Indian business takes on the climate challenge

New Delhi: Gearing up for the next stage in the climate dialogue at Poznan, Poland next month, the Centre for Social Markets recently organised a series of events to mobilise response on climate change.

On November 17, an event was organised in New Delhi to discuss the theme: “Global Climate Talks: Why they are important and what they mean for India and Indian Business”. It was aimed at raising awareness regarding international negotiations towards a 'global deal' on climate change.

The issues like the implications for the country and its businesses, and how companies (with an enabling environment) can play a productive role in shaping these negotiations towards the post-Kyoto 2012 framework and setting the context for future carbon markets emissions reductions, were also pondered over.

The discussion was initiated on the premise that while India was not a historical emitter of greenhouse gases its emissions were rising. In such a scenario, the country could no longer afford to sit back but take leadership on climate change out of enlightened self-interest.

India as source of solution

It was felt that at a time when there was new consensus emerging for inclusive and equitable growth based on a modern low-carbon economy that enhanced rather than destroyed the natural world, India could also be seen as a source of solutions.

The collective assertions regarding India’s capacity for taking on the leadership challenge touched upon its population and youth potential.

Jehangir Pocha of Businessworld magazine drew attention to the changing mindsets, and India as an enterprising economy. Examples of Indian technologies like the Reva electric car and Indian companies as HCL, Infosys, Reliance, etc. were used to substantiate proposals of going beyond repackaging to a two-directional flow of resources and technologies.

The fact that India also represented a huge market in terms of unserved energy needs also underlined the need to look into more decentralised energy sources and emerging information technology spaces and potential.

Four-pronged strategy

Dominic Waughray of the World Economic Forum unpacked a four-pronged strategy to support India’s leadership in the climate dialogue. He underlined commitment in terms of taking on the responsibility of a global player; money in terms of moving to risk taking in financing for climate, looking at mobilising Indian capital; expanding technology flows in two directions; building on the role that Indian businesses can play in carbon markets; and also with reference to institutional mechanism in terms of going beyond multilateral agencies and mobilising public-private investment vehicles, rolling agreements, etc.

The session also focussed upon the modalities of the carbon markets and India with perspectives from Sudeep Rathi of National Commodity and Derivatives Exchange Limited (NCDEX). However, carbon was recognised as commodity in the country as recently as January this year, it has created the Mumbai carbon exchange and participates in other exchange arrangements.

The current Indian scenario is characterised by lack of awareness of people regarding trading in domestic market as well as questions regarding the intent of exchange and who bears the losses – the buyer or the seller of carbon credits.

Clean Development Mechanism

The reliance on market mechanisms including the Clean Development Mechanism (CDM) under the current climate regime has been rationalised with the objective of reducing economic impact of responses. An ideal arrangement was then identified in terms of a marketplace comprising emitters looking to reduce emissions as well as players with low emissions with room to trade, which would not require additional engagement or regulation.

There are also a number of players who are not direct participants in the carbon market as they do not need to engage in carbon reduction but are still in a position to provide finances that can be used in the best possible way.

While this nature or secondary markets for carbon trading are flourishing in Europe, the developing world and India are still lagging behind. There are primary markets, but there is no secondary participation in terms of additional finance.

Thus the discussion pointed towards the need for carbon trading instruments emerging from the developing countries and also the need to develop a secondary carbon market in India.

A prominent gap has also been that in the case of the CDM markets in India and the other developing countries, the actual transfer for the financing of green projects has not happened whereby the risks of carbon trading are being borne by the CDM producers.

Sudeep Rathi also pointed out the present realities wherein India and China are both in the race for CDM projects with the latter leading in producing Certified Emissions Reduction (CERs) or carbon credits. India’s projects have emerged mainly in the Small and Medium Enterprises (SMEs) sector – the bulk of the Indian economy.

These enterprises, though, are still faced with the question of access to markets, finance and project expertise. There is also an added premium being attached to the social impact of such projects. Such transactions in India are being undertaken primarily through multilateral or international banks, while Indian banks stay away.

Impact of global financial crisis

The difficulties of evaluation of these mechanisms and transactions in a volatile market, the risks of trading of untested green technologies at high costs, the relevance of policy guidelines (in support of priority sector lending for climate projects, tax benefits for carbon revenues, etc.), differentiating terms of financing for climate projects from external sources, etc. were raised. The need for greater public debate and flow of information, and the role of media in raising awareness was also discussed.

The discussants felt that impact of the global financial crisis on climate talks and on responses to climate change could be seen on the acceptance or taking up of green technologies. At the same time the business perspective on the crisis was that the structural issues went beyond the financial, in terms of issues of sustainability, the rapidly growing middle class, etc. that would demand a fundamental reorganisation of how business is conducted.

Jehangir Pocha also highlighted on the constant need to create growth accelerators. It was felt that green technologies might serve the purpose at this time. “Decarbonisation, green technologies and such like things then would be a fundamental part of the economic restructuring to follow the economic crisis,” he said.

The role of rational pricing and public pressures to bear upon rampant consumption that drove emissions was also brought up. The broad stand adopted by these spokespersons at the outset subscribed to the broad intention of allowing sustainable and environmentally friendly development for the growing economies without the imbalances of the industrialisation path treaded upon by the developed world.