In the absence of any monitoring system under the UN’s Clean Development Mechanism or CDM (see box), DNA has found that several large projects in India that have been declared green and sustainable under the scheme are not only polluting the local environment but were also established by violating various environment laws. However, because of their status, these firms are permitted to sell carbon credits in the market, earning huge revenue in the process.
To be eligible for CDM status, project proponents have to ensure that a) the project uses efficient and clean technology that is resulting in reduction of carbon emission (sustainability), and b) that it will be unviable to implement the project without carbon credit revenue, also known as the additionality clause.
DNA found that many Indian firms that obtained CDM status violated either one of these clauses and are ineligible for the scheme. Worse, as the last part of this series will show, the failure of CDM may have led to thousands of tonnes of greenhouse gases (GHGs) being released into the atmosphere.
Licence to pollute: UNFCCC guidelines say that CDM projects must result in sustainable development and reduction of emissions to benefit the local community. However, in India many firms started projects that were registered as CDM without taking the consent of the local community.
The list of firms violating one or all CDM status requirements is long. Take for example Jal Power Development Corporation’s hydro power project in Sikkim that obtained CDM status. In February 2011, the project was issued with a show-cause notice by the department of forests and the local administration for
“illegally dumping untreated waste” into the Rangit River.
Similarly, many waste heat-based energy projects located in various sponge iron plants are legally-bound to operate Electro-Static Precipitators to clean the emission of gas from the plant. But many such plants with CDM status do not operate it.
Sri Ramrupai Balaji Steel Ltd in Durgapur, West Bengal, has been subject to penal actions for not reducing emissions. It also received closure orders a number of times from the West Bengal Pollution Control Board (WBPCB).
Similarly, India Cements claimed that its waste-heat-recovery system to generate electricity at its Vishnupuram cement plant in Andhra Pradesh would promote sustainable development by reducing emissions. However, Nishant Mate an environmentalist, who has visited and studied several CDM projects in India last year, said that B Bhaskar Rao, the sarpanch of Wadapally panchayat, organised public meetings on the degrading local environment because of emission from the plant and also appealed to the National Human Rights Commission to intervene.
A distillery unit of GMR Industries Ltd in Srikakulam, Andhra Pradesh, diversified into power, ethanol and spirit refinery even though villagers in the area had given a no-objection certificate only for the sugar unit in 1995. In 2003, villagers strongly opposed construction of the ethanol plant but the company went ahead with the work, said Mate. And guess what? This firm also obtained CDM status.
According to report on CDM by National Forum of Forest People and Forest Workers, a Kolkata-based NGO, ITC, which has six different CDM projects going in its Bhadrachalam plant, illegally acquired 502 acres of land in scheduled areas. A case has been filed in the court of special deputy collector of Bhadrachalam against the state government with regard to this.
Additionality violations: As mentioned earlier, in order to obtain CDM status, project proponents have to establish that their projects are using efficient and clean technology. A second requirement is that the project should be unviable without revenue from carbon credits, also known as the additionality clause. DNA has documents that prove that many projects do not pass this test.
US-based climate change expert Barbara Haya, who examined 80 wind and hydro projects in India that obtained CDM status, found that 76 of them started well before the developer begin the process of applying for CDM registration. This means that they did not fulfill the additionality clause.
For example, the construction of Satluj Jal Vidyut Nigam Limited’s 412 MW hydropower plant in Rampur, Himachal Pradesh, began almost three years before its application for CDM status was approved. The firm signed a deal in October 2004 with the HP government to build the project. On June 2005, it submitted the details of the costs and incomes to the official electricity board of India. There wasn’t a word on CDM credits revenue in the documents. Suddenly, in March 2007, over 2 years after the contract was signed, the project got cleared as CDM by the executive board.
Match fixing?: Two case studies presented below show that preparing the proposal and compiling information is crucial in order to ‘deceive’ the CDM executive board that takes the final call on registering the project as a CDM or not.
The first case is Bajaj’s windmill project in Maharashtra. The company’s 2002 annual report stated: “A total of 138 windmills have been set up in Maharashtra. The project is extremely beneficial on a standalone basis. The investment also provides sales tax incentives and an income tax shield.” The report made no mention of CDM or carbon credits in the context of the projects. As the annual report clearly mentioned that the project is self-sufficient and profitable without carbon credit revenue, the CDM executive board rejected its application because it failed the additionality test.
Similarly, only projects started after January 1, 2000 are eligible for CDM status. However, projects by Jindal South West Steel (JSW Steel) and its affiliate JSW Energy got CDM status despite violating the additionality clause test, as per a report.
JSW Steel operates a large integrated steel plant at Bellary, Karnataka. JSW Steel and JSW Energy developed three CDM project proposals. The first proposal for a 260 MW power plant using waste gas for electricity generation was submitted on September 23, 2005. This project doesn’t pass the additionality test because the decision to use waste gas was made earlier.
“According to documents available in the plant, the planning process for using waste gas in the power plant already started in the mid-1990s,” says Dr Axel Michaelowa, an international climate expert from Germany, who visited and studied JSW’s CDM project.
But Michaelowa reveals: “The first plant for iron smelting as well as the first unit of the CDM power plant was operational in August 1999. In fact, Karnataka Pollution Control Board (KPCB) approved the use of waste gases in the power plant on March 6, 1996 itself.” This means the project violated the additionality clause as well as the cut-off date.
Michaelowa alleges an official from a well-known carbon consultancy firm “who developed the project documentation tried to bribe me to withdraw my negative public comment.”
Both the JSW and Bajaj projects are blatantly non-additional projects, yet only the latter was rejected as the developer failed to conceal the financial viability of the project.
The list goes on. Annual reports of Yash Paper Ltd, a Faizabad-based paper company with an annual turnover of over Rs 100 crore, said it never bought electricity from the grid and used biomass power plant instead. The paper mill ran on 100 per cent green electricity long before any carbon market existed. Yet its project was registered as CDM in violation of the additionality clause.
The firm’s CDM proposal says that the project activity is a change from a fossil fuel usage to biomass that will lead to the reduction of greenhouse gases. But, the project never used fossil fuels in the first place. “In March 2005, Yash Paper submitted a prospectus of their new biomass boiler to the Securities and Exchange Board of India in which it stated about Rs 2 crore per MW for the new boiler,” said Nick Meynen, a Belgium climate expert. A year later, the cost for installing almost the same boiler became about Rs 7.3 crore per MW, when submitted at the UNFCCC’s CDM board, showing the need for CDM money.