Ashutosh Pandey, CEO, Emergent Ventures India, speaks exclusively to Renewable Markets India on the latest updates on CDM and post 2012 carbon markets.

You have been in the carbon market ever since inception. How has the global carbon market changed over the last few years?

Global carbon market has now grown to a large size market in last 5-6 years. When we had started that time Kyoto wasn’t ratified, CDM was at a nascent stage and price discovery or trading aspects weren’t very clear. Now we have a functioning carbon market with almost 3000 registered CDM projects, and better price discovery mechanism. However we are currently dealing with post 2012 carbon market uncertainties.

There have been discussions on policies post 2012 for over three years. What do you think is in store for Indian CDM project owners?

As of now there are uncertainties regarding continuation of Kyoto Protocol beyond 2012. In recently concluded discussions in Bangkok, Russia and Japan have shown resistance to accept new targets under Kyoto Protocol. US is also not agreeing to Kyoto continuation. In such a scenario, I am worried that we don’t have much time for developing an alternate mechanism in which all major economies could participate. EU-ETS definitely is a market for CERs even if KP-II is not agreed upon in time. However there could be certain restrictions regarding eligibility of CERs in such a scheme.

These uncertainties are forcing Indian project owners to weigh risks associated with CDM process and post 2012 market.

Are you seeing a shift in the attitude of India CDM project owners towards the mechanism?

I feel today Indian CDM project developers have much understanding of carbon risks and opportunities than they had few years back. Developers are now more keen to hedge their carbon pricing risks by getting into forward contract even beyond 2012. Also they are more involved in verification process to ensure CERs are actually delivered. CDM is playing a very important role in attractiveness of clean projects, and hence more serious view taken by project developers will definitely improve the way market functions.

As a market leader, what major challenges do you envision for the growth of Indian carbon market?

India is a very attractive market for carbon projects. Given that renewable energy, energy efficiency are key themes of emissions reduction plans of Govt of India, we see tremendous growth in such projects. This will lead to a much bigger carbon market than what we see today. However to achieve such a scale, we have a few challenges such as post 2012 uncertainties, comparatively small size of CDM projects in India, lack of carbon financing products availability in the market.

There has been a growing spread in the EUA and CER prices. What is the reason behind this?

EUA are fungible into EU-ETS phase III, whereas CERs may have qualitative and quantitative restrictions beyond 2012. EU-ETS may put stricter compliance norms for industries, and hence with a view to carry forward cheaper EUA from EU-ETS phase-II to EU-ETS Phase-III, companies are more keen to buy EUAs. This is the main reason for growing spread.

With a change in focus of CDM to Least Developed Countries, will we see a further pressure on CER prices gradually?

In my own experience I haven’t seen many projects coming up in LDCs. And I don’t see a big supply side push from LDCs in future as well. As LDC CERs would be allowed in the EU-ETS market whereas CERs from emerging economies may face some restrictions. Hence, there could be premium for such projects.

Are there any improvements in the registration and issuance processes?

Since Dec 2010, there has been some improvement in registration and issuance processes from the UNFCCC’s end, however it still takes a very long time. There is an urgent need to remove bottlenecks by implementing practical measures.

Finally, how is EVI poised to tackle the growth in the global carbon markets? What are your further expansion plans?

We started offering CDM services to our clients in late 2004, since then we have extended our service offerings. We now offer sustainability advisory and clean energy services to our clients as well. We started our first international venture in Thailand in the year 2008, since then we have expanded our presence in more than 10 countries, covering South East Asia, Europe, USA.

Our view is that with growing focus on climate change mitigation and sustainability issues, current market will evolve into a more mature and much larger market space. Our focus for next few years will remain on strengthening our existing service offerings and expand our presence to new territories.