WikiLeaks Cable Highlights High Level CDM Scam in India

Katy Yan

A recent WikiLeaks cable from the US Consulate in Mumbai provides irrefutable evidence that carbon credits generated by Indian projects and sold to European countries under the Clean Development Mechanism (CDM) are a lot of hot air. 

It reports on a seminar in 2008 with the US Consulate General Office, analysts from the Government Accountability Office (which later released a critical report on offsets), and the executives of top Indian companies. The cable notes that these companies "conceded that no Indian project could meet the 'additionality in investment criteria' to be eligible for carbon credits."

While none of this is really surprising (studies from the University of Zurich and by other experts have provided ample evidence that Indian hydro and coal-fired power plants under the CDM would have been built regardless of carbon credits), the shocker is that these admissions come from not just project developers but also high-level people within the CDM.

Conflicts of interest

One such person is R K Sethi, Member Secretary of the National CDM Authority in India and then-Chairman of the CDM Executive Board. In the cable, he admits that India's National CDM Authority "takes the 'project developer at his word' for clearing the ‘additionality' barriers."

25 percent of all CDM projects in the pipeline are from India. The fact that Sethi, a top CDM Executive Board member, is also the member secretary of India's designated national CDM authority (DNA) shows a clear conflict of interest.

Lots of hot air and no real emissions reductions

Non-additional projects in India mean no real emissions reductions are occurring.
Non-additional projects in India mean no real emissions reductions are occurring.

According to the cable, Mathsy Kutty of Det Norske Veritas (DNV), a CDM Executive Board-accredited validation and verification organization for CDM projects and an insider in the CDM shell game, affirmed what Sethi said when she told the US Consulate General Office that:

"the designated authorities of host countries approve projects in a cursory manner and do not check to see whether the project meets all the requirements laid down by the CDM Executive Board."

India accounts for 15% of all Certified Emission Reductions (CERs) expected by 2012. A total of 112 million CERs have been issued so far to Indian projects, the equivalent of 112 million metric tons of CO2. The fact that Sethi admitted that his DNA does not take seriously the additionality criteria throws into question whether any of these emission reductions are real. Supposing that all these CERs are fake, that would be equivalent to allowing 26.5 coal-fired power plants to continue polluting in Europe.

Banks complicit with gaming the system

A number of bank representatives were also present at the seminar. According to Somak Ghosh, President of Corporate Finance & Development Banking at Yes Bank:

"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."

Ghosh continued to point 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."

Since the risks with acquiring CDM projects are so high, banks would never finance a truly additional project – further proof that most Indian projects are non-additional. This is not just limited to national banks like Yes Bank, who decide to look the other way as these scams play out, but also to major global players like the World Bank.

Case study: Mega Hydro Project in India fails additionality and sustainability criteria

The Rampur Village, site of the proposed Rampur dam, in Himachal Pradesh
The Rampur Village, site of the proposed Rampur dam, in Himachal Pradesh
The Rampur Hydropower Project is the latest example in a series of non-additional Indian projects that have tried to game the system. Rampur is a 412 MW hydropower project on the Satluj River in the Indian state of Himachal Pradesh. Satluj Jal Vidyut Nigam Limited (SJVN), an Indian hydropower company originally created by the World Bank, signed an implementation agreement for the project with the local government in 2004. The Indian Prime Minister laid the foundation stone for it in 2005. The World Bank approved a loan of $400 million for Rampur in 2007. Rampur is now over 70 percent complete. At no time during this process did SJVN signal any prior consideration of the CDM or that it would depend on carbon credits to move forward.

Rampur would supposedly cut emissions by 1,407,658 metric tons of CO2 equivalent per year, equivalent to the CO2 emitted from over 276,000 passenger vehicles. The Swedish Energy Agency is the buyer, and if the project is registered, Sweden would benefit by not having to reduce their emissions by the same amount even though the offsets in India are fake.

Instead of reducing emissions at home, Sweden is paying India to do it for them.
Instead of reducing emissions at home, Sweden is paying India to do it for them.

In addition, Rampur fails to meet the CDM's sustainability criteria. The Linking Directive under the CDM requires EU Member States to ensure that the World Commission on Dams (WCD) criteria be respected when approving hydro projects exceeding 20 MW. Yet local communities affected by the project claim that they neither were consulted nor did they benefit from the project. Environmental and health concerns include an increase in dust problems, asthma rates, and lower harvests. According to a 2009 field report, no prior consultation had been conducted and none of the developer's promises for clean water or school supplies had been delivered.

Climate change no laughing matter

The impacts of climate change are taking a real, present and serious toll on our rivers, biodiversity, and communities, particularly in Africa and South Asia. Weather-related disasters in India and Pakistan, for instance, are a serious problem that's likely to increase in a warming world. This means that the UNFCCC, which administers the CDM, should not be asleep at the wheel when all this is happening, but instead should reject all dubious projects like Rampur. This also means that both host countries (particularly India given its vulnerability to climate change) and buyer countries have a responsibility to ensure that emissions reductions under the Kyoto Protocol are real, that significant emissions reductions occur at home, and that renewable energy projects benefit local communities instead of putting them at further risk to climate change impacts.

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