Climatic Change (2007) 84:91–110
DOI 10.1007/s10584-007-9271-2
CDM: Is it a ‘win–win’ strategy for rural poverty
alleviation in India?
Smita Sirohi
Received: 21 August 2006 / Accepted: 15 March 2007 / Published online: 30 June 2007
# Springer Science + Business Media B.V. 2007
Abstract India is perceived to be one of the most attractive Non-Annex I countries for CDM
project development. There are more than 350 projects in the CDM pipeline, largely in the
areas of renewable energy, energy efficiency in industries and fossil fuel switching. This
paper examines the socio-economic component of sustainable development commitments of
the CDM projects to see if they can make any impact on rural poverty in India, since the goal
of poverty alleviation lies at the core of the country’s development priorities. The study
concludes that CDM is not contributing to rural poverty alleviation to any notable extent.
Nearly all the projects have a business orientation and are not directed to the development of
rural poor. Even the renewable energy projects will have limited role in up-liftment of the
masses below poverty line due to their weak resource base. For CDM to emerge as a “win–
win” strategy for poverty alleviation projects should be aimed at the rural communities and
designed to accelerate agricultural growth in the rainfed regions of the country.
1 Introduction
The flexible instrument of Clean Development Mechanism (CDM) under the Kyoto Protocol
aims to contribute to the objective of cleaner environment for the world and assist in
sustainable development of the developing countries. The Marrakech Accord does not provide
any standardized guidelines for the sustainable development criterion and leaves it entirely to
the host party’s prerogative to decide whether a CDM project activity contributes to its national
sustainable development goal. Given the emphasis on “sustainable development contribution”
of CDM and allowance for this criterion to vary as per the needs and aspirations of the host
country, the assessment of this instrument from the development perspective becomes an
important issue to address on country specific basis. This paper takes India as the case.
Due to large greenhouse gas (GHG) reduction potential, acceptable investment climate and
strong CDM related organizational apparatus, India is one of the most attractive Non-Annex I
S. Sirohi (*)
Department of Dairy Economics, Statistics & Management, National Dairy Research Institute, Karnal,
Haryana 132001, India
e-mail: [email protected]
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Climatic Change (2007) 84:91–110
countries for CDM project development accounting for the highest proportion (36.6%) of
projects in the CDM pipeline till August 2006 (Fenhann 2006). The National CDM Authority
(NCA), elaborating the national sustainable development priorities of India, emphasises that
“the CDM should be oriented towards improving the quality of life of the very poor from the
environmental standpoint.” It lays out four criterion of sustainable development that should be
considered by CDM project activities in India, viz., social, economic, environmental and
technological well-being. The goal of social well-being has been elaborated as alleviation of
poverty by generating additional employment, removal of social disparities and provision of
basic amenities to people leading to improvement in quality of life of people (GOI 2003).
Concerned by the appalling dimension of poverty in India – with about 274 million people
below poverty line (Sundaram and Tendulkar 2003a), poverty alleviation is the major
development objective of national planning in the country. India aims to reduce the poverty
ratio by 15 percentage points from the current level of nearly 30% to meet the Millennium
Development Goal. Therefore, poverty and equity issues are inextricable from the overall
development strategy in the country. Thus, in prioritising the synergies between CDM projects
and national sustainable development goals, an obvious pragmatic approach is to lay stronger
emphasis on immediate development objectives such as poverty reduction.
In this backdrop, the paper examines the fundamental question whether CDM can emerge
as an important development strategy to dent poverty in India. The study focuses specifically,
on rural poverty, due to higher incidence of rural poverty in India and urban poverty being
largely, a spillover of rural poverty. Drawing from the empirical evidence on the factors,
policies and strategies that have been instrumental in the past in decreasing rural poverty in
India, the sustainable development commitments of the CDM projects, as specified in their
Project Design Document (PDD), are examined for their effectiveness to alleviate poverty.
The first section discusses the status of CDM projects in India to get a broad view of the type
of projects in the CDM portfolio. The second section presents an overview of socio-economic
development commitments of CDM. The third section acquaints the readers with the
dimensions of rural poverty in India and discusses the critical issues in poverty alleviation
initiatives of CDM projects. The last section presents the conclusions of the paper.
2 Status of CDM projects in India1
During the past couple of years, the efforts towards capacity building for CDM intensified
in India. The progress in CDM project development has been particularly spectacular over
the last 1 year. The number of projects in the CDM pipeline increased more than nine fold
from 38 in August 2005 to 364 by August 2006. Of these, the CDM Executive Board (EB)
has registered 82 projects as on 15th August 2006.
2.1 Sectoral composition
The distribution of the number of projects according to project type shows that Renewable
Energy (RE) projects take the lead, particularly those proposing to generate biomass power
through agricultural wastes, including the bagasse-based co-generation projects (Fig. 1).
Hydro, wind, biogas and solar are other forms of renewable energy proposed to be tapped
through CDM, although projects on solar energy are yet to be registered. Among the nonRE technology projects in the CDM pipeline, those aimed at improving the energy
1
The author is grateful to the anonymous referee for providing data support to update this section.
Climatic Change (2007) 84:91–110
93
Fig. 1 Sectoral distribution of CDM projects (as on 15th Aug., 2006)
efficiency in industry, largely through waste heat recovery, comprise 18% of the registered
projects and 28% in pre-registration stage. Five projects pertaining to industrial process in
cement industry, four to fossil fuel switch and two to thermal oxidation of hydrofluorocarbon (HFC-23) are also registered. Several others of similar scope are in the
registration cycle. Some other projects in the area of capturing fugitive emissions,
reforestation, landfill gas, transport and energy efficiency in services are at validation stage.
In terms of generated carbon credits, the RE projects have the second largest share,
despite of being nearly 60% in number. The HFC-23 projects, numbering only four in
CDM pipeline, have maximum share accounting for about one-third of the total Certified
Emission Reductions (CERs) till 2012 (Table 1).
Due to very high global warming potential of HFC-23, the average CER generation from
a HFC-23 project is over 50 times higher than an average renewable energy project.
