This is the version of the article accepted for publication in Energy Policy, 59. pp. 654-662, published by Elsevier.

https://
doi.org/10.1016/j.enpol.2013.04.019
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Accepted version downloaded from SOAS Research Online: http://eprints.soas.ac.uk/36247

The Governance of Clean Energy in India: the Clean Development

Mechanism (CDM) and Domestic Energy Politics

Jon Phillips*, Peter Newell

* Corresponding Author: Mr Jon Phillips, Department of Geography, King’s College

London, Strand, London WC2R 2LS, UK; e: jonathan.phillips@kcl.ac.uk;
t: +44 (0)20 7848 1054; f: +44 (0)20 7848 2287

Prof Peter Newell, Department of International Relations, School of Global Studies,

University of Sussex, Brighton, BN1 9SN, UK.

Authors’ post-print version. For the published version, see DOI:

http://dx.doi.org/10.1016/j.enpol.2013.04.019

1
Abstract

This paper explores the ways in which clean energy is being governed in India. It

does so in order to improve our understanding of the potential and limitations of

carbon finance in supporting lower carbon energy transitions, and to strengthen our

appreciation of the role of politics in enabling or frustrating such endeavors. In

particular we emphasize the importance of politics and the nature of India’s political

economy in understanding the development of energy sources and technologies

defined as ‘clean’ both through the United Nations Clean Development Mechanism

(CDM) and leading international actors. By considering the broad range of

institutions that exert formal and informal political influence over how the benefits

and costs of the CDM are distributed, the paper highlights shortcomings in the

narrow way in which CDM governance has been conceptualized to date. This

approach goes beyond analysis of technocratic aspects of governance – often

reduced to a set of institutional design issues – in order to appreciate the political

nature of the trade-offs that characterize debates about India’s energy future and the

relations of power which will determine how, and on whose terms, they are resolved.

2
Introduction

All countries now face a range of energy challenges in promoting energy security,

tackling energy poverty and de-carbonizing their economies to address climate

change. But some countries face the dilemmas and conflicts between these objectives

more acutely than others. In governance terms, India presents a particularly

challenging case for domestic energy planners and international climate policy

advocates alike. India is the fifth largest greenhouse gas emitter in the world and

projected to become the third largest emitter by 2015 (IEA 2007). The majority of

India’s emissions are produced by the energy sector (MoEF 2010), yet the carbon

intensity of India’s economy is around half that of China and lower than the US.

Moreover, the country’s low per capita emissions are projected to remain below the

2004 world average up to 2031 (MoEF 2009a). Indeed, while India is a major global

producer and consumer of energy, it also faces huge suppressed demand for energy,

with more than 400 million people lacking access to electricity and 700 million

people depending on biomass for cooking fuel (IEA 2010).

Yet the political thrust of India’s drive for ‘energy independency’ (Planning

Commission 2006) is provided by the current energy supply-demand gaps and the

huge increase in primary energy consumption required to meet economic growth

targets of 8-10 per cent in the medium term. Reconciling climate change concerns

with India’s economic growth will clearly require a significant transformation of the

country’s energy supply. As India’s Integrated Energy Policy notes: ‘even if India

somehow succeeds in raising the contribution of renewable energy by over 40 times

by 2031-32…the contribution of renewables to our energy mix will not go beyond

3
5.6% of total energy required in 2031-32’ (Planning Commission 2006: 82). The

current installed capacity for grid-interactive renewable energy is over 26GW, with

government targets aiming to install an additional 74GW by 2022 (MNRE 2010;

MNRE 2013). However, while India has put in place policies for scaling up ‘clean

energy’1 power generation, there remains huge potential to scale up the use of

renewable sources to meet both on- and off-grid energy needs and replace

conventional energy sources.

