress towards an agreement and serves during the inter-sessional period until the next COP.

Clean Development Mechanism (CDM). A procedure under the Kyoto Protocol under which developed countries may finance GHG emissions-avoiding projects in developing countries, and receive credits for doing so which they may apply towards meeting mandatory limits on their own emissions.

Clean Development Mechanism Executive Board. A 10-member panel elected at COP 7 that supervises the CDM and has begun operation in advance of the Kyoto Protocol's entry into force.

clearing house. A service that facilitates and simplifies transactions among multiple parties.

CMS. Convention on the Conservation of Migratory Species of Wild Animals.

CO2. carbon dioxide.

committee of the whole. Often created by a COP to aid in negotiating text. It consists of the same membership as the COP. When the committee has finished its work, it turns the text over to the COP, which finalises and then adopts the text during a plenary session.

compliance committee. A committee that will focus on compliance with the provisions of the Kyoto Protocol once it enters into force. It will have 20 members with representation spread among various regions, small-island developing states, Annex I and non-Annex I Parties, and will function through a plenary, a bureau, a facilitative branch, and an enforcement branch.

common reporting format (CRF). Standardised format for reporting estimates of GHG emissions and removals and other relevant information.

compliance. Fulfilment by countries/businesses/individuals of emission and reporting commitments under the UNFCCC and the Kyoto Protocol.

Conference of the Parties (COP). The supreme body of the UNFCCC. It currently meets once a year to review the convention's progress. The word "conference" is not used here in the sense of "meeting" but rather of "association," which explains the seemingly redundant expression "fourth session of the Conference of the Parties."


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Conference of the Parties/Meeting of the Parties (COP/MOP). The Kyoto Protocol's supreme body will be the COP, which will serve as the protocol's meeting of the Parties to the UNFCCC. The sessions of the COP and the COP/MOP will be held during the same period to reduce costs and improve coordination between the convention and the protocol.

conference room paper (CRP). A category of in-session documents containing new proposals or outcomes of in-session work. CRPs are for use only during the session concerned.

Consultative Group of Experts on National Communications from non-Annex I Parties. A panel established to improve the preparation of national communications from developing countries. National communications are an obligation of Parties to the UNFCCC.

contact group. An open-ended meeting that may be established by the COP or a Committee of the Whole wherein Parties may negotiate before forwarding agreed text to a plenary for formal adoption. Observers generally may attend contact group sessions.

COP. See “Conference of the Parties.”

COP/MOP. Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol.

countries with economies in transition (EIT). Those Central and East European countries and former republics of the Soviet Union in transition from state-controlled to market economies.

CRF. common reporting format.

CSD. United Nations Commission on Sustainable Development.

designated operational entity (DOE). An entity designated by the COP/MOP, based on the recommendation of the CDM Executive Board, as qualified to validate proposed CDM project activities as well as verify and certify reductions in anthropogenic emissions by sources of GHGs. A designated operational entity shall perform validation or verification and certification on the same CDM project activity. Upon request, the board may however allow a single DOE to perform all these functions within a single CDM project activity. COP decided at its eight session that the board may designate on a provisional basis operational entities (please refer to decision 21/CP 8).

decision. A formal agreement that (unlike a resolution) leads to binding actions. It becomes part of the agreed body of decisions that direct the work of the COP.

declaration. A non-binding political statement made by ministers attending a major meeting (e.g., the Geneva Ministerial Declaration of COP 2).

deforestation. The direct human-induced conversion of forested land to non-forested land.

designated national authority (DNA). An office, ministry, or other official entity appointed by a party to the Kyoto Protocol to review and give national approval to projects proposed under the Clean Development Mechanism.


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documents. Documents fall into different categories. Official documents are available to everyone and feature the logos of the United Nations and the UNFCCC. They carry a reference number, such as FCCC/CP/1998/1. Pre-session documents are available before a meeting, often in all six UN languages. In-session documents are distributed on-site (see CRPs, L docs, Misc. docs, and non-papers). Informal documents are often distributed outside the meeting room by observers.

drafting group. A smaller group established by the president or a chair to meet separately and in private to prepare draft text—text which must still be formally approved later in a plenary session. Observers generally may not attend drafting group meetings.

