By Anil Baral

Nepal became, although belatedly, a party to the Kyoto Protocol a few months back. This is a welcome step towards tapping renewable resources in a country known for natural bounties. However, resources do not mean a penny unless we are able to utilize them.

Nepal has mostly been a passive participant when it comes to international environmental treaties and conventions. If we let the benefits of Kyoto membership go down the drain by being a mere spectator, we are going to miss a huge opportunity in terms of economy and the environment.

With China and India vigorously pushing themselves as prime candidates for the clean development mechanism (CDM) projects, it has become even more important for us to quickly develop solid proposals and apply for CDM projects. This ensures that more of our clean energy projects qualify for carbon emissions trading.

Carbon reduced through CDM projects becomes tradable certified emission reductions (CERs) when certified by an independent entity. The carbon emissions trading scheme under Kyoto allows developed countries that are unable to meet their carbon emission reduction targets to buy carbon credits from developing countries such as Nepal and India which have no obligations.

Our carbon emission reduction potentials are small compared to those of our giant neighbors China and India due to their large size and huge industrial base. China and India are the second and sixth largest emitters of carbon, respectively. However, we still can reap the benefits commensurate with our potentials if we start out early in the game.

The only project that has garnered some attention is Biogas Project in the aftermath of the interest shown by the World Bank to buy carbon credits through its carbon prototype fund. In this context, frustration shown by electric vehicle (EV) entrepreneurs in a recent gathering for not getting enough incentives to increase the number of EVs in order to qualify under CDM is justifiable.

Compare this to 112 Indian companies that have already received approvals from the United Nations Framework of Climate Change Convention (UNFCCC) for carbon trading. By switching to cleaner technologies and trading carbon credits, India is set to bring in $100 million per year. By 2012 India could earn as much as 12 billion dollars from carbon emissions trading. The World Bank estimates that India’s global share of carbon market could reach as high as 10%.

The first step in getting started is to apply for CDM projects and get a clearance from our government. There are several projects that easily qualify under CDM. Examples include electric vehicles, solar, microhydro, afforestation/reforestation, and biogas. As such these projects have been sources of revenues or economic benefits. With the possibility of increasing revenues through carbon trading, such projects become even more attractive.

Unlike most cleaner and carbon reducing technologies that industries in India and elsewhere likely to adopt, these projects are almost carbon neutral except for biogas. In other words they do not add carbon to the atmosphere. The fact that it is not enough just to reduce carbon emissions by a few percent for reversing climate change adds a value to these carbon neutral projects. Even more valuable are afforestation/reforestation projects which go beyond carbon neutrality and act as net carbon sinks provided that they are not harvested and used as fuels. In addition, low labor costs ensure that we can sequester carbon and earn carbon credits at low costs.

In view of such potentials, it is high time that entrepreneurs, investors, and NGOs recognized the opportunities and developed sound proposals for CDM projects.

The government should complement these efforts by instituting a mechanism and expediting the review process by cutting down bureaucratic red tape and corruption. The appropriate ministry can consider several criteria in guiding its decision which may include the project’s contribution to economic development, environmental benefits (climate change and local air pollution mitigation), conditions associated with technology transfer, existing local capacity, potential for localization of the technology, and the scale of investment.

The faster we go through the approval process, the better chance we have when we apply for the next round of approval for CDM projects from the Executive Board of the UNFCCC. Getting a green signal from the UNFCCC sets us in motion for carbon trading.

Since European countries are setting mandatory caps on carbon emissions in line with Kyoto targets, Europe can emerge as an attractive market for us. Alternatively, the World Bank may facilitate carbon emissions trading through its prototype carbon fund. Although the structure of carbon market is still fluid, it bodes well if we are prepared in advance.