Memorandum from Rajan Pandhare

 

I refer to the consultation and inquiry under progress regarding the Voluntary Carbon Offset Market. Here are our comments and I would greatly appreciate your consideration of our views as you progress with the inquiry.

 

1. Reasons of Acceptance of VERs (Voluntary Emission Reductions)

 

 

· In the developing world, VERs help small, programmatic Green House Gas (GHG) reduction activities at micro level, (with each activity ensuring a small GHG reduction) such as

i. Adoption of solar lighting, heating, pumping devices and other related devices.

ii. Small Bio-mass gassifiers, micro hydro projects, bio-fuel based DG sets.

iii. Small methane prevention projects (animal husbandry in rural areas, dairy)

In a normal CDM project development scenario, the complexity of project development, long lead time for approval, and costs will deter project participants from undertaking these projects. All such projects not only deliver on the social impact but also play a role in reduction of GHG.

· VERs generated from plantation activities is crucial but difficult to justify using CDM methodologies. Plantation (afforestation, reforestation and prevention of de-forestation) can form a very important part of global GHG reduction and environmental improvement strategies.

· Adoption of New Products Technologies for which a rigorous methodology development under CDM may be difficult (due to verification and monitoring problems), may be supported by the concept of VER (ex: adoption of micro-turbines, adoption of efficient lighting systems and controls for urban areas)

· Business needs 'high certainty (reduced risks) of economic gains' to make investment decisions. However current CDM processes make the registration of a project highly 'uncertain'- even for approved methodologies, and even if similar projects are approved before, the chances that a particular project may be rejected are high!. This actually leads to a perverse situation: a business decides to make the investment only when the project is viable without CDM benefits and treat CDM benefits as a 'bonus'. But this ensures that most CDM projects proposed for registration are not truly 'additional'- which is contrary to the objectives of CDM. VER processes however reduce this uncertainty, because of higher tolerance level and less complex processes. VER's therefore may truly support 'additional' projects.

· The perceived risk of VER projects is that, although they may be supporting environmentally positive areas but may not be truly additional (may support activities which may be financially viable or may have no technological barrier, or 'may' have leakages not so clear to observers in the beginning). However from system perspective, over long term, VER transactions will result in 'ultimate reduction of GHG emission's and will be environmentally and socially positive (because of VER's focus on the latter)

 

· Sometimes VER's from renewable energy projects, say, are financially not additional (have attractive returns). This may be true for some hydro power projects or wind power projects. However general market acceptance of VERs from such projects will make it easier for project developers to forecast the VER benefits from such projects and factor in a price. The normal effect of some projects sneaking in without genuine additionality would be higher availability of VER's or reduced prices for VER v/s CERs. This should be acceptable because it encourages genuine investment interest based on ERs, and makes project implementation faster. Renewable Energy Certificates in US is a similar scheme- it uniformly rewards all renewable energy projects irrespective of their additionality.

· The other environmental and social factors related to a project will help the VER sale to customers - VER's without great impact on these dimensions may not find any takers or will be priced low. This is different from a strict compliance oriented scheme of CDM where large sums of money are earned by HFC-23 kind of projects, without any social impact.

 

In summary, I strongly propose that there be some VER standards for project qualification, measurement, verification and registration. A standard and bouquet of methodologies which evolves (like Linux') may be a good idea to make VER's acceptable. However the complex assessment of additionality and baseline choices should be simplified.

 

VERs will have a much more of a bigger impact globally then CERs on their own. VERs not only drives GHG reduction but equally enhance on social impact. This dual benefit should not be ignored by the government as it conducts this inquiry. Government support is crucial for VERs- it will help make VER's legitimate in the eyes of the world. Since VER's are important, government should legitimatize VER buying by being a buyer itself.

 

2. My background

 

I am a senior member of President Clinton's HIV/AIDS Initiative (ex Dy Chief Operating Officer, Country Director of India and Cambodia) for the last three years. Prior to this I used to run software companies. I am also a board member of CARE International UK and The Children's Investment Fund Foundation, a leading financial donor for children related programs (healthcare, education, water and sanitation) across Africa and India. I am also a board member of VERpool Limited which is engaged in using the financial benefits of VERs to support high impact and sustainable social programs across the world.

 

January 2007