EGTT. Expert Group on Technology Transfer.

EIT. Economies in Transition (former Soviet Union and Central and Eastern European nations).

Emission reduction unit (ERU). A unit equal to one metric tonne of CO2e, applicable to binding emissions reductions targets under the Kyoto Protocol, and generated through joint implementation projects.

emissions trading. Mechanism under the Kyoto Protocol through which Parties with emissions commitments may trade units of their emissions allowances with other Parties. The aim is to improve the overall flexibility and economic efficiency of making emissions cuts.

entry into force. The point at which an intergovernmental agreement becomes legally binding – occurring at a pre-stated interval after a pre-stated and required number of ratifications by countries has been achieved. The UNFCCC required 50 ratifications to enter into force. It now enters into force for each new party 90 days after that party ratifies the convention.

Environmental Integrity Group. A coalition or negotiating alliance consisting of Mexico, the Republic of Korea, and Switzerland.

ESCAP. Economic and Social Commission for Asia and the Pacific.

European Union (EU). As a regional economic integration organization, the EU is allowed to join the UNFCCC, and has done so. However, it does not have a separate vote from its members. The EU also may be a party to the Kyoto Protocol. Because it signed the convention when it was known as the EEC (European Economic Community), the EU retains this name for all formal convention-related purposes. Members are Austria, Belgium, Cyprus (Greek part), Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.

expert review teams. Groups of experts who review national communications submitted by Annex I Parties to the UNFCCC.

FAO. Food and Agriculture Organization of the United Nations.


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financial mechanism. A procedure under the UNFCCC for transferring funds and technologies to developing countries to address climate change. The transfers take place through grants or on a concessional basis under the guidance of the COP. The Global Environment Facility (GEF) is "operating" the mechanism on an interim basis.

friends of the chair. Delegates called upon by the Chair (who takes into account the need for political balance among various interests) to assist in carrying out specific tasks.

fugitive fuel emissions. GHG emissions as by-products or waste or loss in the process of fuel production, storage or transport, such as methane given off during oil and gas drilling and refining, or leakage of natural gas from pipelines.

GATT. General Agreement on Tariffs and Trade.

GCOS. Global Climate Observing System.

GEF. Global Environment Facility.

General Agreement on Tariffs and Trade. Greenhouse gases.

global warming potential (GWP). An index representing the combined effect of the differing times GHGs remain in the atmosphere and their relative effectiveness in absorbing outgoing infrared radiation.

GOOS. Global Ocean Observing System.

greenhouse gas (GHG). An atmospheric gas responsible for causing global warming and climate change. The major GHGs are carbon dioxide (CO2), methane (CH4) and nitrous oxide (N20). Less prevalent—but very powerful—GHGs are hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6).

Group of 77 (G-77) and China. A large negotiating alliance of developing countries that focuses on numerous international topics, including climate change. The G-77 was founded in 1967 under the auspices of the United Nations Conference on Trade and Development (UNCTAD). It seeks to harmonise the negotiating positions of its 132 member states.

GRULAC. Group of Latin American and Caribbean States.

Global Environmental Facility (GEF). The multi-billion-dollar GEF was established in 1990 by the World Bank, the UN Development Programme, and the UN Environment Programme to support projects in developing countries that have widespread environmental benefits. It was selected to operate the UNFCCC's "financial mechanism" on an interim basis. In that role it funds developing country projects that have positive global effects on climate change.

GTOS. Global Terrestrial Observing System.

HFC. hydrofluorocarbon.


