Climate change and the Indian Corporate Sector

« Climate Change is the business opportunity of the 21st century », said in SM Trehan, Managing Director of Indian Power sector’s heavy-weight Crompton Greaves. This in short sums up the Indian corporate sector response to the climate crisis.

Indian companies view climate change more as an opportunity than a risk because they see themselves earning revenue from the Clean Development Mechanism (CDM). According to a study by the Carbon Disclosure Project (CDP) - a non-profit and non-governmental organization that provides information to institutional investors on the action undertaken by companies to mitigate the adverse impact of climate- 79% of Indian companies surveyed saw several commercial risks arising from climate change. These included emission-reduction norms, dealing with shrinking resources such as water, and those related to changing consumer preferences for environmentally responsible companies and products.

At the same time 85% of the Indian companies saw an opportunity in the global move to combat global warming, particularly in the field of greening of five key sectors of the Indian economy: buildings, energy, transport, agriculture and water. Almost half the companies surveyed said they were looking at emission trading (carbon credit trading) opportunities and 21% already have Clean Development Mechanism (CDM) projects in the pipeline.

‘What is good for Business, is also good for the Climate’

In 2008, the government of India came up with a National Action Plan for Climate Change (NAPCC). While the civil society response to the NAPCC was that it helped neither the poor nor the climate, the corporate sector responded with great enthusiasm. The Business Council for Sustainable Development, India (BCSD-India) produced a White Paper titled « Corporate Action Plan on Climate Change » for identifying the challenges and opportunities that the NAPCC has on offer to the private sector. The White paper, produced in collaboration with The Energy Research Institute (TERI), “attempts to complement the ministerial efforts in developing plans of action under each national mission. Through this initiative, we have identified several paths forward for our industry to reduce its ecological footprint, manage its impact better, become more eco-efficient, and thereby play a significant role in the implementation of the NAPCC ».

It is estimated that climate friendly technologies will need investments in the range of 500 billion dollars to a trillion dollars per annum. According to Vinod Kala, Managing Director of Emergent Ventures, a global climate change consulting company, support from financial institutions is a necessity and vital in promoting climate friendly technologies. The Banking sector in a report states that « implementing the climate change agenda may appear to entail additional resources. Banks in India can carefully evaluate which areas would be most complementary to their inherent organisational structure and ideology. »

Thus we have a situation, where the governments plans for climate change has the enthusiastic support of the corporate sector, with the financial institutional all lined up to provide the necessary finance.

What is the Corporate Sector Upto?

Many companies in the developed world have measured and announced their baseline carbon footprint and also their reduction targets over 5 to 10 year periods. In India, only 41 percent of the 70 business leaders covered by a KPMG study indicated having at least some quantified goals for carbon reduction to be achieved by 2010. However, it is significant that 38 percent of the respondents have no goals whatsoever.

The same study found that out of all the measures presented that businesses engage in or plan to engage in to tackle climate change, the most widespread was using energy efficient appliances (94%), followed by educating and training employees on environment friendly practices (77%). Much fewer businesses are engaged in other primary drivers of emission reductions. Only 29% of firms review and update their global supply chain to achieve energy efficiency and only 25% have discontinued high energy services.

Forests: Next on the Agenda ?

The National Action Plan for Operationalizing CDM in India (2003), estimated that India could gain a worth of $125 million for 5 years from 2008-2012 by sequestering 5 Mt of carbons annually under LULUCF (Land Use Land Use Change and Forestry) activities. It can be achieved by massive plantation in wasteland, which includes degraded forest, village commons and fallow lands. National Forestry Action Programme needs 29 Mha of non-forest land to be afforested, to bring the country’s forestry cover to the magic 33% mark. Both programmes require huge investment and though India now has a standing reserve fund from the CAMPA (a compensatory afforestation fund created through forest diversion), these will be better served if private corporations/agencies enter the forestry sector in India.

