The brokering of deals between international carbon trading brokers and Indian government bodies to reduce energy consumption and earn carbon credits has gained momentum in recent weeks. Not many people noticed the surprise, albeit non-political, move sprung by Mayawati's Uttar Pradesh government late last month through its electricity body, Uttar Pradesh Power Corporation (UPPCL). UPPCL signed a memorandum of understanding (MoU) with two companies on a deal that involves the companies funding the entire cost of a compact fluorescent lamp (CFL) above Rs 10. The condition: UPPCL distributes about 22 million CFLs in exchange for existing incandescent lamps and at a cost of Rs 10 per CFL. "This is to mitigate the more than 2,000-MW per day gap between demand and supply of electricity in UP,' says a director in UPPCL. CantorCO2e India, a subsidiary of international parent CantorCO2e, will source 12 million CFLs. The balance 10 million will be from Banyan Environmental Innovations (BEI), a Hyderabad-based company that has tied up with Climate Change Capital (CCC), an international carbon funds. Last year, the Andhra Pradesh government initiated a similar MoU with BEI for the replacement of 700,000 CFLs.The company has recently managed to get the project validated under the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change. For the UP project, the two companies have initiated the process of preparing and submitting the project details to CDM. The actual distribution of CFLs in AP is slated to start in two months while the UP project will go live in the last quarter of this year. CCC and CantorCO2e can get certified reductions (CERs) from CDM and sell in the international market to Kyoto Protocol signatory countries. The financial model is attractive if the CFLs reach households instead of the grey market. CantorCO2e expects the cost of a CFL to be Rs 70 and an additional Rs 30 in the form of administrative and processing costs. As per the company's estimates, each CFL that is successfully installed and gets certification from CDM is expected to earn 0.09 CER per annum as it will result in an annual saving of roughly 0.09 metric tonne of carbon dioxide emissions (one CO2 metric tonne is equivalent to one CER). Currently, one CER is getting traded at about 17 euros at the CER futures market of European Climate Exchange. So, 0.09 CER credit earned will fetch around 1.5 euros (around Rs 99) in the international market. CantorCO2e takes a conservative realisation estimate of Rs 66. So, for an investment of Rs 100 in one CFLs, the potential return is Rs 66 in the first year. In the second year it would earn another Rs 66 and recover its initial cost of Rs 100. "A CFL has an average lifetime of four years and so it is a decent investment,' says Rambabu, managing director of CantorCO2e India. This is the carrot that the carbon trading brokers are dangling before potential funders and financial firms. The UP project would entail a collective investment of over Rs 220 crore. Though UPPCL pays nothing, it could lose out if the consumers do not use CFLs. Under the CDM certification process, the two companies can monitor and ensure only 10 per cent of the CFLs installed are used and earn the CERs. There is no guarantee that it will get the estimated savings of 3,000 MW per day per million CFLs. rajesh.gajra@abp.inThis email address is being protected from spam bots, you need Javascript enabled to view it (Businessworld issue 27 May-2 June 2008)