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"hot air." Refers to the concern that some governments will be able to meet their commitment targets for GHG emissions under the Kyoto Protocol with minimal effort and could then flood the market with emissions credits, reducing the incentive for other countries to cut their own domestic emissions.

host party. A party not included in Annex I to the UNFCCC on whose territory the CDM project activity is physically located. A project activity located in several countries has several Host Parties. At the time of registration, a Host party shall meet the requirements for participation as defined in paragraphs 28 to 30 of the CDM Modalities and Procedures.

issuance of certified emission reductions (CERs). Issuance of CERs refers to the instruction by the CDM Executive Board to the CDM registry administrator to issue a specific quantity of CERs for a project activity into the pending account of the board in the CDM registry, in accordance with paragraph 66 and Appendix D of the CDM modalities and procedures. Upon issuance of CERs, the CDM registry administrator shall, in accordance with paragraph 66 of CDM Modalities and Procedures, promptly forward the CERs to the registry accounts of project participants involved, in accordance with their request, having deducted the quantity of CERs corresponding to the share of proceeds to cover administrative expenses for the board and to assist in meeting costs of adaptation for developing countries vulnerable to adverse impacts of climate change, respectively, in accordance with Kyoto Protocol Article 12, paragraph 8, to the appropriate accounts in the CDM registry for the management of the share of proceeds.

ICAO. International Civil Aviation Organization.

ICCP. International Climate Change Partnership.

ICLEI. International Council of Local Environmental Initiatives.

IEA. International Energy Agency.

IGO. intergovernmental organisation.

IMO. International Maritime Organization.

Implementation. Actions (legislation or regulations, judicial decrees, or other actions) that governments take to translate international accords into domestic law and policy.

INC. Intergovernmental Negotiating Committee for the UNFCCC (1990–1995).

in–depth review (IDR). Careful, thorough consideration of the first "national communications" submitted by developed countries under the UNFCCC—documents which, among other things, provide inventories of GHG emissions and describe measures to mitigate climate change. The communications have been subjected to a series of reviews, generally including country visits by international teams of experts.


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informal contact group. A group of delegates instructed by the president or a chair to meet in private to discuss a specific matter in an effort to consolidate different views, reach a compromise, and produce an agreed proposal, often in the form of a written text.

Intergovernmental Negotiating Committee (INC). A committee created to draft the UNFCCC. The INC met in five sessions between February 1991 and May 1992. After the text of the convention was adopted in 1992, the INC met six more times to prepare for COP 1. It completed its work in February 1995.

Intergovernmental Panel on Climate Change (IPCC). Established in 1988 by the WMO and the UNEP, the IPCC surveys world wide scientific and technical literature and publishes assessment reports that are widely recognized as the most credible existing sources of information on climate change. The IPCC also works on methodologies and responds to specific requests from the UNFCCC's subsidiary bodies. The IPCC is independent of the convention.

International Climate Change Partnership. Global coalition of companies and trade associations committed to constructive participation in international policy making on climate change.

IOC. Intergovernmental Oceanographic Commission.

ISO. International Standards Organization.

IUCN. World Conservation Union.

Joint Liaison Group. Group of representatives of the UNFCCC, CBD, and UNCCD secretariats set up to explore common activities to confront problems related to climate change, biodiversity, and desertification.

joint implementation (JI). A mechanism under the Kyoto Protocol through which a developed country can receive "emission reduction units" when it helps to finance projects that reduce net GHG emissions in another developed country (in practice, the recipient state is likely to be a country with an "economy in transition").

JUSSCANNZ. An acronym representing non-EU industrialised countries which occasionally meet to discuss various issues related to climate change. The members are Japan, the United States, Switzerland, Canada, Australia, Norway, and New Zealand. Iceland, Mexico, and the Republic of Korea may also attend JUSSCANZ meetings.

JWG. Joint Working Group.

Kyoto Protocol. An international agreement standing on its own and requiring separate ratification by governments but linked to the UNFCCC. The Kyoto Protocol, among other things, sets binding targets for the reduction of GHG emissions by industrialised countries. The protocol entered into force on February 16, 2005.


