VZCZCXRO4907
RR RUEHAST RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHTM
DE RUEHNE #1935/01 1931239
ZNR UUUUU ZZH
R 111239Z JUL 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 2621
INFO RUEHCI/AMCONSUL KOLKATA 2473
RUEHCG/AMCONSUL CHENNAI 3209
RUEHBI/AMCONSUL MUMBAI 2286
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/USDOC WASHDC
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE

UNCLAS SECTION 01 OF 03 NEW DELHI 001935 
 
SENSITIVE 
SIPDIS 
 
STATE FOR OES/PCI, OES/EGC, AND SCA/INS 
DEPT OF ENERGY FOR TCUTLER, CGILLESPIE, MGINZBERG 
USDOC FOR A/S BOHIGIAN 
 
E.O. 12958: N/A 
TAGS: SENV ENRG ECON TSPL TRGY KSCA KGHG IN
SUBJECT:  GAO EXPLORES INDIA'S EXPERIENCE WITH THE CDM 
 
NEW DELHI 00001935  001.2 OF 003 
 
 
¶1.  (U) SUMMARY:  Analysts from the Government Accountability Office 
(GAO) visited New Delhi June 30 and July 1 to review India's 
experience with the Kyoto Protocol's Clean Development Mechanism 
(CDM).  The GAO interviewed a wide range of public, private, and NGO 
stakeholders who were consistent in their support for the CDM and 
believed that it was enabling reductions in greenhouse gas (GHG) 
emissions that would not have occurred otherwise.  Criticisms of the 
CDM's Executive Board (EB) were rampant and directed at the EB's 
slow review process and lack of transparency while all interviewees 
commended India's Designated National Authority (DNA) for a 
streamlined and efficient process.  Interviewees also expressed 
concern regarding the CDM's uncertain post-2012 future and stated 
U.S. participation in the CDM would not only stabilize and grow the 
carbon market, but also lead to enhanced technology transfer.  The 
GAO will incorporate comments from their interviews, as well as 
similar interviews conducted in China, into a report to Congress 
expected to be released in November 2008.  END SUMMARY. 
 
¶2.  (U) EmbOffs accompanied senior analyst Kate Cardamone and 
analyst Jessica Lemke from the GAO Natural Resources and Environment 
Team to a series of meetings designed to explore India's experience 
with the CDM for a report to Congress.  The delegation interviewed 
the following CDM stakeholders: 
 
--Mr. Rajani Ranjan Rashmi, Joint Secretary, Ministry of Environment 
and Forests (MoEF); 
--Dr. Prodipto Ghosh, Senior Fellow, The Energy and Resources 
Institute and former Secretary, MoEF; 
--Mr. Ajay Mathur, Director General, Bureau of Energy Efficiency 
(BEE), Ministry of Power; 
--Mr. Charles Cormier, Team Leader, Environment and Water Resources, 
World Bank; 
--Dr. G. C. Dutta Roy, Chief Executive, Energy Business, DSCL Energy 
Services Ltd; 
--Mr. Ashutosh Pandey, Emerging Ventures India; 
--Mr. Chandra Bhushan, Associate Director, Industry and Environment, 
Centre for Science and Environment. 
 
--------------------------------------------- ---- 
LOTS OF PROJECTS, LITTLE COOPERATION, FEW CREDITS 
--------------------------------------------- ---- 
 
¶3.  (U)  As of July 11, there were 1115 CDM projects registered 
worldwide with the CDM Executive Board.  India accounts for the 
largest number of projects with 31.75 percent of the total but only 
accounts for 14.17 percent of the expected annual average CER 
credits.  In contrast, China has 21.43 percent of the total projects 
but accounts for 51.62 percent of the total expected CERs.  Charles 
Cormier of the World Bank, which is the largest buyer of CERs with a 
holding worth over 2 billion USD, explained the discrepancy by 
noting India's CDM projects, like its economy, is driven by small 
and medium sized enterprises (SMEs) that cannot sustain the very 
large projects undertaken by state supported industry in China.  He 
also stated financial institutions in India are unwilling to finance 
CDM projects proposed by collateral-poor SMEs who tend to hide what 
collateral they have in order to avoid taxes.  Considering the 
Indian CDM market is primarily driven by the private sector with 
very few public sector projects, Cormier stated it was no surprise 
Indian projects were smaller in scale, though greater in number, as 
compared to China.  Cormier also noted that while Indian players in 
the CDM tout the number of Indian projects as a success, he sees the 
large numbers yet low revenue stream as a failing of the Indian 
experience with the CDM. 
 