It is against this background that we situate our analysis of the politics and

governance of clean energy in India and in particular the present and potential role of

the Clean Development Mechanism (CDM), which currently constitutes the largest

source of mitigation finance to the developing world (World Bank 2009). India has

been one of the biggest recipients of CDM finance to date, hosting over 850

registered projects (a fifth of the global total), but has faced criticism with respect to

both dubious additionality of greenhouse gas emission reductions and weak

contributions to sustainable development, the second objective that CDM projects

are meant to achieve. Existing literature on the CDM has addressed issues such as

the performance of specific technologies (e.g. Purohit & Michaelowa 2008), forms

of technology transfer (Dechezleprêtre et al. 2008) and assessments of the

sustainable development outcomes of projects (Castro & Benecke 2008). Other

studies have considered particular characteristics of the Indian carbon market,

including the prominence of unilateral projects (Krey 2005; Michaelowa 2007) or

the functioning of India’s Designated National Authority (DNA) (Ganapati & Lui

2009). More directly relevant to the broad governance approach taken in this paper,

4
some attention has also been directed to considering Indian ‘carbon governance’ in

general (Benecke 2009).

Less attention has been focused, however, on building a detailed understanding of

the different levels of governance and the coalitions of actors and institutions which,

we argue, influence the outcomes of India’s efforts to promote clean energy.

Conceiving of clean energy governance in this broad manner means situating CDM

projects and procedures within a wider set of political and economic power relations

in the energy sector. This helps to advance an understanding of governance in

practice: the role of power and politics in shaping clean energy governance, from

global to local level, and across the spectrum of public and private initiatives and

decision-making processes in India. To understand the exercise of power in practice

beyond the formal division of responsibilities for energy policy means discussing the

factors that impact upon actual decision-making and the outcomes of battles over

bureaucratic authority, access to finance, or the balance of power between state and

market actors. We therefore present an analysis informed by interviews with carbon

market actors in India – government officials, market actors and their critics – as

well us with many of the key regional and international institutions working on these

issues in India.2

The paper begins by outlining the regional and global influences that shape India’s

clean energy sector: the governance of clean energy ‘from above’. It then turns to the

governance of clean energy ‘from below’: the national politics of clean energy and

the domestic power struggles in which international instruments such as the CDM

become embroiled, and which they must engage if they are to make a significant

5
contribution to realizing India’s clean energy goals. We then outline areas of the ‘un-

governance’ of clean energy and locate this within the wider political economy of

energy in India before offering some concluding thoughts.

Providing an analysis of the politics underpinning governance arrangements in the

energy sector means exploring the power of competing interest groups – those both

directly involved in carbon markets and those influencing energy policy more

broadly – that can resist, block or steer the CDM and its governance in particular

directions. Scholars of energy transitions have referred to the alignments of actors

and institutions with a stake in different energy futures in terms of ‘incumbent’

regimes organized around predominant socio-technical systems (such as fossil fuels)

and ‘niches’ (such as particular types of renewable energy), which compete for

resources and political support from state, private and other actors that populate the

broader ‘landscape’ that impinges upon particular socio-technical systems (Geels

2005; Verbong & Loorbach 2012). Scholars of ‘transitions management’, in

particular, have called for approaches to move beyond a focus on institutional design

and management issues and to address more fully the politics and non-politics of

transitions (Scarse and Smith 2009; Meadowcroft 2009). This line of critique

resonates with our attempt to go beyond conventional analysis of CDM governance

as specific issues of institutional design, to the neglect of underlying questions of

politics and power, and how these shape outcomes. We draw on the following

notions of power to develop such an analysis of the role of the CDM in India’s

energy politics: (i) structural and material power, which derives from control of

resources, finance and production, but which might also extend to technological

power (Falkner 2008). In this context, these forms of power apply to the corporations

6
whose production CDM finance seeks to shape; to technology providers; and to the

international institutions that administer climate funds; (ii) bureaucratic and

organizational power, which derives from access to and control over key sites of

decision-making and here refers to the distribution of power and authority across

state agencies with responsibilities for energy and climate change; and finally (iii)

discursive power, or the power to shape framings of issues and the production of

narratives, which is employed by a range of actors in making the case for and against

the benefits brought about by the CDM and derives from access to media and key

communication channels (cf. Levy & Newell 2005; Fuchs 2007). We describe below

how these forms of power are mobilized to produce as well as frustrate change, and

to maintain the power of incumbent actors, as we explore in the final section on the

‘un-governance’ of clean development.