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land use, land-use change, and forestry (LULUCF). Refers to the impact of land use by humans—and changes in such land use—on GHG emissions: expanding forests reduces atmospheric CO2; deforestation releases additional CO2; various agricultural activities may add to atmospheric levels of NH4 and NOx.

LDC. least developed country.

L. docs. In-session documents that contain draft reports and texts for adoption by the COP or its subsidiary bodies. Usually such documents are available in all six UN languages.

leakage. Leakage is defined as the net change of anthropogenic emissions by sources of GHGs which occurs outside the project boundary, and which is measurable and attributable to the CDM project activity. That portion of cuts in GHG emissions by developed countries—countries trying to meet mandatory limits under the Kyoto Protocol—that may reappear in other countries not bound by such limits. For example, multinational corporations may shift factories from developed countries to developing countries to escape restrictions on emissions.

Least Developed Country (LDC) Expert Group. A panel of 12 experts which provides advice to LDCs on the preparation and implementation of national adaptation programs of action (NAPAs)—plans for coping with climate change.

Least Developed Country Fund. A fund set up under the UNFCCC to enable the world's poorest nations to carry out national programs of action to adapt to the effects of climate change.

LULUCF. land use, land-use change, and forestry.

Marrakesh Accords. Agreements reached at COP 7 in Marrakesh which set various rules for "operating" the more complex provisions of the Kyoto Protocol. Among other things, the accords include details for establishing a GHG emissions trading system; implementing and monitoring the protocol's Clean Development Mechanism; and setting up and operating three funds to support efforts to adapt to climate change.

mechanisms. Three procedures established under the Kyoto Protocol to increase the flexibility and reduce the costs of making GHG emissions cuts. They are the Clean Development Mechanism, emissions trading, and joint implementation.

meeting. A formal gathering that occurs during a "session." Each session of the COP, for example, is divided into a number of meetings. A meeting is generally scheduled from 10 a.m. to 1 p.m. or from 3 p.m. to 6 p.m.

miscellaneous documents (misc. docs). Documents issued on plain paper with no UN masthead. They generally contain views or comments submitted as received from a delegation without formal editing.


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mitigation. Actions to cut net emissions of GHGs and so reduce climate change. Examples are using fossil fuels more efficiently for industrial processes or electricity generation, switching to solar energy or wind power, improving the insulation of buildings, and expanding forests and other "sinks" to remove greater amounts of CO2 from the atmosphere.

Montreal Protocol. The Montreal Protocol on Substances that Deplete the Ozone Layers, an international agreement adopted in Montreal in 1987.

measurable and attributable. In an operational context, the terms measurable and attributable in paragraph 51 (project boundary) of the CDM Modalities and Procedures should be read as “which can be measured” and “directly attributable,” respectively

monitoring of a CDM project activity. Monitoring refers to the collection and archiving of all relevant data necessary for determining the baseline, measuring anthropogenic emissions by sources of GHGs within the project boundary of a CDM project activity and leakage, as applicable.

monitoring methodology. A monitoring methodology refers to the method used by project participants for the collection and archiving of all relevant data necessary for the implementation of the monitoring plan.

monitoring methodology, approved. A monitoring methodology approved by the CDM Executive Board and made publicly available along with relevant guidance.

monitoring methodology, new. Project participants may propose a new monitoring methodology. In developing a methodology, the first step is to identify the most appropriate one, bearing in mind good monitoring practice in relevant sectors. Project participants shall submit a proposal for a new methodology to a DOE by forwarding a completed “Proposed New Methodology: Baseline (CDM-NMB)” along with a completed “Proposed New Methodology: Monitoring (CDM-NMM)” and the project design document (CDM-PDD) with sections A to E completed in order to demonstrate the application of the proposed new methodology to a proposed project activity. A new proposed methodology will be treated as follows: if the DOE determines that it is a new methodology, it will forward, without further analysis, the documentation to the CDM Executive Board. The board shall expeditiously, if possible at its next meeting, but not later than four months, review the proposed methodology. Once approved by the board it shall make the approved methodology publicly available along with any relevant guidance, and the DOE may proceed with the validation of the project activity (applying the approved methodology) and submit the project design document for registration. In the event that the COP/MOP requests the revision of an approved methodology, no CDM project activity may use this methodology. The project participants shall revise it, as appropriate, taking into consideration any guidance received.