¶4.  (U) When asked why so many Indian projects were unilateral with 
little to no international cooperation, BEE Director General Ajay 
Mathur stated Indian businessmen were highly independent and tend to 
see everyone else as a competitor.  He used the cement industry as 
an example where Indian companies were unwilling to partner with 
European cement companies because they feared foreign meddling by 
potential competitors and instead achieved impressive energy 
efficiencies by purchasing European technology off the shelf.  In 
many cases, the same technology had been offered (and refused) as 
part of a joint-CDM project.  The approximately 300 CDM projects in 
India support emissions reductions mainly in renewable energy, 
energy efficiency, industrial efficiency, and biomass power 
generation.  MoEF Joint Secretary Rashmi said that although India 
has a lot of projects, it is not reaching its potential and that 
Indian industry needs more "hand-holding" to get project proposals 
approved. 
 
--------------------------------------------- ----- 
 
NEW DELHI 00001935  002.2 OF 003 
 
 
INDIA'S DNA PRAISED, CDM EXECUTIVE BOARD PILLORIED 
--------------------------------------------- ----- 
 
¶5.  (SBU) In regard to the process of registering a CDM project, 
stakeholders, both private and public, praised the performance of 
India's Designated National Authority, the GOI inter-ministerial 
panel headed by the MoEF that screens each application to ensure 
they meet a minimum set of environmental regulations before 
recommending them to the UNFCCC CDM Executive Board for final review 
and registration.  Joint Secretary Rashmi explained the DNA 
consisted of a panel chaired by MoEF with the Ministries of Coal, 
Steel, and New and Renewable Energy as permanent members and with ad 
hoc members added depending on the type of project under 
consideration.  He noted the DNA based its decisions on whether to 
forward a project to the EB on whether the project met Indian 
environmental regulations and was sustainable. He stated there was 
no need to impose a more stringent standard.  This approach received 
consistent praise by private sector stakeholders who's only 
complaint was that the DNA was slow to issue decisions.  Mr. 
Ashutosh Pandey of the consultancy Emerging Ventures India, summed 
up the general feeling well when he stated he was "frustrated by 
delay, not by decisions."  Former MoEF Secretary Dr. Prodipto Ghosh, 
the architect of the Indian DNA, recognized the DNA's problems which 
he put down to an overburdened bureaucracy focused primarily on 
other tasks.  He stated that if he were to do it over again, he 
would have created an independent body with its own staff and 
budget. 
 
¶6.  (SBU) Stakeholders were less sanguine about the performance of 
the CDM Executive Board which has rejected more projects from India 
than any other country.  According to Mr. Pandey, the EB does not 
judge projects consistently and will approve one project while 
rejecting a similar one.   Dr. Ghosh observed the same and accused 
the EB of letting politics influence their decisions.  Dr. Roy of 
DSCL Energy Services accused the EB of being prejudiced against 
India and had personally considered the possibility of legal 
recourse against the EB for rejecting one of his company's projects. 
 Mr. Cormier also recognized inconsistencies in the EB's 
decision-making and said that case law needs to be developed to 
ensure that similar projects from different countries are approved. 
All interviewees complained the EB lacks transparency, takes too 
long and in some cases refuses to reply to inquiries, and provided 
no avenue to appeal an EB decision.  Dr. Ghosh stated that the 
lengthy and complex process of moving a project through the EB 
resulted in  high operational costs and discouraged many SMEs from 
participating in the CDM. 
 
