Indian CDM applications fall 30 per cent as carbon credit prices slump

The number of Indian carbon offset projects seeking approval under the UN's Clean Development Mechanism (CDM) scheme has fallen by 30 per cent due to the global recession, according to an industry consultant.

"Project financing is not available, so people are postponing CDM investment decisions," Chaitanya Kalia of Ernst & Young's climate change and sustainability services told Reuters news agency last week.

India's National CDM Authority used to receive an average of about 60 to 70 applications a month, but now only receives about 40, Kalia said.

The subcontinent has the world's second-largest number of CDM projects after China, with more than 1,230 approved or awaiting validation, according to UN figures. Nearly 40 per cent are wind farm investments, while biomass accounts for a third of projects.

Indian investors typically develop clean tech projects and sell the generated carbon credits on the spot market or hold them in anticipation of a price rise. However, as a result of falling demand for credits, prices have dropped below the expectations of many project developers, forcing them to rethink investment decisions.

CDM advisory firm Emergent Ventures India recently surveyed developers for 64 projects. Just over 40 per cent of respondents expected the price of carbon credits to rise to between €15 (£12.74) and €20 by December 2009, compared to the current price of about €12.

Uncertainty about the future of the CDM scheme beyond 2012 – the end of the first phase of the Kyoto protocol – was cited by Emergent as the biggest concern affecting pricing. The firm said that an update on the future road map and market outlook for the scheme was needed to encourage developers to continue investment in new projects.

Lower prices were also blamed on the global recession, which has led to lower industrial production and reduced carbon emissions at many firms, limiting the requirement for them to buy carbon offsets.

Aseem Chaturvedi, senior consultant at Emergent, told Reuters that alternate means of funding clean energy projects are now being sought in the subcontinent.

He said that developers were increasingly "looking to get the CDM costs funded through the [carbon credit] buyer and then try to do a forward transaction". Such a mechanism would reduce the risk of carbon credit prices falling further, by enabling the CDMs to be traded at a specified point in the future at a forward – or pre-agreed – price.