N20. nitrous oxide.

NAPA. national adaptation programs of action.


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national adaptation programmes of action (NAPAs). Documents prepared by least developed countries (LDCs) identifying urgent and immediate activities useful for coping with climate change. The NAPAs are then presented to the international donor community for support.

national communication. A document submitted in accordance with the UNFCCC (and the Kyoto Protocol) by which a party informs other Parties of activities undertaken to mitigate climate change. Many developed countries have now submitted their second national communications; many developing countries are in the process of submitting their first.

national delegation. One or more officials empowered to represent and negotiate on behalf of a government.

non-Annex I. Refers to countries that have ratified or acceded to the United Nations Framework Convention on Climate Change that are not included in Annex I of the convention.

Non-governmental organizations (NGOs). Many NGOs attend climate talks as observers to interact with delegates and the press, and to provide information. To be accredited for such activities under the UNFCCC, NGOs must be non-profit. They include environmental groups, research institutions, business groups, and associations of urban and local governments.

non-paper. An in-session document issued informally to facilitate negotiations. A non-paper does not have an official document symbol. It may have an identifying number or carry the name of its author.

non-party. A state that has not ratified the UNFCCC but attends meetings as an observer.

no-regrets options. Technology for reducing GHG emissions whose other benefits (in terms of efficiency or reduced energy costs) are so extensive that the investment is worth it for those reasons alone. For example, combined-cycle gas turbines in which the heat from burning fuel drives steam turbines while the thermal expansion of the exhaust gases drives gas turbines—may boost the efficiency of electricity generating plants by 70 percent.

observers. Agencies, non-governmental organizations, and governments not Parties to the UNFCCC that are permitted to attend, but not vote, at meetings of the COP and its subsidiary bodies. Observers may include the United Nations, its specialised agencies; other intergovernmental organizations such as the International Atomic Energy Agency; and accredited non-governmental organizations (NGOs).

OECD. Organisation for Economic Co-operation and Development.

OPEC. Organization of Petroleum Exporting Countries.

Organisation for Economic Cooperation and Development (OECD). An association of industrialised nations consisting of Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, the Republic of Korea, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland,


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Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.

operational lifetime of a project activity. It is defined as the period during which the project activity is in operation. No crediting period shall end after the end of the operational lifetime (calculated from the starting date).

party involved. A party involved is one that provides a written approval. See “Approval by Parties involved.”

project activity. A project activity is a measure, operation or an action that aims at reducing GHGs emissions. The Kyoto Protocol and the CDM Modalities and Procedures use the term “project activity” as opposed to “project.” A project activity could, therefore, be identical with or a component or aspect of a project undertaken or planned.

project boundary. The project boundary shall encompass all anthropogenic emissions by sources of GHGs under the control of the project participants that are significant and reasonably attributable to the CDM project activity. The Panel on Methodologies (Meth Panel) shall develop specific proposals for consideration by the CDM Executive Board on how to operationalise the terms “under the control of,” “significant” and “reasonably attributable,” as contained in paragraph 52 and Appendix C, paragraphs a(iii) and b(vi) of the CDM Modalities and Procedures. Pending decisions by the board on these terms, project participants are invited to explain their interpretation of such terms when completing and submitting their CDM-NMB and CDM-NMM.

project participants. In accordance with the use of the term “project participant” in the CDM Modalities and Procedures, a project participant is (a) a party involved, or (b) a private and/or public entity authorized by a party involved to participate in a CDM project activity. In accordance with Appendix D of the CDM Modalities and Procedures, the decision on the distribution of CERs from a CDM project activity shall exclusively be taken by project participants. Project participants shall communicate with the CDM Executive Board through the secretariat, in writing, in accordance with the “modalities of communication” submitted together with the registration form. If a project participant does not wish to be involved in taking decisions on the distribution of CERs, this shall be communicated to the board, through the secretariat, at the latest the request regarding the distribution is made. See also: “Approval by Parties involved,” “Party involved” and “Request for distribution of CERs”

party. A state (or regional economic integration organization such as the European Union) that agrees to be bound by a treaty and for which the treaty has entered into force.