Clean Energy Governance from Above

This section consider actors and institutions beyond India’s borders that have a role

in governing clean energy in India and the extent and ways in which these forms of

‘governance from above’ shape and constrain India’s policy making process and

policy autonomy (Newell et al. 2009). This resonates with what would be called

‘landscape’ factors in the transitions literature mentioned above.

Within the formal channels of the UNFCCC, India has been a leading voice of the

G77+ China group in emphasizing that industrialized countries bear the historical

responsibility for climate change and are obliged to act first to reduce their emissions

and compensate countries such as India with finance for mitigation and adaptation

7
measures (Michel & Pandya 2009; Michealowa & Michaelowa 2011). This position

is reflected in the country’s approach to the CDM and to Nationally Appropriate

Mitigation Actions (NAMAs), which has sought to align carbon finance with

national energy and industrial priorities rather than allow it to be used as a means of

committing India to emissions reductions. For example, India has pushed for

expansion of the project-based CDM to include large hydro power projects, nuclear

power and forestry; for the removal of requirements to demonstrate the

‘additionality’ of CDM finance for renewable energy projects; and for the use of

public climate finance to meet the continued shortfall in demand for carbon credits in

developed countries (MoEF 2009b).

Yet while increasing international pressure on India has not been the primary driver

of governmental action on clean energy, it has contributed to the formation of a

powerful narrative around climate co-benefits for domestic actions de-linked from

global commitments, behind which government, business and civil society interests

have largely united (Dubash 2009). Through the CDM, India is engaging with

international climate finance in ways that are geared towards aligning the scale up of

clean energy with India’s domestic framing of climate policy. India’s Ministry of

New and Renewable Energy has stated for example that adequate international

finance through the CDM, NAMAs or other sources could double the ministry’s

current renewable energy targets (Gupta 2010).

Outside the intergovernmental negotiations on climate finance, India’s prosperous

CDM market has made the country a site of significant flows of global public

finance for energy. India has been the subject of ongoing capacity building programs

8
to develop its CDM governance from the United Nations Development Programme

(UNDP), Asian Development Bank (ADB) and German Technical Cooperation

(GTZ, now GIZ), dating back to 2003 in the case of GIZ and 1999 in the case of a

US capacity building programme (GTZ 2006). These programmes helped to

institutionalize the CDM, address apparent market failures, and build the capacity of

states, municipalities and private companies in developing projects, and are

acknowledged by the Indian government to have been instrumental in initiating

interest in the CDM beyond the DNA.3 Through this role, these institutions have

steered the CDM in certain directions by addressing governance deficits in line with

their respective expertise and interests, such as ADB efforts to increase the

participation of the domestic finance sector and support projects within its financing

rules; or GIZ actions to support projects with enhanced sustainable development

benefits and to facilitate the sale of credits to German buyers.4

The CDM is also supported in India through carbon funds operated for client

companies by the ADB and International Finance Corporation (IFC), (the private

sector lending arm of the World Bank Group). These funds co-finance projects

upfront in exchange for a portion of the expected CERs (Certified Emissions

Reductions) generated, performing market governance functions by providing price

transparency and transferring the risk of non-delivery of credits away from buyers.

Not all such efforts to shape the operation of carbon markets in India have been

welcomed, however. The first of the World Bank’s carbon funds, the Prototype

Carbon Fund (PCF), for example, received criticism for offering poor deals on the

purchase of CERS in India and administering an overly-bureaucratic process.5

9
Despite the material power wielded by landscape actors through their control over

clean energy finance, their power has been contested. India has sought to assert its

policy autonomy in setting the terms of climate finance flows for energy by initially

rejecting potential funds from the World Bank’s Climate Investment Funds, despite

the country’s status as a ‘prominent potential client’ (Sethi 2008). Setting its

preferred terms, India has since submitted a draft investment plan to the Bank’s

Clean Technology Fund in 2011 (CIF 2011), prioritizing investments in, among

other projects, a policy development loan for politically contentious changes to the

streamlining of hydropower approval processes in Himachal Pradesh, where local

citizens have expressed opposition to existing plans.

