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Carbon Crunching
By Sudhirendar Sharma

The World Bank has signed an agreement with the state government of Himachal Pradesh for the largest carbon revenue project. However, the conditions of the agreement indicate that instead of putting the carbon revenue mechanism to the competitive advantage of the stakeholders, such projects continue to serve the interest of the clients.


World Bank’s Hubert Nove Josserand and Himachal Pradesh’s
Additional Chief Secretary Sudripto Roy exchanging Emission
Reductin Purchase Agreement Document in presence of
state Chief Minister Dhumal

Tucked up in the middle Himalayas, farmers in the mountainous state of Himachal Pradesh will crunch atmospheric carbon to help rid the Spaniards of their climate woes. In the next two decades, 839,582 tons of carbon dioxide equivalents are likely to be sequestered in over 4,000 hectares of variedly degraded agriculture and forest land in the state. For this act of benevolence, each family in 177 village panchayats will earn between Rs 4,000 to Rs 7,000 per hectare per year, helping the counterparts in Spain pocket elusive carbon credits to sustain their lifestyles.

As a sub-component of the World Bank supported Rs 360 Crore Mid-Himalayan Watershed Development Project, the creation of carbon sinks through afforestation is likely to accrue a net gain of Rs 20 Crore to the communities over next 20 years. It is expected that fiscal incentive would trigger a renewed interest in protecting the afforested lands. However, with little concern about where the money comes from, landowner interest might be restricted to the shower of, what is touted as, ‘green currency’ from plantation on his small piece of land.

The transfer of funds between the host country and the client, DNA of Spain, is being brokered by the World Bank, which is a trustee of the BioCarbon Fund. Operative since May 2004, the BioCarbon Fund is a public/private initiative administered by the World Bank that aims to deliver cost-effective emission reductions, while promoting biodiversity conservation and poverty alleviation. According to a World Bank official, the project is helping farmers to act like a producer company – selling carbon credits to potential clients.

Since the project is first of its kind in the mountains, it has been argued that not only will the project generate environmental benefits through carbon sequestration but will improve revenue-generating capacity of small farmers as well. Through restoration of highly vulnerable degraded lands in the districts of Kangra and Bilaspur, silviculture activities are expected to generate 343 person days of employment from each hectare of land as well. No wonder, on the face of it the project seems a win-win strategy for both the government and the communities.

Calculated at a modest Rs 240 per ton of sequestered carbon dioxide, a ton of carbon dioxide converted into biomass under new plantations is counted as one credit. The carbon credits from such projects are sold as Certified Emissions Reductions.

Conditions Apply

It is being hyped as one of the largest carbon revenue project of its kind, having surpassed the 3,500 hectares Clean Development Mechanism project in China. The recent agreement between the Government of Himachal Pradesh and the World Bank, in force till December 2018, ensures that the carbon revenue will go to the village community, providing them the necessary incentive to protect watershed and forests. However, ten percent of the total carbon revenue will accrue to the Forest Department as overhead charges.

Overtly the revenue sharing arrangement may seem ordinary transaction, in reality computing carbon sequestered both in tree biomass above and the soil below is immensely complicated. Calculated at a modest $5 (approx Rs 240) per ton of sequestered carbon dioxide, a ton of carbon dioxide converted into biomass under new plantations is counted as one credit. The carbon credits from such projects are sold as Certified Emissions Reductions (CER). For selling the CERs, the villagers get the ‘cash’ whereas the elusive ‘credit’ rests with the buyer.

Under the provisions of the project, conditions have been stipulated before the actual carbon revenue starts to flow. The landowners need to ensure that the tree density is no less than 1,100 plants per hectare; that no felling of trees from the land under the project shall be permitted; and that no part of the land brought under such plantations shall be diverted for any non-forestry purposes. Given the diversity of land ownership, the net gain at the household level is likely to be truncated on account of differential carbon revenue sharing.

Only from the private land will the beneficiary be able to draw 90 per cent of the carbon revenue, from village common land and forest land the prime recipient would be the village panchayat which will distribute the revenue in accordance with the rights and obligations of the relevant user groups. The coverage of private land is limited to 533 hectares; in contrast the forest land being covered under the project is as high as 3,177 hectares. The share of common land has been kept at a modest 293 hectares.

Farmers are expectedly awaiting the validity of the project by the UN Framework Convention on Climate Change (UNFCCC) when the institutional mechanism set up by the government for smooth transfer of carbon revenue at the local level would be put to test.

Although CDM projects are in the early stages of their evolution, criticism nonetheless has started piling against them in most countries. While the CDM has created the largest carbon offset market, the CER have seemingly remained underpriced.

Unclear Mechanism

Promising though it may sound, the flipside of the story is that the so-called Clean Development Mechanism, a central part of the Kyoto Protocol, has yet to come clear on its intended objectives. Does the mechanism not provide developed countries with a cheap alternative to reducing their own greenhouse gas emissions? It is further argued that such projects promote cost-effective carbon reductions through ‘offsetting’ projects located in developing countries while simultaneously allowing developed countries to continue business-as-usual.

Although CDM projects are in the early stages of their evolution, criticism nonetheless has started piling against them in most countries. Not without reason as several projects have only secondary objective of promoting sustainable development in host countries. While the CDM has created the largest carbon offset market, the CER have seemingly remained underpriced. Earning a meagre Rs 7,000 a year from protecting a hectare of afforested land, that the project promises, may not be appealing enough should the land be valued otherwise!

Given the fact that the mountainous state of Himachal Pradesh has an estimated 2.48 million hectares of wasteland, the potential of replicating carbon revenue generating project seem promising nonetheless. However, developing such projects is technically cumbersome and financially infeasible unless there are donors to underwrite the preparatory expenses. Else, it doesn’t seem economically expedient for a state to invest in a project that will generate only Rs 20 crore over a period of 20 years.

Undoubtedly, there is an urgent need to simplify methodologies, expedite the validation process alongside proper pricing of CER should the potential of carbon sequestration were to be optimally realized! The project design document has positioned the sale of CERs as a critical incentive to the stakeholders to protect, regenerate and manage the watersheds without any comparison to the prevailing and emerging economic scenario in the state. Unless the stakeholders value the carbon revenue mechanism to their competitive advantage, such projects will continue to serve the interest of the clients only.

The views expressed above are personal and do not necessarily reflect the views of d-sector editorial team.

Sudhirendar Sharma  |  sudhirendarsharma@gmail.com

Dr Sudhirendar Sharma is an environmentalist and development analyst based in New Delhi. Formerly with the World Bank, Dr Sharma is an expert on water, a keen observer on climate change dynamics, and a critic of the contemporary development processes.

Write to the Author  |  Write to d-sector  |  Editor's Note

 Other Articles by Sudhirendar Sharma in
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An interesting debate in UK's House of Commons delved on future of development assistance by the British Government. While prioritizing limited resources has been a concern, there has been no denying the fact that development aid must be guided towards tangible gains over a short period of time to start with. There are difficult choices for elected governments to make - should they invest in long-term primary education or in short-term university scholarships? Which of these will bring gains and trigger long-term transformation in the society. As politicians continue to be divided on the matter, poverty persists!!   

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