Climate change mitigation and business opportunities – the case of the household sector in India

This paper tries to explore the linkages between energy efficiency, sustainable development, and climate change in India. Using the household sector as a case-study, it looks at the prospects of these “options” against the backdrop of the CDM, the financial incentives for investors in the form of CERs and the possibility of trading CERs in the international markets. The results of the study show that the total annual energy saving potential due to energy efficiency and fuel shifts by 2010-11 is expected to be about 1014 PJ, while the corresponding GHG reduction potential is close to 112 million tonnes of CO2 per year. Also, it is found that energy efficiency and renewable energy technology (EERT)-based programmes have positive net present values, and high rates of return for the households involved. Though the financial benefits alone should have made most of these programmes attractive they have failed to penetrate the household sector because of many barriers. Also, EERTs produce positive environmental externalities. It is proposed that small-scale entrepreneurs and ESCOs be made part of EERT implementation to overcome these barriers, and to ensure profits for them, it is necessary to include these projects under the CDM. This is because the current level of financial returns alone cannot ensure profitability for the stakeholders involved (households, entrepreneurs and ESCOs). This paper presents a few CDM business cases (for both rural and urban households) and demonstrates their feasibility and profitability from the perspectives of all the stakeholders. The business cases include shifting from: (1) traditional to efficient firewood stoves for cooking, (2) traditional to efficient kerosene stoves for cooking, (3) electrical to solar water heaters for water-heating, and (iv) traditional to efficient lighting packages for lighting. The paper concludes that the possibility of earning profits is very high from these small-scale CDM project cases, the highest being in the case of shifting from traditional to efficient firewood stoves. Yet the potential for EERT is tantalizingly difficult to tap in climate change mitigation projects in the household sector. Two factors appear to lie behind this difficulty. Firstly, EERT projects in the household sector tend to be small and dispersed. This can raise transaction costs. Second, while the EERT projects are usually profitable on the basis of energy savings alone, they may have relatively high costs per tonne of carbon when the benefits of energy savings are not taken into account. In general, carbon investors look for simple deals with straightforward revenue streams and hence avoid dispersed EERT projects. However, if implemented effectively, the CDM can be expected to transform the environmental issues from unwanted externality into an attractive business opportunity.