PFC. perfluorocarbon.

plenary. A formal meeting of the entire COP. Formal decisions may only be taken during plenaries.


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policies and measures. A frequently used phrase (sometimes abbreviated as PAMs) referring to the steps taken or to be taken by countries to achieve GHG emissions targets under the Kyoto Protocol. Some possible policies and measures are listed in the protocol and could offer opportunities for intergovernmental cooperation.

president. The official of a member government elected by the Parties to preside over the COP. The president is often a senior official or minister from the state or region hosting the meeting.

protocol. An international agreement linked to an existing convention, but as a separate and additional agreement which must be signed and ratified by the Parties to the convention concerned. Protocols typically strengthen a convention by adding new, more detailed commitments.

quantified emissions limitation and reduction commitments (QELROs). Legally binding targets and timetables under the Kyoto Protocol for the limitation or reduction of GHG emissions by developed countries.

ratification. Formal approval, often by a Parliament or other national legislature, of a convention, protocol, or treaty, enabling a country to become a party. Ratification is a separate process that occurs after a country has signed an agreement. The instrument of ratification must be deposited with a "depositary" (in the case of the UNFCCC, it is the UN Secretary-General) to start the countdown to becoming a party (in the case of the convention, the countdown is 90 days).

recommendation. A formal act of the COP which is weaker than a decision or a resolution, and is not binding on Parties to the UNFCCC.

reforestation. Replanting of forests on land that was previously forested but subsequently converted to other use.

regional groups. An Alliance of countries, more or less by geographic location, which meets privately to discuss issues and nominate bureau members and other officials for activities under the UNFCCC. The five regional groups are Africa, Asia, Central and Eastern Europe (CEE), Latin America and the Caribbean (GRULAC), and the Western Europe and Others Group (WEOG).

registries, registry systems. Systems, including electronic databases, that will track and record all transactions under the Kyoto Protocol's GHG emissions trading system (the “carbon market”) and under mechanisms, such as the Clean Development Mechanism.

research and systematic observation. An obligation of Parties to the UNFCCC; they are called upon to promote and cooperate in research and systematic observation of the climate system, and called upon to aid developing countries to do so.

reservation. An exception or concern noted for the record by a party in the course of accepting a decision of the COP. No reservations are allowed to the UNFCCC itself or to the Kyoto Protocol.


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reservoirs. A component or components of the climate system where a GHG or a precursor of a GHG is stored. Trees are "reservoirs" for CO2.

resolution. Directives that guide the work of the COP—opinions rather than permanent legal acts. Unlike decisions, resolutions do not generally become part of the formal body of legislation enacted by the COP.

review of commitments. Regular scrutiny by UNFCCC Parties of the adequacy of the treaty's Article 4.2 (a,b) outlining developed country commitments to limit GHG emissions. The first review took place at COP 1 and led to a finding that progress was not "adequate"—and so to negotiations that led to the Kyoto Protocol, which has more stringent commitments for developed countries.

Rio Conventions. Three environmental conventions adopted at the 1992 "Earth Summit" in Rio de Janeiro: the United Nations Framework Convention on Climate Change (UNFCCC), the United Nations Convention to Combat Desertification (UNCCD), and the Convention on Biodiversity (CBD). The issues addressed by the three treaties are related—climate change in particular, which can have adverse effects on desertification and biodiversity—and through the Joint Liaison Group, the secretariats of the three conventions take steps to coordinate activities to achieve common progress.

