Post Copenhagen: GHG Scheme to go for in 2010?

Kyoto Protocol ends in 2012. Copenhagen negotiations did not succeed. But climate change has been accepted as a major global threat. So where will the Indian industries invest in? Which GHG scheme to go for?

Climate change has been accepted as one of the major global concerns and threat to society. Kyoto Protocol ends in 2012, leaving the fate of the flexible international mechanism like Clean Development Mechanism (CDM) in jeopardy. UNFCCC’s climate conference at Copenhagen in December 2009 emphasises on commitment towards emission reduction targets. It reflects GHG reduction markets as an important medium to enhance the cost-effectiveness of, and to promote, the climate mitigation actions. But, the ongoing discussions fail to leave an impact that any concrete binding commitments would come up.

This creates an illusion of whether one would invest in the market or not?

In fact, many of the companies are apprehensive about the social responsibility of protecting the global climate. The reasons to go for GHG emission reductions seem to be strategically decided. They are searching for ways to be prepared for the long term when GHG emission reductions would become mandatory, while at the same time attempting to reap near term economic and strategic benefits.

Contemplating on this thought- yes, people would invest, but they need to have a clear picture of where they should?

Which GHG reduction scheme to go for?

According to the Kossoy & Ambrosi (STCM 2010), the carbon market was negatively impacted by the economic recession, yet about 6% growth was seen in the carbon market by the end of 2009 with 8.7 billion tCO2e traded.

Kyoto’s CDM has been the major players in markets, but saw fall in the price of credit in 2009 due to decreasing investment and structural issues. European Union Emission Trading Scheme (EU-ETS) was the market accelerator and showed continual growth, with some amount of decreased investment. U.S.’s Regional Greenhouse Gas Initiative (RGGI) market grew tremendously in expectation of some regulation, but now shows no hope as we fail to see such regulation coming up. In this grim scenario, New Zealand adopted a mandatory, economy-wide ETS providing a dim hope of improvement. Also, various voluntary programs and funds flourished in developed and developing nations. The investment will continue in these, but would certainly shift to other sections of market.

At this point, many voluntary markets/schemes like Terra Pas, J.P. Morgan Climate Care, Climax, Blue Next etc., seem to be a promising investment option. End Carbon Offsets provides a huge list of such carbon offset providers and retailers in North American, European and Australian market.  The credits in these are usually priced high in the range of about 10-15 € and are highly sought. The rationale behind the high value of these credits is the buyers seeking projects with more aesthetic value in terms of scope, area and development. These schemes are more focused towards the non-industrial and sustainable projects like renewable energy projects, biomass/biogas based projects, forestry projects, methane capture projects, landfill projects etc.

Multilateral and bilateral development finance institutions/funds like World Bank, GTZ etc., could be one of the viable options for project developers and investors in India. They can help to establish mechanisms whereby private sector institutions from both developed and developing countries could access packages of support to allow the establishment of large-scale infrastructure or private equity funds investing in climate change mitigation.

Conclusion

To sum up, apart from the traditional international GHG schemes, the project proponents and developers can look forward for developing projects with their various voluntary offset providers and retailers in Western market, as well as go for projects being endorsed or having the possibility of being funded by various bilateral institutions thus sharing risk and finances involved. 

References:

http://unfccc.int/2860.php
http://www.oecd.org/dataoecd/45/35/37672298.pdf
http://www.mnn.com/eco-biz/money-green-jobs/blogs/world-recession-affects-carbon-market
http://www.carbonpositive.net/viewarticle.aspx?articleID=1859
http://www.oxfordenergy.org/pdfs/EV49.pdf
http://www.ecobusinesslinks.com/carbon_offset_wind_credits_carbon_reduction.htm
Kossoy & Amborsi STCM 2010: http://siteresources.worldbank.org/INTCARBONFINANCE/Resources/State_and_Trends_of_the_Carbon_Market_2010_low_res.pdf
http://www.endscarbonoffsets.com/

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