Overall, a similar trend is discernible in the international CDM market; the bulk of CERs
(46.5%) from the projects in various non-Annex B countries together, will also be generated
from projects on destruction/reduction of HFC-23 and N2O (Fenhann 2006).
3 Scope of CDM for rural poverty alleviation
This section delineates the socio-economic commitments of CDM projects envisaged to be
instrumental for poverty alleviation. The PDD of 65 projects (listed in Appendix)
covering all the types of CDM project activity in India, forms the basis of this discussion.
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Climatic Change (2007) 84:91–110
Table 1 Potential CERs from Indian projects in CDM pipeline
Project type
Renewables
Energy efficiency, industry and cement production
HFC-23
Others
Total
Annual CERs
Cumulative CERs up to 2012
(‘000)
Percent
(‘000)
Percent
9,731
9,014
10,595
1,949
31,288
31.10
28.81
33.86
6.23
100.0
72,446
72,649
78,945
14,988
239,028
30.31
30.39
33.03
6.27
100.00
Source: Fenhann 2006
The rest of the projects that either are registered or in pre-registration stage, have in their
PDD, broadly similar poverty alleviation commitments as discussed here. The claimed
contribution of the projects towards socio-economic sustainability, particularly, for poverty
alleviation, is outlined according to type of project activity.
3.1 Biomass energy
The projects on generation of biomass energy aim to sell electricity primarily through state
electricity grid and/or use it for self-consumption within the premises of the commercial
enterprise (captive power consumption). The grid connected projects emphasize their
contribution to socio-economic development through: (1) generation of additional income
to farmers through sale of crop residues and other biomass, which was otherwise being
under-utilized or burnt due to its negligible commercial value (2) generation of direct
employment in the construction stage of the plant and later for the maintenance of the same
(3) indirect employment generation in collection and transportation of the biomass from
fields to the plant site (4) additional employment generation and infrastructural
development in the project area as a result of setting up of rural industries consequent on
establishment of the power plant in the area (Project number CDM02, 08, 10, 11, 14, 17, 19
and 21 listed in Appendix).
Sugar mills seek CDM support for bagasse based cogeneration to diversify their income
stream and improve their viability. The additional revenue from sale of CERs and exporting
power to the grid would make it easier for the mills to make the timely payments to the
farmers for supplying sugarcane and hence, contribute towards the maintenance of the
livelihood of the farmers (CDM12–13, 22–23). A few other projects, for instance, Rithwik
Biomass Power Project (CDM21) envision providing an assured source of income to the
farmers from their un-irrigated wastelands by promoting “captive farming” of energy
plantations like Prosophis Juliflora on the wasteland of the farmers.
The biomass power projects for captive consumption in factories (CDM03–06, 16, 18 and 20)
contend that their major contribution to the socio-economic development comes from ‘saving the
power at grid that is currently used by them to divert it elsewhere.’ In addition, the projects also
envisage increasing local employment by employing personnel for the operation and maintenance
of equipment or requirement of additional management inputs to handle the biomass well.
3.2 Hydro power
The hydro project activities also claim to result in poverty alleviation through employment
generation, creation of infrastructure and establishment of rural industries due to improved
Climatic Change (2007) 84:91–110
95
power supply in the project area (CDM24–30). During construction, the employment
opportunities for about 200–250 persons amounting to about 60,000 to 120,000 mandays
are to be generated, depending on the size of the project. In addition, permanent
employment for 30–35 persons is to be created for operation of the plant. The construction
of infrastructural facilities in and around project villages, particularly roads is to be
undertaken as part of the project construction. Also, a few projects like Parpikala Mini
Hydel Scheme (CDM30) propose to provide development infrastructure such as, a 25-bed
hospital and school for 150 students, while, Mahatma Gandhi Hydro Power Project
(CDM29) proposes to initiate various measures to enrich the lives of the local people in the
areas of education, health and computerization.
3.3 Wind power
The PDDs of the wind power projects (CDM31–37) make some general statements
regarding compliance of the socio-economic commitments through providing employment
opportunities to people during the operation stage of the projects.
3.4 Biogas
Most of the biogas power projects in the CDM pipeline, aim at collecting methane rich
biogas from wastewater by-product in the factories and utilise the power generated from
methane for fuel substitution in the mill (CDM39–41). The PDDs of these projects mention
about contributing to environmental sustainability but hardly mention their definite
contribution to socio-economic development.
Some of the biogas projects are based on animal wastes. The power generated is either
supplied to the grid (CDM42) or used directly in households (CDM38). In the former, the
component of socio-economic sustainability is same as in case of other grid connected
renewable energy projects while, the small-scale biogas plants catering to the fuel
requirement of rural households contribute to socio-economic welfare of the masses,
specially women by reducing the smoke and cooking time.
3.5 Fossil fuel switching
The project designed for switching of fossil fuel to natural gas or renewable biomass energy
has important bearing on the environmental aspect of sustainability. However, their impact
on the poverty alleviation component is hardly discernible, particularly in case of
substitution from naphtha, diesel or other fossil fuels to natural gas, in the industrial units
(CDM44–45). The anticipated scope of poverty alleviation in switching fossil fuel to
biomass energy (CDM43) is similar to that outlined earlier.
3.6 Energy efficiency in industry and cement production
The sustainable development commitments in both these types of CDM projects also focus
solely on the promotion of environmental well-being. The social and economic benefits of
the projects find no specific mention in the PDD of these projects (CDM46–59). However,
if such project activities lead to accrual of growth promoting external benefits like,
technology transfer, modernization of capital stock and flow of foreign investment to the
industrial sector, they may have a role to play in alleviation of poverty alleviation. In this
paper, a further discussion on this aspect is taken up later.
