India’s energy efficiency scheme won't impact CDM, say experts

Author: Katie Holliday

Source: Energy Risk | 02 Oct 2009
Categories: Emissions
Topics: India, Carbon trading, Clean development mechanism (CDM)
India’s plans for a domestic energy efficiency cap-and-trade scheme have raised concerns over how the
market for Clean Development Mechanism (CDM) projects will be affected.
Under plans for the scheme, businesses that use more energy can buy certificates from those that have excess.
While it seems rules will need to be put in place to ensure an energy efficiency project can't gain certificates from
both this scheme and the CDM, some analysts believe there might be scope for overlap of the two schemes
further down the line.

There are concerns the scheme could potentially reduce the incentive for Indian utilities to put forward energy
efficiency projects under the CDM, if the credits generated from the new scheme are deemed more valuable.
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However, Alessandro Vitelli, the director of carbon research provider IDEAcarbon, doesn't think the new scheme
will impact drastically on the burgeoning CDM market in India. "Relatively few utilities were shopping around for
CDM projects in the energy efficiency sector in the first place, so it doesn't change the game for CDM," he says.
"Energy efficiency is not a sector where many CDM projects usually take place, so I still see there being a lot of
scope for CDM in India in other areas such as renewables."
Chandra Sinha, head of Asia environmental markets at JP Morgan, says there is no relationship between India's
proposed EETS and the CDM. "This is a purely domestic and internal scheme, and has no relationship with the
CDM or any other international mechanism," he says.
Sinha sees no problem with companies operating both schemes in parallel. "It's a common trend now for different
attributes of energy savings being unbundled and sold separately," he says. "The national benefit of saving
energy is totally separate to generating credits from reducing greenhouse gases. It's just the same as when a
company trades both power and CERs, companies will be able to trade energy efficiency credits and CERs
simultaneously."
However, a potential overlap might arise once companies reach the required energy efficiency benchmark and
are faced with the choice of what to do with any extra savings, according to Vitelli.
"Because the CDM will only allocate credits if the energy savings are deemed additional to those that would have
been done anyway, once the benchmark is reached, companies can either sell these extra energy savings under
the government scheme or the CDM," says Vitelli. "If the Indian government creates a system that is much
simpler and less bureaucratic than the CDM, that would increase its appeal."

Further concerns have been raised over whether Indian companies will have the resources to dedicate to CDM
projects once they have spent time and money achieving their legally binding national efficiency saving standard.
IDEAcarbon's Vitelli says this could be an issue, but still sees room for CDM development. "They might not have
as great an appetite for CDM, but then again they might see value in things like fuel switching, which won't be an
efficiency issue but may well earn CERs, so the two could co-exist in some manner," he says.
The Indian government estimates the EETS could reduce the country's carbon dioxide emissions by 100 million
tonnes. India produces roughly 1.4 billion tonnes a year, accounting for around 5% of the world's emissions. The
Indian government has announced 20 climate-related initiatives in recent months in the run-up to United Nation
talks in Copenhagen this year.
India has been reluctant to agree to a binding mandatory cap on its emissions as part of a global deal, arguing its
fast-paced economic growth should not be stunted.