Beyond carbon markets and climate finance, MDBs remain influential in shaping

India’s energy sector, both through the loans they extend and through the

transmission of global norms of finance allocation, management and ownership;

creating or altering political relationships of power between the recipients and

providers of capital. Financial crises and calls for climate-sensitive energy financing

have provided MDBs with strategic opportunities to re-engage with energy financing

in Asia, where industrializing countries otherwise become less dependent on MDBs

to meet project financing requirements. Within this context, MDBs have begun to

increase the proportion of their core concessional and private sector finance for clean

energy projects (BNEF 2010).

However, alongside its support for ‘clean’ energy, public energy finance to India

continues to provide significant financing for fossil fuel exploitation. For example,

the ADB and IFC are both part-financing the first of India’s Ultra Mega Power

10
projects (UMPPs), the $4.1 billion, 4000MW Mundra coal power plant project in

Gujarat,6 citing the use of more efficient supercritical technology as a key investment

criterion. The CDM Executive Board rejected Tata’s Mundra project on the grounds

of additionality, but has approved a number of similar projects such as Reliance

Power’s UMPPs at Sasan and Krishnapatnam (Fisher 2009; IFC 2008), drawing

criticism about methodological weaknesses in assessment and raising broader issues

about the use of CDM finance for minor improvements in coal power plant

efficiency (Lazarus & Chandler 2011). The effect of such support from the CDM and

World Bank is to entrench the bureaucratic power of the incumbent coal regime in

India centered in the Ministries of Power and Coal at the expense of the Ministry of

New and Renewable Energy (MNRE) which aims instead to lever international

finance to shift the country’s energy fix in favour of ‘clean’ energy as described

above.

Despite the existence then of a broad range of international initiatives aimed at

promoting clean energy, levels of international finance for clean energy remain

inadequate compared to the scale of the energy challenge in India and contradictory

in their effects with simultaneous support for fossil fuel and renewable energy

development. We will now explore how the impact and effectiveness of ‘Clean

energy governance from above’ and its ability to reconfigure energy governance in

India is ultimately affected by the national and sub-national political processes that

mediate and shape it.

Clean Energy Governance from Below: The National Governance of Clean

Energy in India

11
India’s system of national governance has had a decisive influence over the direction

of clean energy development and over the role of the CDM in supporting clean

energy in the country. The growth of renewable energy in India has been generated

largely by the private sector, not through CDM finance, but by a regulatory

framework and series of incentives created by the state positioning itself as the

enabler of private investment. India’s Five Year Plans and various policy ‘missions’

such as the National Solar Mission are based on a model of state-led development

that dates from the era of Nehru. The majority of corporate finance has thus far

focused on mature markets in large scale wind installations and commercially viable

hydro projects (MNRE 2010), with the wind industry benefiting from a regulatory

framework provided by central government and a series of financial and fiscal

incentives provided by states, including feed-in-tariffs, accelerated depreciation, tax

exemptions and low interest loans (Rao & Kishore 2009).

The result is that for several successful sectors of clean energy technology mature

markets and significant capabilities exist (Lema & Lema 2012), such that renewable

energy projects in India are increasingly attractive to investors on a risk return basis,

independent of carbon finance. Contrary to the intended role of CDM finance as a

driver of investment in renewable energy, the range of incentives provided by the

Indian state, central planning and enthusiasm for domestic trading initiatives7 mean

that the promise of CDM revenue provides the ‘icing on the cake’ or a

‘psychological boost’ as project developers put it,8 but rarely drives investment

decisions. Many critics of the CDM in India have referred to a US Consulate cable

leaked in 2011 as confirmation of a widely held belief that the process of

12
additionality calculation in practice involves more complex calculations of financial

risk and return than belies the formal process (Schiermeier 2011). Given the long

lead times inherent in the international CDM approval system, project developers

feel that relying on CDM finance represents a highly risky business strategy. Rather,

the suggestion of carbon market actors in India is that government policies to

facilitate the uptake of renewable energy mean that, in practice, the CDM has come

to play an additional, supplementary role in incentivizing projects and shaping their

viability, rather than a decisive one.