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Climatic Change (2007) 84:91–110
3.7 HFC-23
As the projects on the destruction of HFC-23 would generate huge revenues from the sale of
CERs, these projects have committed a total fund of Rs.70–100 million (1.4–1.8 million €)
for community development activities such as education, vocational training, integrated
watershed development, sanitation, hygiene and medical facilities which will contribute to
the well-being of the local population (CDM60–61). The projects envisage that “the ‘capital
spend’ on the CDM project will have a multiplier effect on sustainable development of the
area by coming up of ancillary units and service industries dependent on the CDM project”
(CDM61). In addition, there would be increased employment opportunities and income
security to the vulnerable sections of the society.
3.8 Others
Besides the project activities discussed above, a small number of projects in CDM pipeline
pertains to landfill gas, solar energy, and reforestation. The utility of generating power from
landfill is largely confined to the urban population and it hardly has any socio-economic
impact on weaker sections of the rural society (CDM62, 63). The project proposing to tap
solar energy for providing water heating facilities in rural areas (CDM64) does not foresee
quantifiable economic benefits to the rural poor. The reforestation project (CDM65) has
close synergy with poverty alleviation as the economically weaker sections depend heavily
on natural resources from forests for their livelihood.
3.9 Summing up
It emerges from the above discussion that the potential of rural poverty alleviation through
CDM projects lies in one or more of the following four ways:
–
–
–
–
Supplementation of agricultural income
Generation of non-farm employment
Improved availability of energy and other infrastructural facilities
Inflow of investment and technology
The subsequent section examines the effectiveness of each of these to deliver for rural
poverty alleviation in the Indian context.
4 Poverty alleviation initiatives under CDM: Critical issues in Indian context
Poverty is a welfare concept denoting insufficiency of economic resources to meet certain
basic requirements of life. A large segment of the Indian population cannot meet even the
most basic requirements of life, hence, in the Indian context, poverty is defined in terms of a
particular level of consumption expenditure required to meet the essential needs of existence.
4.1 Dimensions of rural poverty
The Planning Commission of India has estimated that in 1999–2000, at the all-India level,
the incidence of rural poverty was 27.1%, that is, 193.2 million people in the rural India
Climatic Change (2007) 84:91–110
97
were unable to incur the monthly per capita expenditure of Rs.327.6 (=US$7.3) for
sustenance. However, these official estimates are subject to intense debate and considered
to be on the low side (Deaton 2003; Sundaram and Tendulkar 2002; Sen 2000). The
alternative estimates of poverty given by independent researchers show about 29 to 30%
incidence of rural poverty in India (Deaton 2003; Sundaram and Tendulkar 2003a).
Together with the high incidence of poverty, the dimensions of its depth and severity are
critical. The consumption levels of poor are 5.8% below the poverty line, thus, implying the
need for massive resources for poverty eradication (Sundaram and Tendulkar 2003b).
The composition of rural poor across economic groups shows that the agricultural labour
households represent most vulnerable segment of rural economy in India (Table 2).
These households form 31% of the total rural population but account for an
overwhelming 48% of the rural poor. The incidence, depth and severity of poverty is also
serious among the non-agricultural labour households. These two categories of households
possess virtually no physical or human capital assets. They subsist based on their
endowments of abundant manual labour, which they supply on non-contractual casual
basis, to agricultural sector, or non-agricultural manufacturing/service activities.
From the advent of economic planning in India, the concern for poverty alleviation
translated into various strategies and programmes. Undoubtedly, over the years, a host of
factors like agricultural growth (Rao 1994), increase in wage rate (Ravallion and Datt
1995), target group oriented poverty alleviation programmes (Rao et al. 1988) etc., have
lead to substantial decline in rural poverty in the country. Based on the empirical evidence
regarding rural poverty alleviation in India, the scope of CDM projects for decreasing rural
poverty is critically analysed.
4.2 Agricultural income and rural poverty
In a predominantly agrarian rural community like India, the level and growth of agricultural
production per capita of rural population is an important variable determining levels of
welfare. The empirical studies analysing the association between agricultural growth and
rural poverty confirm that the latter is inversely related to agriculture income per head
(Ahluwalia 1986; Misra and Hazell 1996). At the macro level, this inverse relationship
points towards existence of a “trickle-down” mechanism of growth. However, rather than
Table 2 Dimensions of rural poverty across economic categories of households: (1999–2000)
Means of livelihood
Self-employed in agriculture
Self-employed in Nonagriculture
Agricultural labour
Other labour
Others
Percentage share in
HCR
(%)
PGI
SPG
Total rural population
Rural poor population
37.78
13.84
28.25
11.53
21.62
24.09
0.03807
0.04533
0.01030
0.01270
31.10
7.40
9.87
48.01
7.12
5.09
44.64
27.79
14.93
0.09680
0.05696
0.02922
0.03045
0.01705
0.00936
HCR Head Count Ratio indicates incidence of poverty; PGI Poverty Gap Index indicates depth of poverty;
SPG Squared Poverty Gap indicator of severity of poverty
Source: Sundaram and Tendulkar 2003b
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Climatic Change (2007) 84:91–110
its mere existence, the working of trickle-down mechanism is essential, to be able to
achieve any notable reduction in poverty. Hence, as long the increase in income for the
agricultural sector was moderate till 1977–1978; it had not shown much impact on rural
poverty. Once the rate of increase in the income from agriculture almost doubled during
1978/1979–1990/1991, the rural poverty decreased substantially (Misra and Hazell 1996).
The potential of CDM projects to bring about any observable reduction in rural poverty
through supplementation of agricultural income is doubtful on several grounds.
4.2.1 Limited scope
The scope of increase in agricultural income is limited only to the projects on biomass
energy generation. The CDM projects neither involve any technology transfer to
agricultural nor focus on activities that can bring about increase in agricultural productivity
and increase income from primary sector. The projects have not been designed to directly
benefit the agriculture sector, which is the very backbone of rural economy in India.
Therefore, the overall potential to increase agricultural income via the CDM route is
limited.
