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Financing Structures for CDM Projects in India and Capacity Building Options for EU-Indo Collaboration

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  • Krey, Matthias
  • Michaelowa, Axel
  • Deodhar, Vinay

Abstract

The Clean Development Mechanism (CDM) under the Kyoto Protocol to the UN Framework Convention on Climate Change (UNFCCC) enables industrialized countries to meet a part of their emission reduction requirements through purchase of emission reduction credits from projects in developing countries. Various studies have concluded that India is likely to be one of the major countries supplying such projects. However, in order that a large number of high-quality CDM projects is developed and result in Certified Emission Reductions as specified by the international CDM Executive Board, the institutional set up in the Indian finance sector has to be suitably geared up. So far, banks and financial institutions have not developed procedures for efficient financing of CDM projects. A necessary condition for an in-depth involvement of the financial sector is the development of transparent and effective approval rules by regulators both on the central and state level as well as improved project development capacity of the private sector. Then conventional and novel financing instruments such as project finance for large projects, Special Purpose Vehicles, CDM funds or CDM bonds couldbecome attractive to banks. Such a set up helps in reducing the permit credit risks and political risks considerably. This discussion paper describes the current status of the CDM stakeholders in India, assesses risk perspectives of CDM projects and provides suggestions for approaches these stakeholders may adopt in order that projects from Indian promoters are able to capture a sizeable share of emerging competitive CDM market. It also defines options for capacity building support from EU countries.

Suggested Citation

  • Krey, Matthias & Michaelowa, Axel & Deodhar, Vinay, 2003. "Financing Structures for CDM Projects in India and Capacity Building Options for EU-Indo Collaboration," HWWA Discussion Papers 247, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:26139
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    References listed on IDEAS

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    1. Axel Michaelowa, 2002. "The AIJ pilot phase as laboratory for CDM and JI," International Journal of Global Environmental Issues, Inderscience Enterprises Ltd, vol. 2(3/4), pages 260-287.
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    Cited by:

    1. Silayan, Alan, 2005. "Equitable Distribution of CDM Projects Among Developing Countries," Report Series 26098, Hamburg Institute of International Economics.
    2. Silayan, Alan, 2005. "Equitable distribution of CDM projects among developing countries," HWWA Reports 255, Hamburg Institute of International Economics (HWWA).
    3. Dorothee Teichmann, 2010. "Public and private risk sharing in the financing of low- emitting urban infrastructure projects: The case of CDM projects in the waste sector," Working Papers 1002, Chaire Economie du climat.
    4. Axel Michaelowa, 2007. "Unilateral CDM—can developing countries finance generation of greenhouse gas emission credits on their own?," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 7(1), pages 17-34, March.

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    More about this item

    Keywords

    International Climate Policy; CDM; Financial Institutions; India;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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