Interview: Hoping for an integrated carbon market post 2012

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Vinod Kala, MD, Emergent Ventures shares his thoughts on the current status, scope and future short term trends expected in the CDM market. He also comments on the post 2012 scenario for CDM and the relevance of imposing a carbon tax.

Vinod Kala is the founder and Managing Director of Emergent Ventures, a global climate change consulting company. A graduate of the Indian Institute of Management, Ahmedabad, India;  he has over 20 yrs of experience in strategy and finance. Under his leadership, EVI has successfully developed many innovative solutions for implementing new technologies and generating finance for renewable energy initiatives. The company is also developing self-owned renewable energy projects.

Can you tell us something about Emergent Ventures, its main services and scale of operations?

Our company focuses on climate change issues and has four business verticals which cover a wide variety of issues relating to climate change.

In our first and oldest business vertical, which we call ‘Carbon Advisory’ Business, we help projects register for carbon credits under various schemes. We cover both the CDM framework as well as the VCS (Voluntary Carbon Standard) system. Our services also include post registration assistance, issuance and sale of carbon credits. We are a significant seller or buyer of credits covering various structures including spot transactions and forward contracts. We are amongst the largest carbon advisory firms in the world and are engaged with ~ 250 projects with a portfolio of more than 150 million carbon credits.

Second business vertical in the company, the ‘Climate Value Advisory’ business, helps the government sector with policy development and implementation issues.  It works with corporates in helping them develop strategic responses in the face of emerging environmental regulations. This covers developing strategic roadmaps, foot-printing and measurements, life cycle analysis of products, design of green products and services, supply chain improvements, management of carbon assets, reporting to various stakeholders, etc.

The third vertical ‘Carbon Finance and Technology Solutions’ business in the company provides end-to-end services for development and implementation of clean-tech projects. We are currently engaged in developing several biomass (combustion, gasification), wind, waste to energy, and solar energy (PV, CSP) projects across the country with a total capacity amounting to 600 MW+.

We are also incubating new business models and new technologies needed for climate change. We have successfully helped launch a large hydro power aggregator and a LED chip and appliance manufacturing company. These businesses are rapidly scaling up.

Our businesses extend across many countries in South East Asia, Africa, and the USA.

What are the main projects that you are focusing on in this year?

This year’s focus is to expand and stabilize our international presence in Climate Change as well as make further progress on developing and setting up renewable energy projects.  We are developing a 100MW wind power capacity in India. We are also developing about 130 MW of biomass based power projects in India and abroad. Also in the pipeline are solar power projects with a total capacity of about 200MW.

Our Hydro Power Company and LED Appliances business are going for second round fundraising and are further scaling up.

CDM has in the years developed as a lucrative scheme and has gained much popularity, but CDM sceptics also talk about its unsatisfactory environmental results. What is your view on this?

I don’t agree with the sceptics because fundamentally these schemes were designed to encourage renewable energy development and energy efficiency uptake. This is happening now.

There is a lot of interest among developers because of expected carbon credit incentives. So I think these schemes have succeeded in achieving their objective.

Renewable energy projects are designed to reduce climate change and help the environmental cause, so there is no need to be sceptical about these developments.

How has the CDM sector fared in 2010 and what are the short term future trends you expect in the rest of 2010?

Money has been difficult to come by for everyone last year. The impact has been felt in the carbon market as well. The size of the carbon market was around 135 billion USD last year, lower than that was expected. However, this is still higher than the previous year.

Carbon credit prices have gone up even after the failure of the Copenhagen talks in providing clear direction as to what should be expected post 2012. Also, I think the U.S. has sent out a positive signal by being seriously involved through the international proceedings and I think a positive solution will eventually emerge.

The post 2012 scenario for CDM is being widely contemplated, what is your take on what is likely to happen—would CDM be reformed, eliminated or something else?

I think there will be some change in the way climate change burden is shared, funds are mobilized and what gets traded in carbon markets. However carbon market mechanisms in some form will continue to operate.

There are at least two or three likely scenarios. A fragmented market might exist, where each country has its own Emission trading scheme. Japan has set up an exchange (Tokyo), Korea is coming up with its own carbon trading scheme, China is setting up some experimental markets and India is developing its own system with the RECs. These systems can allow carbon markets to operate- albeit with different structures and geographies.

In the second scenario, the country specific markets exist but, link up with an integrated global market. The latter case, of an integrated market is best strategically. This is something I am hoping for. 

An integrated channel will help in reducing the economic costs of mitigating climate change globally. A fragmented market might not allow for this.

These are only possibilities, what actually happens in the future will depend on how the negotiations progress from here. I am hoping for the best!

It was recently said by a senior official of an Indian carbon advisory firm that India and China, being among the world's worst polluters, may lose some of their share in the international carbon market after 2012; do you agree with this post 2012 scenario?

I do not agree.  At present, India and China are the fastest growing economies in the world. Thus, both have significant potential to limit carbon emissions. These are also the places where the largest investments in renewable energy are being made. For example, India’s solar mission targets to develop about 20,000MW installed capacity by 2020; In China, 150,000MW of wind power projects and 20,000MW of solar power expansion is expected. 

So, if so much is happening in these countries on this front I cannot imagine them playing second fiddle to anyone in the carbon markets in the near future.

The National Action plan on Climate Change (NAPCC) has ambitious missions and targets, which of the missions are you most hopeful about? Do you think they would change the tapestry of carbon emissions in India?

NAPCC is a great step and has led to many progressive developments taking place in the country, like the renewable portfolio application and renewable energy certification scheme, energy efficiency certificates, solar mission for 20,000 MW etc. Developments are also expected on water and plantation projects. Many new platforms are being developed to battle climate change in the country.

Progress on NAPCC demonstrates that India is moving forward on environmental issues firmly backed by an action plan of the government. This will definitely encourage both public and private sectors to move ahead on the climate agenda. It will also pave the way for investors to invest in India.

India is gearing up to strongly oppose any move by developed countries to impose a carbon tax on developing economies in the next World Trade Organization (WTO) meeting. What is your take on the carbon tax issue?

A carbon tax is a possibility. There is a growing concern among individuals in developed countries that they are funding low carbon growth of developing countries that are not committing to actively participate and bear the burden of climate change mitigation.

Thus, they may impose carbon tax on goods from such countries. Even though, this is fundamentally against the basic guidelines of the WTO, many developed countries want to use the tax as a way to pressure developing countries into accepting economic pains of Climate Change.

How large a role do you think financial institutions play in promoting climate friendly technologies?

Financial institutions play a very important role. Climate friendly technologies will need investments in the range of 500 billion dollars to a trillion dollars per annum. Thus, support from financial institutions is a necessity in this sector. 

These technologies need long term investments. Their development requires funding with longer tenures and lower interest rates. These go against conventionally available banking options. Thus, special financial products are the need of the day. Renewable energy costs can be brought down significantly, especially in the Indian scenario, just by reducing financing costs.

I think financial institutions will play a vital role in promoting climate friendly technologies. They just have to come up with special financing products or an international financing mechanism and tools that make things happen.

This interview was conducted by Akhil Choudhary, a Masters student with TERI University.

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