We find a mixture of public and private power at work here consistent with other

work on the CDM’s ‘hybrid’ governance model (Streck 2004). While the CDM

Executive Board ultimately approves projects and issues credits based on judgments

about the additionality of projects, project developers and their consultants exercise a

degree of power about which projects are selected, and whether they are considered

worthy of support through their judgments about the financial viability of projects.

These include the preparation of distinct cases of financial viability for domestic and

international sources of finance.9 The private sector’s assessments of India’s

attractiveness for renewable energy investment also wield considerable discursive

power, constructing India as a positive place to invest and in doing so shaping flows

of finance. For example, when HSBC greets the planned release of a report outlining

how India plans to meet its energy intensity target by ‘upgrad[ing] the country’s

climate strategy rating to positive’ (Knight et al. 2010), it governs the market that it

describes by shaping investor perceptions and ultimately the distribution of finance.

The power of business groups also enters the picture as initiators and shapers of a

particular type of ‘open’ CDM governance. Lobbying by Indian businesses was

13
important in shifting the Indian government position on market mechanisms to one

that embraced the prospect of the CDM and led to the early establishment of the

DNA in 2003 (Michaelowa & Michaelowa 2011). A variety of international

consultants have served as market enablers by utilizing existing networks of clients

and partnering with local technical consultants to promote project development and

influence the direction of early CDM investment towards particular sectors (Pulver

& Benny 2010). In the case of Price waterhouse Coopers (PwC), they also stand

accused of being implicated in the promotion of non-additional projects (Michaelwa

& Purohit 2007), undermining the integrity of emission reductions. Industry lobbies

such as the Confederation of Indian Industry (CII) and the Federation of Indian

Chambers of Commerce and Industry (FICCI) have also played a part as market

facilitators by generating demand and raising awareness of CDM opportunities for

Indian companies.

Private actors also enact CDM governance through the less formal, everyday acts of

governance performed through the seemingly technocratic but inherently political

exercises of auditing, monitoring and accounting for emissions reductions and

sustainable development benefits (Lovell & MacKenzie 2011). The private

governance functions performed by Designated Operational Entities (DOEs) have

received a great deal of attention in India, due to both the high degree of formal

authority they are delegated (Green 2008) and the common perception that their poor

performance has caused delays in project validation and emissions auditing. Due in

part to capacity constraints, the DNA is heavily reliant on the assessments of DOEs.

This is problematic in light of claims that certain DOEs are reluctant to visit the sites

of projects to validate stakeholder consultations, which in some cases have presented

14
duplicate ‘cut and paste’ comments in PDDs for separate projects (CSE 2005).

Hence while efforts to make information about projects held in PDDs more publicly

available are important, they do not detract from the potential for serious

shortcomings in the quality and reliability of the information contained in them. Nor

do they compensate for poorly conducted consultation processes about the impact of

projects, as we discuss below. The technical expertise required to make sense of the

documents, produced not for public consumption, but to seek approval from

governments and the EB, means they are often in reality inaccessible or intelligible

to communities expected to host projects.

Beyond the governance of claimed emissions reductions, what then is the role of the

Indian government in overseeing the delivery of the other aim of the CDM, to bring

sustainable development benefits? The state in India has played a notably less active

role in governing and steering the CDM than in other areas of the energy economy.

The DNA is responsible for ensuring that sustainable development benefits are

integrated into the design of each CDM project. Pressure over the high rejection rate

of Indian projects by the Executive Board has reportedly led to a tightening of the

host country approval process regarding the financial ‘additionality’ of projects

(Benecke 2009) but to date the Government of India has opted not to enforce ‘hard’

regulations such as taxation regimes, a floor price for CERs, or differential fees in

line with priority sectors. Indeed, the Indian DNA’s broad sustainable development

criteria and decision-making in practice appear geared more towards ensuring a

smooth domestic approval process for project developers than ensuring the integrity

of sustainable development outcomes.10 Late in the day, in 2012, the Indian DNA

dictated that large scale projects should commit to sharing 2 per cent of CER revenue

15
with local communities, partly in response to sustained criticism of the contribution

of CDM projects to sustainable development,. While this makes a (small)

contribution to the redistribution of benefits deriving from CDM projects, sharing

revenue on this scale is unlikely to shift the calculus of investors in CDM projects

about the level of benefits they are expected to provide.

