The Copenhagen Accord called on Annex I countries to make their climate change pledges, and on Annex II countries to identify their nationally appropriate mitigation actions by 31 January 2010.

In this edition of the Asia Pacific climate change policy series we examine the regulatory framework and climate change investment opportunities in India. India is a non-Annex 1 country to the Copenhagen Accord and has expressed conditional support for the Accord.

Key points on India:

  • is Asia’s third largest energy consumer
  • has committed to reducing emissions by 20-25 per cent below 2005 levels by 2020
  • has been pricing carbon pollution since July 2010
  • has one of the world’s largest ongoing renewable energy programmes, with nine per cent of its total generating capacity coming from renewable energy sources
  • investment opportunities will arise in the areas of energy efficiency, forestry and agriculture through either public-private partnerships or through CDM project activities providing carbon offsets for domestic carbon markets worldwide.

Copenhagen Accord commitments

India has committed to reducing the emission’s intensity of its GDP by 20-25 per cent below 2005 levels by 2020. Emissions from the agricultural sector will not form part of the assessment of emissions intensity. This will equate to a reduction of greenhouse gas emissions by 11 per cent below business as usual levels. India has said it will employ forestry measures and become more energy efficient to meet its goals.

Regulatory framework

In response to India’s Copenhagen commitment, the Ministry of Environment and Forests has announced 24 initiatives in five broad areas: science and research, policy development, policy implementation, international cooperation and forestry.

The policy implementation proposals include in-principle approval given to 30 ‘solar cities’ with the aim of a 10 per cent reduction in projected demand of conventional energy through a combination of:

  • energy efficiency and renewable energy
  • National Missions under the National Action Plan on Climate Change on solar, energy efficiency and strategic knowledge
  • a national conference to be held to stimulate green building materials and technologies
  • fuel efficiency norms and mandatory energy efficiency ratings for key appliances
  • Importantly, India’s policy implementation includes a CDM Program with the aim of Indian CDM projects neutralising 10 per cent of its emissions by 2012.

India’s existing energy policy and regulatory framework, made up of the Energy Conservation Act 2001, India Electricity Act 2003, the 2005 National Electricity Policy and India’s Eleventh Five-Year Plan (2007-2012), provides for the promotion of renewable energy sources. The Central Electricity Regulatory Commission (Terms and Conditions on Tariff) Regulations 2009 provide that the proceeds of carbon credits for approved CDM projects are to be shared between the project developer and purchasers of electricity, thus incentivising both to seek involvement in renewable energy projects with carbon credit income streams1. The Ministry of New and Renewable Energy also offers a number of centralised fiscal incentives to renewable energy projects and India has implemented a system of feed-in tariffs and generation-based incentives for renewable energy. For more information on renewable energy in India, please refer to our Asia Pacific renewable energy manual.

In January 2010, India’s Central Electricity Regulatory Commission announced rules for trading with renewable energy certificates. These can be bought by companies to meet the requirements to purchase a minimum level of renewable energy according to the State renewable portfolio standards. A national agency will be put in place to administer the trading certificates. The Ministry of New and Renewable Energy is responsible for the promotion of renewable energy in India. A number of programmes have been set up, including a wind mapping program for the future development of wind power, identifying sites and building capacity for small-scale hydro power, financial assistance for biomass projects and a grants scheme for solar and solar thermal power.

Under the Energy Conservation Act 2001, India has established the legal and institutional frameworks for both the Central and State Indian governments to promote energy efficiency throughout the country. The Bureau of Energy Efficiency has established the Action Plan for Energy Efficiency, a comprehensive plan covering:

  • industrial efficiency
  • efficiency in residential and commercial buildings
  • appliance efficiency through labelling schemes
  • energy efficient agriculture
  • education programmes.

India’s ‘science and research’ initiatives arising from its Copenhagen Accord commitments include the establishment of the India Network for Climate Change Assessment (INCCA). This initiative draws from the expertise of over 220 scientists from India’s premier research institutions, and is aimed at bringing a science based approach to policy. The INCCA has been involved in tracking India’s greenhouse gas emissions pathways until 2030 under different assumptions and researching the role of India’s forests and tree cover as a carbon sink. Their assessment shows that forests neutralise 11 per cent of India’s annual greenhouse gas emissions.

Forests cover almost 20 per cent of the country’s landmass and forests with a crown cover of over 40 per cent have been increasing. The National Forestry Action Programme (NFAP) for sustainable forest development aims to bring one-third of the country’s geographical area under tree cover as mandated in the National Forest Policy. NFAP relies on both government sponsored projects and externally sponsored initiatives with funding from, among others, the World Bank, the Japan Bank for International Cooperation and AusAid. India’s recent initiatives on forestry include the Green India Mission (a $US2.5 billion project under the National Action Plan on Climate Change to fast-track re-forestation) and schemes for capacity building for forestry personnel and improved forest management. Forestry related activities have also been included in India’s employment guarantee scheme to fast-track reforestation.

A national policy on bio-fuels has also been approved to promote cultivation, production and use of bio-fuels for transport and other applications, with a focus on wasteland-grown inedible feedstock to be used for biodiesel.

India has recently introduced its ‘clean energy levy’ taxing both coal produced in and imported into India at a level of 50 Rupees per ton (currently approximately AU$1.30). Although this does not seem a significant sum, the tax is expected to raise some $677 million in its first year, all of which will be channelled back into programmes aimed at reducing emissions. The clean energy levy, which for the first time prices carbon pollution in India, has been in operation since 1 July 2010.

Investment opportunities

India’s economy is developing rapidly and has one of the highest projected greenhouse gas increases. For India to sustain its GDP growth rate, which is its principal concern, a massive increase in energy capacity will be required. Much of this capacity will need to be delivered from conventional large-scale coal, hydro and nuclear facilities. However India has one of the world’s largest ongoing renewable energy programmes, with nine per cent of its total generating capacity coming from renewable energy sources. With a combination of voracious energy demands, energy security and climate change concerns, the Indian government is pursuing all feasible energy sources to balance its energy needs, including promoting renewable energy.

India’s eleventh Five-Year Plan includes targets for the renewable energy sector which must be met by 2012. The sources of installed renewable energy capacity targets are small hydro, wind, solar photovoltaics, solar water hearing and biomass power in that order. If such targets are to be met, wind will need to grow by 2.5GW in each of the next three years, small hydro and biomass will need to double over the same period while solar photovoltaics needs to increase over 20-fold. As such, significant investment opportunities are expected to arise in this sector.

Further opportunities will arise in the areas of energy efficiency, forestry and agriculture through either public-private partnerships or through CDM project activities providing carbon offsets for domestic carbon markets worldwide.

Experience

A selection of our recent climate change related work in India includes:

  • advised HSBC and Calyon on their €32,950,000 limited recourse refinancing of Noble Group Limited's advance payment for all of the Kyoto Protocol Certified Emission Reduction certificates produced by Gujurat Fluorochemicals Limited (an Indian company) for a period of five years. The financing raised novel issues of risk allocation between the banks and Noble, the status of CERs and in particular their treatment by Indian tax authorities and the Reserve Bank of India's capital controls
  • advised on a hydro-based VER project and a client on the purchase of VERs from a project in India, pursuant to a German law ERPA

We have also advised a variety of clients in the market on various matters across a wide range of small-scale CDM projects. We have acted on transactions in a number of asset classes and have advised on due diligence, Emissions Reductions Purchase Agreement negotiation and the resolution of potential conflicts relating to CDM projects.