¶7.  (U) Exploring means to enhance the working of the EB sparked 
lively discussion among all those interviewed who shared several 
ideas on how to improve the EB.  Recommendations included hiring 
more staff, developing a list of pre-certified projects, and doing 
away with the additionality requirement for CDM projects.  While all 
interviewees complained about additionality, which requires a 
project to establish that the planned emission reductions would not 
occur without the additional incentive provided by CER credits, Dr. 
Ghosh provided the most nuanced analysis of the problem by noting 
environmental additionality, whether a product provided additional 
emission reductions, should be kept while financial additionality 
should be eliminated as it requires the EB to "guess investor 
motivations." 
 
--------------------------------------------- ---------- 
LOWERED EMISSIONS, MORE JOBS, BUT LIMITED TECH TRANSFER 
--------------------------------------------- ---------- 
 
¶8.  (U) The stakeholders generally agreed that the CDM has resulted 
in real GHG emission reductions that would not have otherwise 
occurred.  According to Dr. Roy, the CDM program enabled 
cogeneration factories to install new technologies to reduce 
emissions and helped develop new wind power and biogas plants.  The 
CDM also encourages other aspects of sustainable development.  Dr. 
Roy said at least 150,000 jobs were tied to their CDM projects.  Mr. 
Pandey said that developer's interest in sustainable development has 
increased substantially since the CDM was introduced four years ago. 
 However, Mr. Chandra Bhushan of the NGO Centre for Science and 
Environment, said they are watching biogas projects closely to 
ensure they don't raise the price of commodities important to poor 
people's livelihoods.  Mr. Cormier said that the CDM process is a 
great way to make companies aware of the impacts of climate change 
and as a system the CDM has exceeded his expectations. 
 
¶9.  (U) The stakeholders disagreed, however, on the quantity and 
 
NEW DELHI 00001935  003.2 OF 003 
 
 
quality of new-technology transfer promoted by the CDM.  Dr. Ghosh 
opined that the CDM could shorten the period for widespread adoption 
of new technology from 25 years to 8 years, but also noted the CDM 
had not led to substantial FDI or technology transfer in India.  Dr. 
Ghosh mentioned that only the low hanging fruits had been plucked 
through the CDM and that increased tech transfer will be required to 
achieve emission reductions in the future.  Mr. Bhushan expressed 
the same thought in virtually the same language while other 
interlocutors stated they felt that technology transfer was not 
occurring as quickly as they had hoped. 
 
------------------------------------ 
AN UNCERTAIN FUTURE SLOWS CDM GROWTH 
------------------------------------ 
 
¶10.  (U) As the future of the CDM is currently being negotiated as 
part of a successor agreement to the Kyoto Protocol's compliance 
period which ends in 2012, uncertainty has begun to impact the 
carbon market.  Mr. Cormier noted a recent World Bank study 
indicated that CER credit prices would fall as the world gets closer 
to 2012.  Joint Secretary Rashmi stated the CDM market was shrinking 
and that a commitment to CDM's future post-2012 was needed to remove 
uncertainties.  Mr. Pandey stated no business was willing to invest 
in long-term CDM project due to the post-2012 uncertainty.  All 
interviewees agreed U.S. participation in the CDM would be a 
positive and stabilizing force that would increase the demand for 
CER credits, expand the carbon market, and expose CDM projects to 
U.S. financing and technology. 
 
¶11.  (SBU) COMMENT:  While praise for the CDM came as no surprise 
considering India is a net beneficiary and many of the persons 
interviewed had a direct stake in the success of the CDM, there 
appeared to be a genuine belief that the CDM was contributing to 
lowered GHG emissions.  Chandra Bhushan, an outspoken 
environmentalist with no financial stake in the CDM, said he 
supported the CDM because it did work and there was currently no 
other alternative.  On the other hand, praise for India's Designated 
National Authority seemed self-serving as the DNA appears to be 
little more than a rubber stamp approval process.  On the day of the 
interview, Joint Secretary Rashmi stated he had come from a DNA 
panel meeting where 25 projects had been approved.  Due to 
scheduling conflicts Rashmi conveyed to EmbOffs and the retirement 
reception for MoEF Secretary Meena Gupta held the same day, it 
appeared the DNA convened for a relatively short period and approved 
the 25 projects without a great deal of contemplation.  There is 
very little doubt this is one reason India has the highest project 
rejection rate from the Executive Board which is the main source of 
India's rancor towards the EB.  END COMMENT. 
 
MULFORD