The Indian pulp and paper lobby has been trying, since 1992, to lease ‘degraded forests’ in order to meet the growing demand of raw materials for wood-based industries. It has been arguing (unsuccessfully, so far) that the industry demands can be to a large extent met by raising ‘protected’ private plantations in forest lands lying degraded, thus reducing the substantial import costs. In 1994, when the Indian Government tried to bring a new Bill to legitimize handing over ‘degraded forests’ to industries, it faced stiff resistance from not only the community groups and NGOs, but also the Planning Commission which set up an expert committee chaired by N.C. Saxena to look into the matter. The Saxena Reports (1998) categorically refuted the industry claims that degraded lands do not support biodiversity, and communities do not use those. It also went on to show that leasing out forests to industries would prove to be both ecologically and socially harmful, and would be an injustice to communities, who use all forests for livelihood and other reasons, and no forests in the country can be said to be ‘absolutely degraded’.

In the post-Copenhagen Accord phase, the Indian the government is pushing for REDD plus, and seeking to ‘cash-in’ on its forest resources. This opens up yet another business opportunity for the private players.

There is money to be made in Carbon!

With the NAPCC, the government has used the Clean Development Mechanism (CDM) as a lever to accelerate, take-up of clean technology by Indian firms and to encourage participation in the global $30-billion carbon market. India now accounts for more than one third of all CDM projects registered worldwide, next only to China, with 398 projects in 2009. In terms of CDM projects in Asia, India has 32% of the projects approved so far and in terns of volume of CERs (Certified Emission Reductions) it has 19% of the total for Asia.

The NCDMA (National Clean Development Mechanism Authority) of the MoEF (Ministry of Environment and Forests) in India has approved around 1200 projects, of which more than 350 have been registered. The total investment in the carbon-credit market has crossed Rs.1000 billion. Dominant amongst these projects are the energy-efficiency, biomass and hydro-power ones.

Two of Indian leading industrial houses Tata and Reliance are in the CDM business. Tata Motors earned $3.6 million from the sale of carbon credits on the Chicago Climate Exchange. Reliance Power, in turn, is expected to generate 37.5 million credits, earning Rs 4,000 crore from its carbon credits at its Sasan power project alone. Reliance would literally have covered its 25 per cent equity investment or one-fifth of the total project cost of Rs.19,500 crore of what is India’s largest power deal, the 4000 MW ultra mega power project that will supply power to over four states.

CDM: Not good for People, Not good for Climate

Sponge iron

Some of the worst offenders are sponge iron units in the country. India has emerged as the world’s largest producer of sponge iron, accounting for 20 per cent of the global output, close to 20 million tonnes of sponge iron. In Chhattisgarh, the sponge iron capital of India, they have been hauled up by the Chhattisgarh Environment Conservation Board for polluting with impunity. Some plants hauled up by the CECB include SKS Ispat and Godawari Power & Ispat Limited. Each of these plants registered since 2006 earns thousands of dollars each year under the CDM but does little to protect the local environment.

These plants are guilty of emitting a higher level of suspended particulate matter than allowed, sending out noxious fumes and having improper solid waste disposal. An environmental audit on CDMs by the British House of Commons three years ago said the carbon offset industry was clearly encouraging pollution and global warming by associating with India’s « notoriously dirty » sponge iron industry.

The Swasti power project

The SPEL (Swasti Power Engineering Ltd) got the CDM approval in early 2007 to develop a 22.5-MW hydropower project on the Bhilangana River in the Himalayan state of Uttarakhand. This run-of-the river hydroelectric project aims to harness the perennial waters of the Bhilangana River-a major tributary of the sacred River Bhagirathi. The company stands to make enormous profits as the project is registered to generate a large sum of carbon credits-624000 CERs within 2012 and 1093000 CERs within 2020, meaning, in monetary terms, anything between 8 to 15 million euros! On the flip side, ACRES International, a US company, is part-owner of the SPEL and was convicted for corruption charges in 2002 and black-listed by the World Bank.