Thus, India currently presents more of a case of market-enabling governance for,

rather than governance of the carbon market. Studies of the perspectives of

companies on the CDM approval process for example indicate that firms perceive

there to be a low risk of project rejection by the Indian DNA (Hultman et al. 2012),

reinforcing concerns that project approval proceeds with little scrutiny and few

checks about whether CDM projects are likely to deliver claimed sustainable

development benefits or avoid harm for local stakeholders.11 Critics have claimed

that the failure of governance in relation to sustainable development has resulted in

negative social and environmental effects associated with particular projects

including detrimental health and environmental effects, and loss of livelihoods

(Böhm & Dabhi 2009). Likewise, domestic industrial projects that receive support

from MDBs have provided focal points for activists documenting the shortfalls

against the environmental and social investment guidelines of MDBs. Activists have

used global networks and online media to expose cases of alleged ‘carbon fraud’

(dubious project additionality) and ‘climate colonialism’, where people are

dispossessed of their land by foreign actors. In governance terms the effect of this

watchdog activism is to force responses from the DNA and from project developers,

a small proportion of whom in India have sought to establish the credibility of their

projects by seeking certification from the Gold Standard Foundation. The Gold

16
Standard provides an extra set of process checks and requirements on the fulfillment

of sustainable development criteria, though the associated transaction costs have

been considered too great for some project developers even where they consider

themselves compliant with Gold Standard norms.12

The Role of States in Clean Energy Governance

Given the light touch steering role adopted by the DNA, it does not currently have

the decisive role in governing the CDM within India envisaged by formal CDM

governance structures. Governance at state and local level also has a key role to play

in determining the extent to which benefits flow from the CDM. This is reflected in

the uneven distribution of CDM projects and revenue within India, where Tamil

Nadu, Maharashtra, Karnataka and Rajastan each have over 200 projects at

validation stage, while several other states host no projects at all (Fenhann 2012).

While economically prosperous states have generally seen greater CDM investment

than poorer ones (Sirohi 2007), ‘good governance’ also appears important since

these same states are those that generate confidence among investors based on

perceived respect for the rule of law and property rights and having an attractive

investment climate.

Several states that have attracted CDM projects have also created single window

clearance systems and CDM promotional centers in order to create an enabling

policy environment. In other states, CERS were shared with the electricity grid

operators that transmit the power generated by independent power producers,

reducing the financial incentive for project developers.13 However, considering that

17
CDM revenue alone is rarely if ever sufficient to initiate project development, it is

perhaps unsurprising that the biggest winners have been states such as Gujarat and

Tamil Nadu with established industrial sectors and attractive policies and governance

arrangements to facilitate private investment in energy (Benecke 2010). In contrast,

there has been a perception in some states that, as a market mechanism, the CDM

‘would be taken care of by industry’.14 Many states lack the capacity to promote and

process CDM projects. The experience of state bureaucrats suggests that the

promotion of renewable energy and the CDM at state level is often driven by

motivated individuals rather than institutionalized processes.15 Indeed, there is great

variability in institutional capacity across states, as well as between the actual roles

and functions that analogous state authorities perform. From the perspective of

project developers, the division of responsibility for approving and overseeing

projects is not always clear.16 Presented with incomplete information and

uncertainty, developers’ perceptions of effective governance can therefore also be

important in directing the geographical distribution of investment.

Local Governance

Beyond the national and state structures that direct CDM investment, the distribution

of sustainable development benefits among citizens is mediated by local institutions,

in so far as CDM projects (like other proposed industrial development projects) are

required to hold local consultations with affected stakeholders prior to

implementation. The distribution of benefits (e.g. job creation, access to technology,

or improvements in local air quality) is often at the heart of discussions about

proposed projects. Local governance is decisive in determining who gains from

18
particular projects, and the extent to which certain projects are endorsed or resisted at

the local level. Who gains from particular projects is shaped by the nature of

consultation processes, the capacity of local institutions to engage with them, their

political power to (re)shape the design of projects (since project developers have to

provide an account of how they have addressed any issues raised during the

consultations), and whose interests they pursue in such spaces of participation.

