India has long trailed China in drawing foreign investment for cleantech projects. With prices in the energy and emissions markets surpassing historical highs, the venture capital community and Indian government are finally directing investment into Clean Development Mechanism (CDM) projects.
While India is currently the second largest host country of CDM projects with an average allocation of 31 million credits annually, investment in large scale reduction projects has been lacking since the establishment of the CDM in 1998 as part of the Kyoto Protocol. The project was begun to spur cleantech investment in the developing world, while also allowing emitters in developed nations to obtain Certified Emission Reductions (CER) credits, each one accounting for a reduction of one metric ton of CO2.
But with the inception of binding emissions targets this year under Kyoto’s second phase, and the near-certain adoption of a cap-and-trade system under either Senator Obama or McCain, the value of carbon credits is on the rise. At the close of trading on July 22nd, credits with 2008 delivery dates were valued at €24.70 ($38.99) per ton of carbon.
As part of its initial efforts to attract investment, India instituted a streamlined approval process, but the government failed to adequately court foreign investors with public financing for large scale projects. The Indian CDM sector is mostly comprised of small- to medium-sized efficiency projects requiring low levels of upfront investment.
India’s lack of public financing has allowed China to take an enormous lead in attracting cleantech investment. Cleantech in China has been growing at a prodigious 20% annually, in part due to the CDM. Chinese CDM projects on average received allocations of 113 million credits annually, due to determined efforts by the Chinese government to attract foreign financing for large scale CDM projects.
Those efforts have included numerous overtures to the venture capital community. Through 2007, $520 million in VC funding had been directed toward Chinese green energy and efficiency start-ups that benefit under the CDM. Sycamore Ventures also recently established a $1 billion China Greenstar investment fund with an eye on receiving carbon credits. The Chinese government kicked in the first $100 million in funding.
India has studied China’s blueprint for drawing foreign investment into cleantech, and the recent results are encouraging. Earlier this month, the Indian venture capital firm IVCF launched the €50 million (approximately $80 million) Green India Venture Fund. The fund will invest the majority of its capital in projects earning CER credits. Another fund, New York-based Green Ventures International, launched a $300 million India Carbon Fund earlier this year.
IVCF’s announcement was released in conjunction with Indian Prime Minister Manmohan Singh’s announcement of India’s National Action Plan on Climate Change (NAPCC). As Singh watched China become the largest global producer of solar panels in the last decade, he must have belatedly realized that India’s tropical climate is ideal for the deployment of solar generation capacity. The NAPCC focused on solar energy, calling for increases of 1000 megawatts per year of photovoltaic and solar thermal power generation respectively.
