"India: Green Buildings & Carbon Credits"

"India: Green Buildings & Carbon Credits"

By Mayank Batra

Along with the social incentives of a cleaner environment and positive public relations, the biggest incentive for green buildings will be to make big bucks through carbon credits.

"A donkey, with a carrot drooping in front of it and its master whipping it from behind, is the illustration used by CEO of dcarbon8 for the green buildings situation in the world." The whip symbolizes regulations and the carrot symbolizes market incentives.

At a global level, it is believed that transformation in the green buildings market will be brought through incentives rather than regulations. Along with the social incentives of a cleaner environment and positive public relations, the biggest incentive for green buildings will be to make big bucks through carbon credits.

Go Green (Green Buildings)

Green buildings in India have increased from 20,000 square feet area in 2004 to 275 million square feet in 2009. In total, there are 315 buildings that are registered as green buildings in India. The Indian market has witnessed more investments for commercial buildings to go green. These buildings include IT parks, hospitals, airports, and educational institutions.

The total number of green buildings in India is expected to be more than 2,000 by 2012. An average investment for a green building is around $10.7 million, and the total investment in green buildings is expected to be around $42.6 billion by 2012.

Interest benefits on loan by banks for green projects, more incentives and regulations are likely to push the acceptance of green buildings in India. Bureau of Energy Efficiency (BEE) is introducing an energy performance index for the rating of buildings. The parameter for ratings will be energy consumption in kilo watt per hour per square meter per year. Ratings will vary for different climatic conditions. BEE is also making it illegal to sell any electric appliance without energy star marks by January 7, 2010.

The market potential for green building materials is estimated to be about $40 billion by 2012.

The cost of green buildings is 3 to 8 percent more than a conventional building, but the cost recovery is high and breakeven can be achieved in a period of three to five years. Reduction in operational costs is very high and benefits are enormous from breakeven.

Some of the commercial green buildings in the country are Sapient, Accenture, Nokia Siemens Network, Pearson, ITC Building, Wipro Campus, Patni Campus in Gurgaon, Green Boulevard, knowledge Boulevard at Noida and Hiranandani BG Building, K. Raheja group, and Enercon India Pvt Ltd Kalpataru building in Mumbai. Chennai also has a good number of green buildings.

The end users are willing to pay more for green buildings. A greener flat has become a high-class symbol. Tenants are ready to pay more, due to low operational costs and societal values.

Garner Greenbacks (Carbon Credits)

Carbon credits earnings have become a big incentive for companies or countries to emit less carbon. Low carbon emitting businesses exchange, buy, or sell carbon credits in international markets at the prevailing market price.

The Kyoto Protocol covers six greenhouse gases such as carbon dioxide, methane, nitrous oxide, hydro-fluorocarbons, per-fluorocarbons, and sulfur hexafluoride, which can earn carbon credits. One tonne of carbon dioxide (CO2) or its equivalent of the other five gases makes one Certified Emission Reduction (CER).

India has the second highest carbon credit transacted volumes in the world. The country has generated around 30 million carbon credits, and approximately 140 million are in pipeline. Eight hundred and fifty Green projects with a huge investment of Rs. 650,000 million are in pipeline. According to Prime Minister's Council, the revenue from 200 projects is estimated to be Rs. 97 billion till 2012.

Energy-efficiency projects from industries contribute to a major portion of the registered green projects. Around 225 Indian projects in the fields of biomass, cogeneration, hydropower, and wind power with a potential of 225 million CERs have been registered.

Indian carbon offsets are very sensitive to the fluctuation of prices. With China and Vietnam offering CERs at lower, more fixed prices, the threat of India getting outpriced intensify. Project rejection rate is high for India. Even after getting the approval from government, around 50 percent of the cases get rejected from the CDM executive board.

MCX is the exchange dealing with carbon trading in India. It provides price signals for carbon delivery in the next five years. The exchange is only for Indians and Indian companies. People who have bought or sold carbon will have to give or take delivery in the month of December, because that is the time to meet the norms in Europe. Spot, Plain Forward, and Forward with advanced payment are three types of deal structure followed for carbon trading.

Offsets adhering to standards contribute to the positive mindset of buyers. A number of standards exist for carbon offsets, including the VCS, Green-e, and the Gold Standard. In India, two green building rating systems are followed, LEED by IGBC and GRIHA by TERI. LEED is famous among the ratings, and the credits earned through LEED ratings can be traded in the carbon market.

Big sellers in the Indian market are Public Sector Units (PSUs) such as the National Thermal Power Corporation (NTPC), Indian Oil Company (IOC), Railways, and private sector companies such as the Reliance group and the Tata Group. Different tax is levied in different states for CDM.

Carbon Credits through Green Buildings…How?

Buildings are a major source of CO2 emissions, and contribute around one-third of the same. With an increase in the number of green buildings, there is an expected rise in the opportunities for carbon credits, offsets, and profits offered by these buildings.

The use of solar water heating systems, glass panels to allow natural light inside the building, rainwater harvesting, environment-friendly building materials and specifications, waste minimization, maximizing energy use in buildings, water conservation and efficient measures, and energy-efficient equipment can the help real estate developers and owners earn a good amount of carbon credits.

A single project does not account to a considerable number of emission reductions, which makes it difficult for the real estate developers to register and earn profits. The following options are available for real estate developers to trade carbon profits.

Technopolis, India's first green building in information technology, is helping the developers earn up to €1 35,000 per year. SBI is seeking advice on the usage of energy-efficient devices in its buildings. SBI also wants to improve its bottom-line by revenue through carbon credits. In the hotel industry, orchid group of hotels at Mumbai and New Delhi are referred as green hotels. ITC Sonar registered 1886 tonnes of CERs at the time of inauguration and was verified by UNFCCC to be eligible for carbon trading and it earned the hotel revenue of RS. 1.47 million. Currently, with modification, the hotel is expecting a saving of about Rs. 8.3 million per year through the project. Olympia Technology Park in Chennai is earning immensely from carbon trading. Common wealth games will help organizers earn revenues by sale of carbon credits.

Down the Road

In order to make the bottom line more attractive through carbon trading, the Indian real estate developers are likely to shift toward green buildings. Benefits such as low interest rates, low operational cost, and higher rental value are expected to drive this market.

More number of innovations is expected in the voluntary markets. Newer models will be developed to accommodate the carbon credits earned by green buildings. Major activities to go green are taking place in Indian metros. This trend is expected to continue, due to the growth in energy consumption and changing lifestyle. A major shift will be witnessed, with the real estate developers moving toward rural areas. Land availability and abundant natural resources will push the real estate developers to start greener building projects in rural areas and earn carbon credits.

The green building offsets are expected to gain more importance in the future. CII-IGBC has come up with a Rs. 4 billion green fund to support the development of green buildings. Steps are being taken to include green buildings into the federal cap-and-trade system. California has adopted standards that require benchmarking and disclosure of energy consumption in commercial buildings. Other developed countries will adopt similar standards. The global carbon demand will increase the carbon offset prices. More global standards are expected to be set, in order to eliminate problems such as double counting (for example, utility companies and real estate developers asking for credits for reduction in electricity usage). More transparency in procedures will build confidence in the market. Many new financial instruments will be derived for making profits. Some countries might up with bilateral carbon trade agreements. Real estate developers will see their active counterparts improving bottom-line and are expected to go green.