Guest commentary by Payal Parekh

Wikileaks released a cable sent by the American Consulate in Mumbai, India that candidly states that Indian CDM projects do not depend on CDM funding and are therefore not additional.

Last week Wikileaks released a cable sent by the American Consulate in Mumbai to the US Secretary of State in July 2008. The cable summarised a meeting that the Consulate’s Office and the US Governmental Accountability Office (GAO) had with Indian industrialists regarding their views on and experience with the CDM.

The cable provides clear evidence that the CDM is supporting non-additional projects in India. The cable contains candid statements from project developers, a former head of the CDM Executive Board, project auditors, financiers and CEOs of major Indian industrial companies.

I have picked out some of the most incriminating quotes to pique your interest. While no explanations are needed, I offer my take on each of them.

Quote: However, they [CDM project developers] conceded that no Indian project could meet the “additionality in investment criteria” to be eligible for carbon credits.

Translation: Most clean energy projects in India are not additional – i.e. these projects could be realised even without the extra financing from carbon credits.

Quote: [Somak Ghosh, President of Corporate Finance & Development Banking at Yes Bank], pointed out that no bank would finance a project which is viable only with carbon revenues because of the uncertainty of the registration process, unclear guidelines on qualifying CDM projects and because carbon revenue is only a by-product revenue stream of the main operations of the company.

Translation: Banks don’t finance truly additional projects because the risk the project might not pass the CDM registration process is too high.

Quote: He [Ghosh] admitted that project developers prepare two balance sheets to secure funding: one showing the viability of the project without the CDM benefit (which is what the bank looks at) and another demonstrating the non-viability of the project without the CDM benefit.

Translation: It is easy to fudge the investment analysis of a CDM project. In India, it is common practice to misrepresent the financial facts of a project to get CDM registration.

Quote: At a seminar on CDM in Mumbai, R K Sethi, Member Secretary of the [Indian] National CDM Authority and the present Chairman of the CDM Executive Board, publicly admitted that the National CDM Authority takes the “project developer at his word” for clearing the “additionality” barriers.

Translation: National interests trump climate mitigation goals. It is not in the interest of national host-country authorities to reject projects, even if they are clearly non-additional. Note that R K Sethi is no longer on the Board – his term expired.

Quote: Mathsy Kutty [of Det Norske Veritas (DNV), a CDM Executive Board-accredited validation and verification organization for CDM projects], is concerned that [Ultra Mega Power Plant] (UMPP) Project will be rejected by the CDM Executive Board, as the use of supercritical technology in all UMPPs is a mandatory requirement stipulated by the Indian government.  As this technology is the norm for all UMPPs, it has to be put in place by the project developer with or without the CDM benefit. Proving additionality is therefore difficult, she continued. (Comment: Ironically, DNV acted as the validator for the Mundra UMPP and, as per Patkar, has already validated the project.  End Comment.)

Translation: Given the project developer pays the validator to recommend the project to the CDM Executive Board, it is no surprise that validations are often positive, even when the projects are clearly not additional.

Quote: High energy prices and the cheap supply of equipment from China are making CDM projects viable without the CDM credit, [Tamotia] said.

[Ram] Babu, [the Managing Director of CantorCO2e’s operations in India (a global project and emission trading consultant)] said that CDM benefit is a bonus and noted that most of the projects are implemented even before being registered to earn carbon credits.  Excluding “business as usual” projects from qualifying is “killing” Indian projects, he added.

B Agarwalla, the Executive Director of Tata Power, argued that all measures resulting in improved energy efficiency should be eligible for carbon credits, even if they are adopted to enhance profitability.

Translation: It is in our financial interest to become more energy-efficient. The CDM is not a motivator and our projects are viable without the CDM. But it sure is nice to get a subsidy we don’t need. And who cares if crediting non-additional projects actually allows the CDM to increase global emissions. The cable confirms what a number of studies on the CDM have shown: CDM funding is rarely a deciding factor for lending decisions by banks (because banks only fund projects that are viable without the uncertainty of CDM funding). Yet projects are registered even when they are clearly non-additional. Another strong indicator that the CDM plays a very marginal role in technology transfer and renewables development are two reports^[1] published in July which show a dramatic rise in renewable energy investment in developing countries. Neither report mentioned the CDM as being a factor in this growth. Read my blog for an in-depth analysis of the various issues raised by this cable released by Wikileaks.