Clean Development Mechanism and

Development Dividend: An Empirical Study from

India

March 27, 2006

Scope of the studyTo explore the contribution of CDM projects

for delivering the development dividend.

The Millennium Development Goals

Sustainable Development Benefits

CDM link

GOAL1 : Eradicate extreme poverty and hunger    

Target 1: Half the number of people whose income is less than one dollar per day

Intra-generational equity is a key component of the social dimension of SD High

GOAL 5 :Improve maternal health    

Target 6: Reduce by three-quarters ,the maternal mortality ratio

Relevant to Intra-generational equity ,investment in human capital and reduction in indoor air quality Medium

GOAL 7 :Ensure Environmental Sustainability    

Target 9 :Integrate the principles of sustainable development into countries policies and programmes

Relevant to the environmental dimensions,CO2 per capita ,energy use of alternate fuel High

Linkages between MDGs, Sustainable Development Benefits

and CDM

Source: Adapted from UNEP, 2004

Outline sectoral GHG mitigation potential in India and

the other social, environmental, health and employment benefits expected.

link to supportive government policies and enabling initiatives to evaluate the projected developmental benefits in different sectors.

overview of definitions of SD used by Indian DNA, and for a sample of projects accorded host country approval, examine the claims made on their contribution to SD.

SD benefits claimed in the registered Indian CDM projectsvis a vis the screening criterion of the DNA.

Seen as one of the key players for sale of CERs Potential for

• Mitigation• Energy sector• Industrial• Other

• Sequestration• Afforestation and reforestation activities

Potential is however linked to • Demand • Frameworks and institutional support

India’s CDM potential

GHG mitigation potential: Key sectors

Total 417 MTCO2eq. by 2012

Short-term technological potential based on various interventions, at different stages of planning

Long-term potential 865-1080 MTCO2eq. (ALGAS)Source: NSS, India

Development Imperatives of India

Reduction of poverty Rural infrastructure development Bharat Nirman Electrification of all Indian villages A targeted economic rog of 10% pa

Electricity and energy services provision will be at the heart of these developmental programmes and therein lies the scope for strengthening CDM, mitigation potential and DD linkages

India Sustainable Development Criterion for CDM Project Approval

•Environmental well being

•Economic well being

•Social well being

•Technological well being

Broad definitional framework provided, and a broad interpretation of the same while according host country approval

Measuring Development Dividend through SD Criterion and Indicators

SD criteria: Menu of indicators for effective measurement of Development Dividend

Environmentimprove local economy

increase in local employment

local infrastructure development

balance of payments

increased investment in primary sector

transfer of technology

reduction in import of energy at local level

Environmental

reduction in local pollutants like Sox,Nox

reduction in water pollution

reduction in soil erosion

conservation of bio-diversity

Local ebvironmental and health benefits

reduction in noise pollution

reduction in emission of Ozone depleting substances

Social

Capacity building and transfer of technical skills

Income distribution and quality of life improvement

increased local employment

increased penetration of power supply in rural areas

Legal and regulatory issues/IPRs

New institution building and information sharing Gender Equity

Source: Various studies

Typology of CDM project type wrt SDTypes Market prospects, Sustainable Development SD

Methane industrial gases HFC, PFC, N2O,

Low hanging fruits -> up to 50% CDM market share; high GWP leverage -> attractive deals, HFC projects yield low or neg. contribution to SD

Industry energy efficiency and clean coal

Few proven business cases but good prospects for energy efficiency; Prevailing barriers in large – scale power sector

Renewable energy Good number of projects well placed in project CDM pipeline; Strong SD benefits but projects prone to adverse regulatory barriers

Small scale sector projects

Commercially not viable at low carbon prices. Need clients ready to pay premium for high SD benefits, limited mitigation potential

Source: Adapted from NSS, India

Distribution of Registered CDM projects across different sectors

4% 12%

4%

80%

Energy Efficiency

Indusrial Process

MSW

Renewable Energy

Total No : 25 registered with EB

Pipeline of projects from India renewable energy projects take the lead in

numbers Predominance of renewables indicative of how

low hanging fruits of mitigation options would be taken up in the initial stages of carbon market development.

the CERs generation is skewed by projects from industrial processes viz. HFC destruction projects

majority of renewable energy projects are of small scale with higher transaction cost

Development Dividend and CDM: Critical Issues using the socio-economic imperatives, the Indian Context

Agricultural Income and Poverty

Non-farm employment and rural poverty

Infrastructural development and rural poverty

FDI (Foreign Direct Investment), technology Transfer and Rural Poverty

Agricultural Income and Poverty The scope of increasing agricultural income is

limited only to projects on biomass energy generation, do not involve any technology transfer to the sector and are not focused on activities that can increase agricultural productivity and income.

PDDs do not provide any information on purchase price of different biomass by the power plants or the estimates of additional income accruing to cultivators to support their claims of promoting socio-economic development.

Non-farm employment and rural poverty wage employment in the construction and operation of a

CDM project cannot be analogous with employment generation schemes undertaken by the Government for poverty alleviation. Moreover, there is no built-in mechanism in the CDM project to ensure that those persons who are absorbed in long-term jobs are below the poverty line.

Although the linkages are tenuous, there exists the potential of a multiplier effect on new job opportunities on a continuing basis outside the CDM project boundary, particularly with regard to projects on renewable energy. For e.g., the employment potential from generation of 100,000 MW of biomass power is reported to be 30 million persons annually (GoI 2002).

Infrastructural development and rural poverty Among various infrastructural facilities,

energy infrastructure is expected to get a major boost under CDM through increased power generation from renewable energy sources. However, despite improved physical access, the real access to energy services are curtailed by issues of purchasing power of the household, cost of energy, access to and cost of energy using end-use equipment.

FDI (Foreign Direct Investment), technology Transfer and Rural Poverty

CDM projects in India are primarily in the area of renewable, energy efficiency in industry, cement industry and fuel switching, where traditionally, FDI flows have been either negligible or in small proportion. The greatest contribution of FDI to economic growth and hence to poverty alleviation if technology transfer. However, as per the current status of CDM projects, the benefits accruing out of this seem very limited.

Some insights….. “Social development objective not lying at the

heart of the formulation of the projects, currently”.

The project by project approach may not be able to deliver any significant gains on all fronts (env, eco, social)

Redirecting and Greening FDI may give more env gains relative to CDM (Expected investment, mostly from Indian sources, for 256projects with HCA is $ 3.7 bn over next few years, while FDI in 2005/06 is $ 5.6 bn , but FDI to India currently flowing to IT, finance,services etc)

India’s Energy Policies: Scenarios simulated by MARKAL (2001-2036): Some indications for programmatic approach Baseline: Base year 2001

GDP growth 8% official demographic projections

IPCC emissions factors 8% discount rate

S1: Cleaner fuels for power generation S2: Electricity for all by 2012

decentralized renewable optionsefficient cook stoves

S3: 20% increase in share of public road transport Greater use of CNG in buses, taxis, 3-W vehicles

S4: S1+S2+S3 S5: Average annual GDP growth rate 6.7%

CO2 emissions

500

1000

1500

2000

2500

3000

3500

2001 2006 2011 2016 2021 2026 2031

Year

MM

T

BASELINE S1 S2 S3 S4 S5

TERI analysis

Lower carbon trajectory with a programme approach

Thank you