RMU. removal unit (generated in Annex I Parties by land use, land-use change, and forestry (LULUCF) activities that absorb CO2).

roster of experts. Experts nominated by Parties to the UNFCCC to aid the Secretariat in work related to preparation of reports on adaptation technology, the transfer of technology to developing countries, and the development of know how on mitigating and adapting to climate change.

rules of procedure. The parliamentary rules that govern the procedures of the COP, covering such matters as decision-making and participation. The COP has not yet formally adopted rules of procedure, and all except one (on voting) are currently being "applied."

registration. Registration is the formal acceptance by the CDM Executive Board of a validated project activity as a CDM project activity. Registration is the prerequisite for the verification, certification, and issuance of CERs related to that project activity.

renewable crediting period. See Crediting period, renewable

request for distribution of CERs. The request regarding the distribution of CERs can only be changed if all signatories of the previous instruction have agreed to the change and signed the appropriate document. A change of project participants shall immediately be communicated to the CDM Executive Board through the UNFCCC secretariat. The indication of change shall be signed by all project participants of the previous communication and by all new and remaining project participants. Each new project participant needs authorization, as required.


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stakeholders. Stakeholders refers to the public, including individuals, groups or communities affected, or likely to be affected, by the proposed CDM project activity or actions leading to the implementation of such an activity.

starting date of a CDM project activity. The starting date of a CDM project activity is the date at which the implementation or construction or real action of a project activity begins. Project activities starting between January 1, 2000 and the date of the registration of a first Clean Development Mechanism project have to provide documentation, at the time of registration, showing that the starting date fell within this period, if the project activity is submitted for registration before December 31, 2005.

SBI. See Subsidiary Body for Implementation.

SBSTA. See Subsidiary Body for Scientific and Technological Advice.

SF6. sulphur hexafluoride.

Second Assessment Report (SAR). An extensive review of world-wide research on climate change compiled by the IPCC and published in 1995. Some 2,000 scientists and experts participated. The report is also known as Climate Change 1995. The SAR concluded that "the balance of evidence suggests that there is a discernible human influence on global climate." It also said "no-regrets options" and other cost-effective strategies exist for combating climate change.

second-track JI. A procedure for carrying out projects under the joint implementation mechanism in cases where a party to the Kyoto Protocol has not yet met requirements for the standard joint implementation programme. The second track provides greater international oversight through a panel called the Article 6 Supervisory Committee.

secretariat. An office staffed by international civil servants responsible for "servicing" the UNFCCC and ensuring its smooth operation. The secretariat makes arrangements for meetings, compiles and prepares reports, and coordinates with other relevant international bodies. The UNFCCC secretariat, which is based in Bonn, Germany, is institutionally linked to the United Nations.

signature. The signing by a head of state or government, a foreign minister, or other designated official indicating a country's agreement with an adopted international text, such as a consignalling protocol, and signalling the country's intention of becoming a party to the agreement.

sinks. Any process which removes a GHG from the atmosphere. The major sinks are forests and other vegetation which remove CO2 through photosynthesis. Under the Kyoto Protocol, developed countries, in their calculation of net GHG emissions, may deduct from their totals the removal of GHGs through the expansion of sinks. This may help them to meet their mandatory emission reduction targets. However, calculating the effects of sinks is methodologically complex and the standards for doing so still need to be clarified.


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Special Climate Change Fund (SCCF). A fund established to help oil-exporting countries diversify their economies to cope with potential losses of income resulting from global efforts to reduce fossil fuel use.

spill-over effects. Reverberations in developing countries caused by actions taken by developed countries to cut GHG emissions. For example, emissions reductions in developed countries could lower demand for oil and thus international oil prices, leading to more use of oil and greater emissions in developing nations, partially off-setting the original cuts. Current estimates are that full-scale implementation of the Kyoto Protocol may cause 5 to 20 percent of emission reductions in industrialised countries to "leak" into developing countries.

subsidiary body. A committee that assists the Conference of the Parties. Two permanent subsidiary bodies are created by the UNFCCC: the Subsidiary Body for Implementation (SBI) and the Subsidiary Body for Scientific and Technological Advice (SBSTA). COP 1 also established two temporary bodies: the Ad hoc Group on the Berlin Mandate, which concluded its work on November 30, 1997, and the Ad hoc Group on article 13. Additional subsidiary bodies may be established as needed.

square brackets. Typographical symbols [—] placed around text under negotiation to indicate that the language enclosed is being discussed but has not yet been agreed upon.