However, it is pertinent to mention here that the bagasse cogeneration CDM projects in
sugar mills have a definite potential to stabilise the income of the cane growers by
improving the economic viability of the sugar mills. The sugar industry in India is beset
with a plethora of problems such as uneconomic scale of sugar mill capacity, levy
obligations on domestic producers etc., which place financial constraints on the mills
thereby delaying the payment to farmers for the supply of cane. The progress on generation
of power from bagasse is rather slow. Against the potential of 3500 MW power which can
be generated through Bagasse Based Power Projects, only 412 MW of power has been
harnessed and another 343 MW capacity is under various stages of implementation (Lok
Sabha Secretariat 2004). The sale of power generated through bagasse and sale of CERs
from such a CDM project activity can yield handsome dividend and improve profitability of
sugar industry.
4.2.2 No benefits to landless households
Consequent upon setting up of the biomass power plants, the landless households do not
gain from the increased income due to the sale of crop residues, energy plantations on
wastelands or improvement in financial viability of sugar mills. These households are
predominantly agricultural labourers, and as pointed out earlier, are most susceptible to
rural poverty. The benefits of increased income of cultivator households can be transmitted
to agricultural labourers by way of increase in agricultural wage rate provided there is
increase in labour productivity. However, without an accompanying technical progress in
agriculture, the labour productivity is unlikely to rise significantly.
4.3 Non-farm employment and rural poverty
The multiple linkages between the farm and non-farm sector render equal importance to
growth of both the sectors for rural poverty alleviation in agrarian economies. Examining
the determinants of rural poverty in India, Sen (1996) found significant positive effect of
increasing non-agricultural employment on poverty alleviation, based on data from 1960 to
1992.
Climatic Change (2007) 84:91–110
99
The CDM projects propose to create employment in two ways: (1) by providing wage
employment in construction and operation of the project activities and (2) through
stimulating rural non-farm employment as a response to growth opportunities created by the
project, particularly for self-employed non-agricultural activity.
4.3.1 Wage employment
Wage employment programmes, particularly for construction of rural roads, digging of
wells, for soil conservation etc. have been an integral part of poverty alleviation strategy in
India. However, there is no parallel between the wage employment in construction under a
CDM project and the employment generation schemes undertaken by Government for
poverty alleviation. The Government programmes target the areas where unemployment
and underemployment exists. For instance, the Employment Assurance Scheme is
implemented in identified backward blocks situated in drought, desert, tribal, hill and
flood-prone areas. The Working Group on Poverty Alleviation has explicitly stated “... wage
employment programmes are not needed in all the regions. There is a need to focus these
programmes in limited areas. Programmes focusing on wage employment should cover only
the backward and poor districts where there is demand as well as supply of labour” (GOI
2001). This implies that for wage employment to be effective for poverty alleviation,
targeting of poverty stricken areas and groups is vital.
Due to a number of economic and administrative reasons, geographically, CDM project
activities are concentrated in the states of Karnataka, Andhra Pradesh and Tamil Nadu in
southern India; Rajasthan, Gujarat and Maharashtra in the west and the northern state of
Punjab (Table 3). The incidence of rural poverty in these states is less than the all-India
average, ranging from nearly 6 to 24% (Table 3).
The magnitude of poverty is higher than the national level in the eastern parts of the
country (Bihar, Orissa, West Bengal, Assam), state of Uttar Pradesh in northern India and
Madhya Pradesh in central India. The share of these worse-off states from eastern, northern
and central India in the CDM projects is relatively low. Hence, from the macro perspective,
wage employment generated in CDM projects will not conform to the socio-economic
development criterion of poverty alleviation to a discernible extent.
Even in the areas where CDM activities are coming up, it would not be surprising that
the employment growth in operation of CDM projects may totally by-pass the rural poor.
The wage employment programmes have a long-run impact on poverty if the assets created
are of the types that have a potential for sustained increase in employment over a period.
Most of the poor in rural areas are either landless or have limited access to land. In addition,
they are not in possession of adequate skills and knowledge to be absorbed in the more
advanced/technical/skill based jobs. Therefore, they may not gain economically on a
sustained basis. Several projects claim in their PDD that the project will generate
employment for the weaker sections of society. However, there is no built-in monitoring
mechanism in the CDM projects to ensure that only poor or very poor persons are getting
long-term jobs.
4.3.2 Self-employment
The linkage between poverty and non-farm employment within the CDM project boundary
may be weak, however, there exists a potential of multiplier effect on new job opportunities
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Climatic Change (2007) 84:91–110
Table 3 Spatial distribution of CDM projects and rural poverty in India
Geographical regions/States
Percentage of CDM Projectsa
Northern
Haryana
Himachal Pradesh
Jammu & Kashmir
Punjab
Uttar Pradesh
Uttranchal
Central
Chattisgarh
MP
Eastern
Assam
Bihar
Jharkhand
Orissa
West Bengal
Western
Gujarat
Maharashtra
Rajasthan
Southern
Andhra Pradesh
Karnataka
Kerela
Tamil Nadu
20.9
–
5.5
–
6.7
6.3
2.4
5.5
3.9
1.6
6.0
0.4
0.8
0.8
2.4
1.6
29.5
8.3
10.2
11.0
38.1
11.8
16.5
–
9.8
a
Incidence of rural poverty: 1999–00 (%)
8.27
7.94
3.97
6.35
31.22b
n.a.
n.a.
37.06b
40.04
44.30b
n.a.
48.01
31.85
13.17
23.72
13.74
11.05
17.38
9.38
20.55
Based on 260 CDM projects
b
Including states of Uttranchal, Chattisgarh and Jharkhnad that were carved out of U.P., M.P. and Bihar,
respectively after 1999–00.
Source: (1) http://www.cdm.unfccc.int (2) http://www.planningcommission.nic.in
on a continuing basis outside the CDM project boundary, particularly with regard to
projects on renewable energy. For instance, in India, the employment potential from
generation of 100,000 MW of biomass power is reported to be 30 million persons annually
(GOI 2002).