Political decentralization in India has opened space for local institutions to play a

greater role in mediating between project developers, the state and citizens,

providing a means for people to participate in policy making through institutions

with the sort of permanent and visible presence in local political life that cannot be

achieved by central or state bodies. However, precisely because the Panchayat Raj

system of local institutions has been delegated greater responsibility for running a

range of local affairs, they often have little capacity to take on the additional

responsibility for oversight of CDM consultations. For example, quarterly meetings

of the Gram Sabha17 mean that discussion can often only focus on a single issue,

such as the government’s rural employment guarantee scheme. Given the limited

regulatory oversight of the claimed sustainable development benefits by the DNA, it

is perhaps not surprising that reports of lax procedures on the part of project

developers in engaging local stakeholders are commonplace. These include one-off

invitations to consultation meetings issued in English language newspapers, in areas

where the language is rarely spoken or a significant proportion of residents are not

literate.

19
Moreover, local institutions are not immune to corruption or capture of consultative

processes by local elites and often have weak systems of accountability in place for

the management of revenue and project benefits. For example, the wind turbine

producer Suzlon has made allegations of corruption among state and local officials

while attempting to secure the necessary community approval for India’s largest

wind farm.18 However, the time and effort required to initiate projects with strong

deliberative decision making and cross-community support can result in

prohibitively high transaction costs in the eyes of CDM investors and project

developers, limiting the prospects for demand-led projects at community scale.

While some of these issues stem from the fundamental design of the CDM, given its

process requirements, governance by India’s national, state and local institutions

significantly shapes whether CDM projects produce the social and development

benefits promised and where and to whom the benefits are distributed.

A series of interventions from public and private actors have attempted to address

some of the governance challenges outlined above by promoting a stable investment

environment through improvements in the rule of law and increased institutional

capacity and coordination. Promoting the ‘good governance’ of CDM (Chapman

2011) is important given that lack of capacity presents a significant constraint for the

DNA, which is sometimes required to review fifty to sixty PDDs in each monthly

sitting; and for the ministries on the approval committee, which typically have little

technical knowledge of the CDM itself.19 These programs are well supported by

international donors, particularly those with interests in market-led development and

the success of the CDM as a carbon offset mechanism. GIZ, for example, has

attempted to improve the administrative performance of the DNA by introducing a

20
paperless application process and has responded to criticisms of consultation

procedures by collecting photo and video evidence of community participation in

projects that it supports. This constitutes an improvement on the short descriptions of

consultation processes provided in PDDs which the EB requires to be made publicly

available. However, while these efforts address the efficiency and effectiveness of

core CDM procedures, they fail to locate the distribution of CDM benefits and costs

in the broader context of politics and the relations of power that influence the CDM

and that we describe below.

The Political Economy of Clean Energy in India

In this section we discuss how the national governance of the CDM and clean energy

is profoundly affected by the broader political economy of energy in India in which

powerful coalitions of interests seek to shape India’s energy future and – directly and

indirectly – the role of the CDM within it. Although ongoing market-based reforms

of energy governance are planned in India, the energy sector as a whole retains a

high level of state influence (Joseph 2010). As described above, with regard to

carbon markets and renewable energy the most significant role of the state has been

in setting enabling policies, rules and procedures for private sector finance and

technology development. But a broader set of political dynamics within the state

impact upon these policy areas. Considering renewable energy specifically, new

policy initiatives such as the Renewable Energy Certificate Scheme may continue to

be affected by governance issues experienced in the enforcement of Renewable

Purchase Obligations for State Electricity Regulatory Commissions (SERCs), where

a combination of turf wars, lack of administrative competence, capacity constraints,

21
and entrenched political interests have resulted in poor implementation in several

states and produced unstable and unpredictable policies (ADB 2008). In this context,

navigating CDM governance presents just one of a set of political challenges for

investors affected by policies on land, state level clearances, renewable energy

tariffs, and grid connections.

