EXECUTIVE SUMMARY:
In 1997, Kyoto Protocol, a voluntary treaty was signed by 141 countries to reduce the emissions of Global House Gases by 5.2% below 1990 levels by 2012. Certified Emissions Reductions (CER) or Carbon credits are certificates issued certifying reduction in emissions. The developing countries have been exempted from any such restrictions. These certificates can be traded in the market and purchased by firms which find purchasing emission credits to offset its emissions lower in cost. Thus an opportunity has emerged for firms in developing countries like India, Brazil and China to boost their earnings by complying with norms. However not all projects are eligible for registration under the Clean Development Mechanism under the Kyoto Protocol. As a result a large number of advisory firms have spawned. In addition an entire market has been developed around the same. The key participants apart from
the project developers are, including not limited to, verification, certification and financing institutions.
In India this opportunity has manifold implications affecting not only industry but also government, financial institutions and civil society at large. Most importantly this has opened up a new source of cash flow in project financing making unviable projects viable by exceeding the hurdle rate for investment returns. Industry will need to adapt to the changing opportunity that it
brings along i.e. higher return on investments along with risks that are inherent in carbon credit project financing. In my opinion, it will be realistic on part of firms to consider this mode of cash flows in project financing. Further this provides a strategic role for the countries to benefit from the cash flows that can be invested in cleaner technologies for sustainable development.
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In 1997, Kyoto Protocol, a voluntary treaty was signed by 141 countries to reduce the emissions of Global House Gases by 5.2% below 1990 levels by 2012. Certified Emissions Reductions (CER) or Carbon credits are certificates issued certifying reduction in emissions. The developing countries have been exempted from any such restrictions. These certificates can be traded in the market and purchased by firms which find purchasing emission credits to offset its emissions lower in cost. Thus an opportunity has emerged for firms in developing countries like India, Brazil and China to boost their earnings by complying with norms. However not all projects are eligible for registration under the Clean Development Mechanism under the Kyoto Protocol. As a result a large number of advisory firms have spawned. In addition an entire market has been developed around the same. The key participants apart from
the project developers are, including not limited to, verification, certification and financing institutions.
In India this opportunity has manifold implications affecting not only industry but also government, financial institutions and civil society at large. Most importantly this has opened up a new source of cash flow in project financing making unviable projects viable by exceeding the hurdle rate for investment returns. Industry will need to adapt to the changing opportunity that it
brings along i.e. higher return on investments along with risks that are inherent in carbon credit project financing. In my opinion, it will be realistic on part of firms to consider this mode of cash flows in project financing. Further this provides a strategic role for the countries to benefit from the cash flows that can be invested in cleaner technologies for sustainable development.
Download Full Project Report
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