The non-farm sector does not consist of a homogenous set of activities in terms of
income and productivity levels. Hence, the efficacy of non-farm employment in rural
poverty alleviation depends upon the ability of non-farm sector to absorb rural poor in high
productivity income opportunities rather than low productivity residual activities. The selfemployed non-agricultural activities, an important component of the non-farm sector, are
crucial in strengthening the base of rural livelihoods. However, the empirical evidence
suggests that the households that benefit from non-farm employment are not necessarily the
ones that benefit from non-farm income (Saleth 1996). The households with negligible
asset base benefit from non-farm employment, but economically better off groups with
better education benefit from high non-farm income. This is because economically better
groups choose non-farm activity with higher income and social status, while poor groups
have no such option.
Climatic Change (2007) 84:91–110
101
4.3.3 Rural industrialisation
Another source of non-farm employment envisaged to develop from CDM project activities
is rural industrialization. This again, may not be a very effective linkage in meeting the
poverty goals, as the availability of a power in its vicinity is not the sole guiding factor for
setting up of rural industry in a region. Further, due to inherent handicaps from which rural
industries suffer, the existing link between rural industrialization and incidence of poverty is
weak though negative (Mathur and Chattopadhyay 1997). Therefore, unless the appropriate
measures are taken to improve the productivity of rural industries, the role that they play in
providing gainful activity to a large chunk of rural population is likely to suffer big setback
in the coming times.
4.3.4 Operation of pull factor
It emerges from the above discussion that various non-farm activities for poverty alleviation
that find a mention in the CDM PDDs, have their limitations to deliver on the poverty front.
The economic literature on poverty alleviation in India focuses on another channel by
which non-farm employment can make an impact on rural poverty. The growth of demand
driven non-agricultural employment involves a “pull factor” which tightens the labour
market and increases the real wages in agriculture. In fact, some studies contend that the
diversification of the workforce into the non-agricultural sector, rather than growth in
labour productivity, was the prime mover of rise in agricultural wages (Bhalla 1993;
Mukherjee 1996). The strength of the “pull factor” depends upon the relative demand of
workforce in non-farm sector and the supply of agricultural workforce to this sector. At this
stage, it would be too conjectural to comment on the operation of this pull factor in CDM
project areas, but in the years to come, it would be of interest to see whether real
agricultural wages move upward because of CDM project activity.
4.4 Infrastructural development and rural poverty
The role of infrastructure in acceleration of economic growth and enhancing public welfare
is more pronounced in developing economies, as the indivisibility in the supply of
infrastructure is one of the main obstacles in the development path of these economies. The
empirical studies substantiate the importance of infrastructure in rural development and
poverty alleviation in India. From the diverse experience of Indian states, Datt and
Ravallion (1996) concluded that human and physical infrastructure have important role to
play in poverty alleviation. The states with good initial conditions in physical and human
infrastructure, performed better in alleviating rural poverty.
The investment pressure from infrastructure being a major source of investment demand,
to maintain the tempo of growth in the Indian economy, the productive or input-type
infrastructure – power, transport and telecommunication will have to expand at the rate at
least corresponding to the growth rate of the economy (Morris 2001). In this context, the
provision of any infrastructure under the CDM would be growth oriented.
Energy infrastructure will get major boost through CDM projects. The importance of
energy in socio-economic development has been explicitly stated in the Millennium
Development Goals: “To implement the goal accepted by the international community to
halve the proportion of people living on less than US $1 per day by 2015, access to
affordable energy services is a prerequisite.” The impact of increased power generation
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Climatic Change (2007) 84:91–110
from renewable energy sources may not be very effective in improving the access of rural
poor to ‘cleaner’ energy and poverty alleviation due to the following reasons.
4.4.1 Limited physical access
The scenario of rural household electrification is quite grim in India, as 57% of the rural
households do not have electricity connection (MoP 2006). Thus, unless development
expenditure is incurred for providing connectivity to electric power, the better-off
households in urban and rural areas will reap the benefits of increase in supply of power
to the electricity grid through RE CDM projects. Even the small-scale projects like, “100
village biomass gasifier based power plants totalling 5.15 MW for Decentralised Energy
Systems India Pvt Ltd.” (CDM01), which aim to directly target power production for the
villages, may not be able to promote equitable socio-economic development. The project
activity is proposed in the state of Bihar where about 95% of the rural households do not
have electricity connection. Hence, the state development efforts and private initiatives,
such as under CDM, should go hand in hand for realising the gains from increased energy
supply.
Besides enhancing the electric power supply, CDM projects for generation of biogas in
rural areas have also been proposed. The contribution that biogas energy can make towards
alleviating the drudgery of womenfolk in cooking and reducing the health hazards from
smoke is beyond contest. Albeit, the poor accessibility of biogas to rural poor is once again
a limiting factor for its effective impact on welfare of economically weaker sections.
Consider the example of Bagepalli CDM Biogas Programme proposed in Kolar district of
Karnataka state (CDM38). The project activity is to set up 5,500 biogas digesters of 2 m3
for each household. The cost of construction is to be met by the project proponents, but for
the success of biogas unit, constant flow of gas can be maintained only if the digester is fed
regularly with cow dung and maintained regularly. Hence, the project has been proposed for
households owning on an average four cows per household. The average number of
bovines (cows and buffaloes) per rural household in Kolar district was only 1.5 in 2003.
Further, the empirical evidence widely supports that the average ownership of animals per
household declines with the size of land-holding. In Karnataka, the average number of
animals owned per 100 nearly landless rural households, marginal and small farmers is
about 47, 78 and 122, respectively (NSSO 2006). Thus, it is fairly evident that these biogas
plants under CDM remain outside the reach of rural poor.
4.4.2 Affordability of electric energy
Increase in supply of energy is essential for improved physical access. Yet, its real access
depends upon the purchasing power of the household, the cost of energy, access to and cost
of energy using end-use equipment.
The Purchase Power Agreement between the proponents of CDM renewable energy
projects (CDM15) and the State Electricity Authority at the rate of over Rs.2.80/kwh (with
provision of some cost escalation over the years) implies high cost of electric energy. In
addition, the cost of the energy end use equipment also influences choice of energy carrier
used by the household (Reddy 2003). Hence, unless the price of electricity comes down and
provisions of collateral benefits go hand in hand with energy availability, rural poor will not
be able to switch from inefficient fuels to more efficient electric energy. This will impinge
upon the contribution of increased energy supply to poverty alleviation.
