Climate change is the buzz word for everyone these days and one of the most important efforts of the world in tackling this problem is supposed to be the projects taken up under the Clean Development Mechanism (CDM). The controversial 192 MW Allain Duhangan hydropower project (ADP) (under construction in Himachal Pradesh) is the largest among all the hydropower projects from all over the world registered to get credits under CDM.
It is also slated to get the largest number of credits, at around 4.94 million CERs (Certified Emission Reduction credits). At the current market rate of around $16 per CER, the project is slated to get around $ 75 M for reducing the impact of climate change. This project does not deserve to either be called clean or green project, nor does it deserve to get any of these credits.

The CDM projects are taken up under the United Nations Framework Convention on Climate Change (UNFCCC), following the Kyoto protocol. To achieve certain reduction in the emissions of gases the developed countries could also fund projects in developing countries that help achieve this. The developed countries would get the credits for the reduction that would become possible through such funding.

To certify if certain project qualifies for such credits, the UNFCCC was set up. The process of considering the projects for CDM started in mid 2004 and the first ever project was registered in November 2004.
UNFCCC has certain criteria that it follows to see if a certain project is eligible to get the credits. One of the criteria is that the project must be additional, that is, it would be unviable to take up the project in the absence of such credits. Other criteria included the project employing a new technology which rendered costs too high. Also if the project was making extra efforts to take care of the social and environmental impacts of the projects, it may require extra funding.

Now let us examine the ADP under construction in Beas River basin near Manali in this context. Here are some relevant dates in that regard.

The project developer signed the memorandum of understanding with the Himachal Pradesh government in 1993. In 1996, the environment impact assessment was conducted. The Central Electricity Authority (CEA) gave its in principle Techno Economic clearance (TEC) in March 1996, which certified that the project is economically viable. In August 2002, the CEA gave its final TEC, following an application by the project authority in May 2001. The project was supposed to go to the board of the World Bank for approval for funding in October 2003.

This series of events all before the UNFCCC when they started considering projects for CDM, shows that the developer was interested in this project well before the issue of CDM became a reality. Secondly it also means that the developer considered it a viable project.

The developer also applied for and got the in principle and final TEC, without any mention of necessity of CDM credits for making the project viable. The ADP developer himself had taken up the Malana HEP in the nearby area without the CDM credits, completed it and declared that it was a very profitable project.

It is also interesting to know that ADP is India’s first merchant hydropower project. This means that the project developer will not have any power purchase agreement with any electricity board or distribution company. It would rather sell the project based on short term contracts based on spot market prices.

What this implies is that the project developer found the project so economically viable that he decided to forgo the relative safety of Power Purchase Agreement (PPA) and was ready to take up the risk of merchant sale. The project was thus more viable than most other hydropower projects that require PPA.

Moreover, in the Environment and Social Impact Assessment for the project done in May 2003, it is stated (page 7), “The project would be one of the cheapest sources of power generation in the northern region as compared to alternative of thermal and nuclear generation.”

Why should a project that is supposed to be the cheapest source of power, be even considered for CDM credits? The ADP is not using any new technology either. Next, ADP is not taking any extra efforts to ensure that social and environmental issues are properly taken care of and the local people are also made beneficiary of the development project.

In response to SANDRP’s (South Asian Network on Dams, Rivers and People) application under the Right to Information Act, the Union Ministry of Environment and Forests has agreed that the project developers have been found to be guilty of scores of violations of the laws and have been fined for the same. At the local level, a strong movement has been ongoing against the project since the project consideration started in 2003.

This project got these fraudulent credits because UNFCCC has neither the mechanism to credibly assess the projects, nor the will it seems, to ensure that only eligible projects get credits under CDM.

UNFCCC has basically two ways of ascertaining the eligibility of the projects for CDM credits. Firstly, there are the designated national authorities. The environment ministry at the centre certifies if the project falls under the definition of sustainable development or not. The govts see CDM credits as free gifts and they are not interested in bothering too much (or rather at all) if the projects that are submitted to them are indeed sustainable or not.

 Then there are supposed to be independent agencies called Designated Operational Entities. These are some registered global consultancy organisations that are supposed to act as validators and verifiers of the appropriateness of the projects. These are commercial entities and they can sustain only if they get more work for validation and verification. If they start becoming particular about appropriateness of the project, they would rather lose all business. Moreover, they know that UNFCCC has no way of cross checking whatever they write in their reports. So this has also proved to be a failed mechanism. All this has been communicated to the UNFCCC but this global organisation has yet to respond in a way that will inspire any confidence.