The 80-odd families that inhabit this village were never consulted about the project, which is going to devastate them, by the government or by the SPEL. The villagers’ main objection to the project is that the power project is accessing and taking control of the river water before it could come into their irrigation channels, which is severely affecting agriculture in the Bhilangana valley.

Tata’s Contribution to Climate Change!

International Finance Corporation (IFC), the World Bank’s private sector lending arm, plans to back a massive coal-fired power plant in Mundra, a town in the Indian state of Gujarat. The complex of five 800 megawatt plants will cost $4.14 billion to build and be owned and operated by Tata Power Company Limited, a scion of India’s largest multinational corporation, the Tata Group.

Tata Power’s 2007 revenues totalled $1.6 billion. So, it’s hard not to ask how much help Tata needs from the World Bank. Several other corporations are involved. Toshiba, for example, will supply the steam turbine generators.

Once operational, the Mundra power plant will be India’s third-largest emitter of greenhouse gases. However, the World Bank has planned for the Tata coal burner to be eligible for carbon credits under Kyoto’s Clean Development Mechanism! Tata claims that it would emit 3.6 million tonnes less of CO2 each year than any other sub critical coal plant in India. If it was able to sell those reductions at current market prices, it could earn around €70 million/year. In the 2007/2008 financial year, Tata Power’s net profits were up by 25%, reaching $184 million. This is clearly not an economically struggling company that needs additional revenue streams to upgrade and improve its technological efficiency.

In the bizarre logic of the carbon market, a market the World Bank is both shaping and investing in, yes, Country B can get credits for helping a corporation, even one of the world’s wealthiest corporations such as Tata, capture a few carbon emissions, as long as these emissions are captured in developing country, like India, regardless of how rich the company involved may be.

Windfall for Wind Power

It is often argued that renewable energy projects within the CDM are inherently ‘good’ projects designed to reduce emissions and promote local sustainability.

Wind power has been developed rapidly over the last 10 years in the state of Maharashtra, India. In 1996, the Maharashtra Energy Development Agency (MEDA) initiated a demonstration wind power project with Suzlon Energy Ltd. which acquired huge tracts of land in the Satara region with the purpose of building up wind power infrastructure and selling the power plants along with the land to other companies at a minimum price of Rs.50 million (around €765,000) each. Today the Satara region has more than 1,000 WEGs owned by MEDA, Suzlon, Bajaj Auto, Tata Motors and others on an area of about 40 km squared.

The lure of cheap infrastructure and bulk subsidies at source drew the companies to Satara, while the possibility of earning additional revenue through the sales of carbon credits acted as another strong incentive. Many companies applied for CDM registration, mainly with aggregated wind energy projects, but no new WEGs or infrastructure were set up for the CDM projects.

The private companies operating on the site sell electricity to Maharashtra State Electricity Board (MSEB) at Rs 3.16 per unit while they consume electricity provided by MSEB at a concessional rate of Rs 1.20 per unit. In 2006, Suzlon was investigated by the Indian tax authorities and found to have made false depreciation claims on wind farm equipment to evade taxes, totalling between Rs 700-1,000 crore (around US$ 200 million).

Conclusion

Sunita Narain, of the Delhi-based Centre for Science and Environment, sums up the status of CDM projects in India when she says, “CDM is a market mechanism, not climate action. The biggest flaw in CDM is that it is aimed at the cheapest reduction methods for industrialised countries. There has been no transfer of high-end technologies from the rich to poor countries, or investment in clean coal technologies for poor countries.”

The CDM business exposes the murky underbelly of Indian Business, and the deep in roads it has made into the government and policy making structures. The way the carbon markets are designed and operated lends itself to such blatant abuse. It is thus evident that sooner climate policy moves away from exclusive dependence on markets to deliver sustainable solutions, the better for the world and its future.