Climatic Change (2007) 84:91–110
103
4.4.3 Low rural poverty elasticity of power expenditure
In a broader perspective, the welfare impact of energy is not confined within the four-walls
of households. The effect of improved electrification on poverty arises from its stimulus to
agricultural growth (primarily through improved irrigation) and non-agricultural employment opportunities. In the studies on infrastructure development and poverty, rural
electrification emerged as an important infrastructure in dealing with poverty problems
(NCAER 1977; Gulati 1977; Rao et al. 1986; Barnes and Binswanger 1986). However, in a
more recent study by Fan et al. (1999), taking into account direct and indirect interactions
between the government expenditure on infrastructure and poverty alleviation, the rural
poverty elasticity with respect to Government expenditure on power was found to be low.
The study estimated that for per million of rupees spent on power (at 1993 prices) the
number of poor reduced by only 2.9. The small and insignificant impact on rural poverty of
the government investment in power has been attributed to heavy investments that have
already been made in rural electrification leading to low marginal returns from additional
investment. The largest impact on poverty reduction was that of road, followed by
infrastructure for agricultural research and extension and rural education. In India, large
multiplier effect of the surfaced road length on rural development has also been found in
other studies (Majumdar 2002). Hence, the development of infrastructural facilities other
than energy in the CDM project area is equally important to have effect on rural poverty.
4.5 Foreign direct investment (FDI), technology transfer and rural poverty
The transmission mechanism between FDI and poverty alleviation essentially works
through the stimulus provided by FDI to economic growth. FDI is widely thought to bring
into the host country a bundle of productive assets, including technology, long-term foreign
capital, entrepreneurship, skills, innovative capacity and managerial, organizational and
export oriented marketing know-how. This leads to higher economic growth (Romer 1986;
Lucas 1988) which may not be a sufficient condition for poverty alleviation but indeed a
potent tool of poverty reduction in developing countries.
Some scholars consider CDM as nothing but a form of FDI (Di Giulio et al. 2003). They
maintain that the present FDI trend is quite far from an environmental protection target and
therefore, a substantial readjustment of FDI would be necessary for coherence with
potential targets of CDM. However, there are others who argue that FDI flows do not
necessarily reflect CDM market potential (Niederberger and Saner 2005). In the Indian
context particularly, this argument has weight as its inward FDI is low and non-equity FDI
mainly flows to telecom, information technology and business services, which do not have
substantial CDM potential. This point is further substantiated by the fact that CDM projects
in India are coming up in the area of renewables, energy efficiency in industry, cement
industrial process and fuel switching, where traditionally, FDI inflows have been either
negligible or in very small proportion of the total inflows. This however, does not imply
that the investments made in India by the developed countries via CDM route are free from
the benefits and drawbacks of FDI.
4.5.1 Limited technology transfer
The greatest contribution of FDI to economic growth and therefore, poverty reduction
occurs through technology transfer. The technology transfer component for the projects in
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Climatic Change (2007) 84:91–110
CDM pipeline in India is limited to the technology for thermal oxidation of HFC-23 and in
a few thermal efficiency projects in industry. The CDM projects on renewable energy are
using locally available technology. Several of proposed projects in energy efficiency and
industrial process also, are not based on any advanced technology from developed
countries. Therefore, at least, as per the current status of CDM projects in India the
possibility of substantial benefits accruing from technology transfer and its spill-over to
other firms outside the CDM coverage seems extremely limited. Nevertheless, the positive
contribution of CDM in industrial sector lies in improving the energy efficiency of the
firms, thereby decreasing the cost of production. However, this would have significance for
reduction in rural poverty only if the benefits of decrease in cost of production can be
transmitted to the products in the consumption basket of the rural poor.
4.5.2 Financial risk
Annex I countries can invest in CDM projects, in return for CERs, in four basic forms:
(1) finance all or part of project activity; (2) financially contribute towards the incremental
cost of the project over and above the baseline technology, or finances the removal of
market barriers; (3) provide loan or lease financing at concessional rates or (4) agree to buy
CERs as they are produced by the project (Pembina 2003). The mode of investment in the
CDM project has implications for the nature of risk faced by the participants in the
mechanism. Currently, for most of the Indian projects in CDM pipeline, no credit buyer is
specified, but the crediting and issuance of CERs has started. Therefore, it is most likely
that the generated CERs will be sold through the fourth option viz. certified emissions
reduction purchase agreement (CERPA). This option pushes the burden of risk almost
entirely on the host country. In case of non-delivery of CERs the penalty provisions may be
quite stringent. This, together with other clauses in the agreement, may erode the financial
benefit that the project hopes to achieve (Deodhar et al. 2003).
The host country also has high financial stake in getting the CDM finances through loan.
If CER value is less than expected the debt servicing may have to be supplemented with
foreign exchange which places strains on national reserves (Loong and Pearson 2002).
From the financial aspect, the first option of full or partial equity option is less risky as it
does transfer some risk to the investor. However, it suffers from a full range of potential
FDI drawbacks such as, hidden costs, balance of payment problems, etc. (Wells 1993).
Thus, the inherent nature of risk in generating CDM revenues will have adverse effect on
the sustainable development commitments.
5 Conclusions
It emerges from the discussion that the socio-economic development potential of CDM
projects is ambiguous for rural poverty alleviation in India. The benefits of the projects
focussing on improving energy efficiency in industries, fossil fuel switching in industrial
units and destruction of HFC-23 would remain largely “firm-specific” and are unlikely to
have an impact on rural poverty. The social development objective is not at the heart of
formulation of these projects. Even their PDD offer just lip service regarding expected
contribution to socio-economic development of the masses, particularly in rural areas.