Subsidiary Body for Implementation (SBI). The SBI makes recommendations on policy and implementation issues to the COP and, if requested, to other bodies.

Subsidiary Body for Scientific and Technological Advice (SBSTA). The SBSTA serves as a link between information and assessments provided by expert sources (such as the IPCC) and the COP, which focuses on setting policy.

sustainable development. Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

technology transfer. Exchange of knowledge, money, and goods to allow the spreading of technology for adapting to or mitigating climate change.

Third Assessment Report (TAR). The third extensive review of global scientific research on climate change, published by the IPCC in 2001. Among other things, the report stated that the “Earth's climate system has demonstrably changed on both global and regional scales since the pre-industrial era, with some of these changes attributable to human activities. There is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities." The TAR also focused on the regional effects of climate change.

trust funds. Funds earmarked for specific programs within the UN system.

TT:CLEAR. Technology Transfer Information Clearing House.


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transparent and conservative. Establishing a baseline in a transparent and conservative manner (paragraph 45(b) of the CDM Modalities and Procedures) means that assumptions are made explicitly and choices are substantiated. In case of uncertainty regarding values of variables and parameters, the establishment of a baseline is considered conservative if the resulting projection of the baseline does not lead to an overestimation of emission reductions attributable to a CDM project activity (that is, in the case of doubt, values that generate a lower baseline projection shall be used).

umbrella group. A loose coalition of non-European Union developed countries formed following the adoption of the Kyoto Protocol. Although there is no formal membership list, the group usually includes Australia, Canada, Iceland, Japan, New Zealand, Norway, the Russian Federation, Ukraine, and the United States.

UNCCD. United Nations Convention to Combat Desertification.

UNCED. United Nations Conference on Environment and Development, also known as the Earth Summit (Rio de Janeiro, Brazil, 1992).

UNCTAD. United Nations Conference on Trade and Development.

UNDP. United Nations Development Programme.

UNECE. United Nations Economic Commission for Europe.

UNEP. United Nations Environment Programme.

UNFCCC. United Nations Framework Convention on Climate Change 1992.

UNIDO. United Nations Industrial Development Organization.

uniform report format (URF). A standard format through which Parties submit national communications and various other reports under the UNFCCC and the Kyoto Protocol.

voluntary commitments. A draft article considered during the negotiation of the Kyoto Protocol that would have permitted developing countries to voluntarily adhere to legally binding emissions targets. The proposed language was dropped in the final phase of the negotiations. The issue remains important for some negotiators and may be discussed at upcoming sessions of the conference of the Parties.

vulnerability. The degree to which a community, population, species, ecosystem, region, agricultural system, or some other quantity is susceptible to, or unable to cope with, the adverse effects of climate change.

validation. Validation is the process of independent evaluation of a project activity by a designated operational entity against the requirements of the CDM as set out in Decision 17/CP7, its annex, and relevant decisions of the COP/MOP, on the basis of the project design document (CDM-PDD).


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verification. Verification is the periodic independent review and ex post determination by a designated operational entity of monitored reductions in anthropogenic emissions by sources of GHGs that have occurred as a result of a registered CDM project activity during the verification period. There is no prescribed length of the verification period. It shall, however, not be longer than the crediting period.

WCC. World Climate Conference.

WEOG. Western European and Others Group (United Nations regional group).

WHO. World Health Organization.

WMO. World Meteorological Organization.

WSSD. World Summit on Sustainable Development.

WTO. World Trade Organization.


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