Among the various types of projects, the ones pertaining to renewable energy are looked
upon as having the high potential for sustainable development of developing countries
(Begg et al. 2000; Troni et al. 2002). The renewable energy has the dominant share in CDM
Climatic Change (2007) 84:91–110
105
project portfolio in terms of number of projects in India. However, the benefits that these
projects provide, in the form of supplementary income from farm and non-farm activities
and increased physical access to energy resources, may not be adequately reaped by those
languishing below poverty line. The profile of rural poor in the country indicates that the
bulk of them are landless or marginal and small farmers with poor asset base and skills. On
one hand, this limits their participation in economic activities accruing from renewable
energy projects like, supply of raw material for biomass energy, wage employment in
maintenance of power plants or in other skill-based ancillary units and high income
generating self-employed non-agricultural activities. On the other hand, their poor
purchasing power would not improve their access to grid connected electric power.
Therefore, even the CDM projects on renewable energy may, at the best, reduce the poverty
gap to some extent in the project area or the provision of short-term wage employment in
the project activities may ameliorate “seasonal” and “borderline” cases of poverty but, the
more persistent chronic poverty would remain. This is because the chronic poverty is rooted
in structural, institutional and long-term factors, such as, the distribution of land holdings,
the productivity of land, the quality of labour force etc., which are beyond the development
focus of CDM projects.
The renewable energy projects may not be able to make any observable decline in
incidence of poverty at the sub-national or national level but they have immense importance
in fostering development of energy resources in India. Since renewable energy technologies
are the fastest growing energy industries in the world today, a renewable CDM would
ensure that developing countries are part of that transition. In India, massive efforts on the
part of Ministry of Non-Conventional Energy Resources are underway to meet the
mounting gap between demand and supply of power through renewable energy
technologies. Nevertheless, despite the efforts of the Ministry, the Government of India is
sceptical that “...under the business-as-usual scenario the contribution of renewable energy
is expected to be quite modest” (GOI 2002). The opportunity provided by CDM would
thus provide a stimulus to much desired private sector investment in renewable energy,
lighten the burden on Government exchequer for energy development and infuse efficiency
by minimizing wasteful investment on unsustainable energy technologies.
Nonetheless, before the mechanism could be instrumental in ensuring “take off” of
renewable energy technologies in India, there may be a possible decline in share of
renewable energy projects in the CDM. The Prototype Carbon Fund (PCF) expects
substantial improvement in the internal rate of return for some biomass energy projects
(Sugiyama et al. 2005). In case of improvement in financial viability of biomass energy
projects in India without the CDM investment, the additionality of the projects, and
consequently their registration, may become doubtful. In addition, the size of the
international CDM market may act as a constraint on further growth of CDM projects for
renewables. Point Carbon has forecast that there will be an excess supply of emission quota
for the first commitment period in Kyoto Protocol if Parties with excess quota sell their
emissions in the market However, there will be a shortage of 3.5 billion tons if Russia and
Ukraine do not sell their surplus quota (Sugiyama et al. 2005). Even in latter case, to meet
the large part of the demand the share of large-scale end-of-pipe industrial projects would
be growing fast as the CER generating potential of renewable energy projects on per project
basis is very small compared to the projects like destruction of HFC-23 and reduction of
N2O. This would mean a setback to the renewable energy development in the country.
In India also, these projects, characterized as, low – hanging fruits, account for bulk of
the CER to be generated. The sustainable development commitments of these projects are
by way of providing part of their earnings from CER sale for development of the project
106
Climatic Change (2007) 84:91–110
area. These commitments should be monitored in line with the monitoring of CER
generation from the projects to ensure that the focus on emission reductions does not deprioritise local sustainable development concerns, else these projects just generate lots of
tons of carbon credits, with little local benefits.
For CDM to emerge as a “win–win” strategy for rural poverty alleviation in India, three
aspects need to be considered. The National CDM Authority should require the Project
Developers to provide a clearer exposition of social sustainability and development input of
their projects. The renewable energy projects that come up with a more definite contribution
to sustainable development have an opportunity for additional reward in the form of Gold
Standard validation of the projects.
The second aspect is promoting regionally balanced growth of CDM. In the absence of
private CDM initiatives in the regions with high incidence of poverty, the public sector
entities should come forward with CDM projects in these areas, especially those pertaining
to renewable energy and agriculture sector. Last but not the least, the projects should be
designed to accelerate growth of agriculture and allied activities, particularly in the rainfed
regions of the country. Promoting agricultural growth in backward dryland areas is indeed
very important component of rural poverty alleviation strategy in India (Bhalla and Hazell
2003). Towards this end, the proposal of reforestation CDM projects in dryland area of
Kolar (CDM65) is a good beginning in this direction. In addition, formulation of the CDM
projects in the primary sector, such as those aimed at reducing methane emissions from
enteric fermentation in farm animals and paddy fields and mitigating nitrous oxide
emissions from soil can serve the dual purpose of generating CERs for developed countries
and higher income for rural poor in India. These are considered difficult areas for
monitoring and verification, particularly, because of small and scattered nature of land and
livestock holding in India. However, the small size of project entities should not a deterring
factor. In fact, several small scale projects in the CDM pipeline in which project activity is
targeted at micro level (CDM01, 07, 09, 38 and 64) provide the cue for designing
monitoring and verification methodology for small-sized land and animal holdings. The
challenge to the project developers and researchers, therefore, lies in harnessing the
untapped CDM potential of primary sector and effectively directing CDM towards
fulfillment of sustainable socio-economic development targets of India.
Appendix
Table 4 List of referred Clean Development Mechanism (CDM) Projects in India
Project Id. no. Title of the project
Biomass energy
CDM01
100 village biomass gasifier based power plants totalling 5.15 MW for Decentralised Energy
Systems India Pvt Ltd. (DESI Power).
CDM02
18 MW biomass power project in Tamilnadu, India (NM25)
CDM03
2.25 MW Rice Husk based cogeneration plant at Siddeshwari Industries Pvt Ltd
CDM04
24 MW biomass (rice husk) at Gujarat Ambuja Cements Ltd in Ropar Punjap
CDM05
3.5 MW Rice Husk based Cogeneration Project at Nahar Spinning Mills Ltd. (Punjap)
CDM06
3.5 MW Rice Husk based Cogeneration Project at Oswal Woolen Mills Ltd
CDM07
5 Biomass gasifier based power plants totalling around 2 MW
Climatic Change (2007) 84:91–110
107
Table 4 (continued)
Project Id. no. Title of the project
CDM08
CDM09
CDM10
CDM11
CDM12
CDM13
CDM14
CDM15
CDM16
CDM17
CDM18
CDM19
CDM20
CDM21
CDM22
CDM23
Hydro Power
CDM24
CDM25
CDM26
CDM27
CDM28
CDM29
CDM30
Wind Energy
CDM31
CDM32
CDM33
CDM34
CDM35
CDM36
CDM37
Biogas
CDM38
CDM39
8 MW biomass based power project at Hassan
9 biomass gasifier based power plants totalling 2.25 MW
Agrawal RE Project (8.5 MW)
APCL proposed 7.5 MW mustard crop residue base power project
Bagasse based Cogeneration Power Project at Khatauli
Biomass based Cogeneration Power Project in Uttar Pradesh
Biomass Power Project at Kalpataru Energy Venture Private Limited, Bayana Tahsil,
Bharatpur District, Rajasthan
Clarion 12 MW (Gross) Renewable Sources Biomass Power Project
DSL Biomass based Power Project at Pagara
Electricity generation from mustard crop residues: Tonk
JCT (5,5 MW) Phagwara Small Scale Biomass Project
R K Powergen 20 MW Grid Connected Renewable Biomass Power Project
Rice Husk based Cogeneration project at Shree Bhawani Paper Mills Limited (SBPML),
Rae Bareli, Uttar Pradesh
Rithwik 6 MW Renewable Source Biomass Power Project
Shree Renuka Sugars (SRS) Bagasse Cogeneration
Sri Chamundeswari 24 MW Bagasse Based Cogeneration Power Project
10.25 MW Chunchi Doddi SHP in Karnataka
20 MW Kabini Hydro Electric Power Project, SKPCL
4.5 MW Maujhi Grid-connected SHP in Himachal Pradesh, India
5 MW Dehar Grid-connected SHP in Himachal Pradesh
6 MW Somanamaradi grid-connected SHP in Karnataka
Mahatma Gandhi Hydro Electric Tail Race Hydro Power Project of APPL, India
Parpikala (3*3 MW) Mini Hydel Scheme
12.3 MW wind energy project in Tamil nadu, India
15 MW Grid Connected Wind Energy Project, Sankaneri Village
Bundled wind power project in Chitradurga (Karnataka in India) managed by Enercon
(India) Ltd. (16,8 MW)
Bundled Wind power project in Jaisalmer, Rajasthan (58,2 MW)
Generation of electricity from 1.2 MW capacity wind mills by Sun-n-Sand Hotels Pvt.
Ltd at Satara, Maharashtra
Nagda Hills (6,25 MW) Wind Energy Project
Wind electricity generation in Tamil Nadu (15 MW)
Bagepalli CDM Biogas Programme (5500 units of 2 m3)
Forced methane extraction from organic wastewater treatment plant for generation of
electricity
CDM40
Methane Capture and use as fuel at Rajaram Maize Products, Chattisgarh
CDM41
Methane Extraction and Fuel Conservation Project at Tamil Nadu Newsprint and Papers
Limited (TNPL), Kagithapuram, Karur District
CDM42
Raja Bhaskar Power Generation Ltd. 7.5 MW poultry litter based power generation.
Fossil fuel switch
CDM43
Boiler fuel switchover from Residual Fuel oil to Briquettes
CDM44
Switching of fossil fuel from HSD to Natural gas in a 5 MW gas turbine at Samtel Color Ltd
at Ghaziabad, Uttar Pradesh
Energy Efficiency, industry
CDM45
Switching of fuel from naphtha to natural gas at Essar Power Limited’s 515 MW power plant
in Hazira, Gujarat
108
Climatic Change (2007) 84:91–110
Table 4 (continued)
Project Id. no. Title of the project
CDM46
CDM47
CDM48
CDM49
CDM50
CDM51
CDM52
CDM53
CDM54
CDM55
CDM56
CDM57
Cement
CDM58
CDM59
HFC-23
CDM60
CDM61
Landfill gas
CDM62
CDM63
Solar
CDM64
Reforestation
CDM65
Blended cement with increased blend at Orient cement’s Devapur and Jalgaon plants
Energy Efficiency Improvement in Electric Arc Furnace at Indian Seamless Metal Tube
Limited (ISMT), Jejuri, Maharashtra
Energy efficiency project – Tata Motors Ltd.
Energy efficiency through installation of modified CO2 removal system in Ammonia Plant
Flare gas recovery project at Hazira Gas Processing Complex (HGPC), Hazira plant, Oil
and Natural Gas Corporation (ONGC) Limited
Fuel substitution project at Usha Martin,Jamshedpur
Gas flaring reduction project at Neelam and Heera (NH) Asset, Oil and Natural Gas
Corporation (ONGC)
India Cement WHR System
Optimal Utilization of Clinker in PPC manufacturing at Vasavadatta Cement
OSIL (10 MW) waste heat recovery captive power project
Shri Bajrang WHR CDM Project
Thermal efficiency improvement initiatives in coal fired boiler system
Usha Martin Limited – Waste Heat Recovery Based Captive Power Project activity
Waste Heat Recovery Based Captive Power Project
GHG emission reduction by thermal oxidation of HFC-23 at refrigerant (HCFC-22)
manufacturing facility of SRF Ltd
GHG emission reduction by thermal oxidation of HFC-23 in Gujarat
Methane Avoidance by Municipal Solid Waste Processing in the city of Chandigarh, India
Shriram 6 MW Municipal Solid Waste Management cum Energy Generation Project,
Vijayawada
Bagepalli CDM Solar Hot Water Heating Programme
Bagepalli CDM Reforestation Programme
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