At the local level too, CDM financing enters India’s national and local energy policy

landscape in the context of ongoing discontent with consultative and participatory

processes around development and infrastructure projects. The Environmental

Impact Assessment (EIA) process has been repeatedly criticized for failing to allow

involvement of affected citizens in the scoping stage of project design, opting instead

for public hearings based on the completed EIA, a similar process to the majority of

CDM project consultations (Mahalingham et al. 2006). Although policies such as the

Electricity Act of 2003 have allowed for greater opportunities for civil society input

to policy, the dynamics of the power sector can prove to be complex and the range of

organizations able to engage with the social and environmental assessments of

electricity policies on behalf of civil society is limited and uneven (Mahalingham et

al. 2006). Likewise, some local NGOs and civil society organizations such as Carbon

Market Watch are actively engaged in monitoring selected CDM projects. But their

capacity to critically monitor the environmental and social planning of India’s large

number of CDM projects is limited. Hence while the democratic space for local and

national engagement with the CDM is greater in India than other major host

countries such as China, accountability cannot be provided through these institutions

alone in a large, diffuse and complex market, such as the CDM in India. In the

absence of mechanisms to monitor project outcomes, assumptions regarding the

22
compensating presence of an engaged and well-resourced civil society are

problematic.

These and other features of India’s contemporary political economy shape how and

where CDM investment goes and who benefits at a variety of scales. In the short

term, many of the most accessible sites for on-shore wind projects in India,

encouraged by the sorts of policies we have analyzed above, are situated in forested

or ‘tribal’ areas. Land acquisition is a contentious issue, referred to by some in the

investment community as a ‘long, tedious and often opaque business’ underpinned

by ‘a huge amount of murky political economy’ (Kadakia & Acharya 2010: 15).

Indeed, many conventional energy generation projects are said to have been delayed

on these grounds, making renewable energy a particularly attractive political option

where land is available and the transfer of its use is less contentious, such as for solar

power installations in desert states (MNRE 2010). Yet as Narain (2011) notes, strong

institutions and procedures for meaningful public participation help to create a

credible governance process that mitigates the risks faced by investors. A

constructive approach may call for a greater consideration of procedural issues in

CDM and energy policy-making, and recognition of their importance in determining

for whom energy policy is designed and to whom the benefits and potential trade-

offs of energy development are distributed.

Indeed, creating an enabling environment for renewable energy is deeply politicized

when considering the potential trade-offs of providing the ‘long, loud and legal’

market signals demanded by investors (Hamilton 2009). Among current government

initiatives, the National Solar Mission creates perhaps the clearest example of

23
political challenges in constructing long term policies for clean energy, and the

challenges of maximizing the value of additional international climate finance. The

Solar Mission is contentious due to its costs, as it proposes to step outside of the

dominant co-benefits framing of clean energy in India, at least in the short to

medium term. Questions of who will bear the cost of solar electricity tariffs and

decentralized energy distribution, and how the costs will be managed, are foremost

in determining the short and long term success of a policy that could put India in a

strong political position with respect to clean energy technology manufacturing and

distribution,20notwithstanding the tensions this has generated with the US at the

World Trade Organization (Politi 2013). The governance of this rapidly emerging

policy area will be critical to determining in which ways climate finance, including

the CDM, will contribute to its realization or increased ambition. The role of the

CDM would be quite different for example depending on whether it continues to

provide additional finance or solar hardware, or whether it is used to develop the

foundations of technological skills, knowledge and capabilities among firms and

communities. While the CDM is not designed or positioned to transform domestic

political interests, the political economy of energy in India will likely shape how the

limited and variable flows of CDM finance will need to be governed in order to

engage national processes and existing political interests, if it is to have a

transformative effect on the adoption of renewable energy in the Indian context.

The ‘Un-governance’ of Clean Development

We have highlighted above the international, national and sub-national level

institutions and actors that – in various modes and capacities – govern the role that

24
the CDM and clean energy have come to play in expanding India’s energy

generation capacity. Yet it is as important to consider the un-governance of clean

energy in India as it is to assess the institutions that assume formal responsibility for

governing clean energy. We use the term ‘un-governance’ to refer to areas of

deliberate and active neglect, where power is exercised to ensure action is not taken

and prevailing material and bureaucratic interests protected (cf. Crenson 1971). In

this context it entails recognition that the actors and institutions with primary

responsibility for clean energy development are rarely those actors which yield most

power over the course of energy policy development. It manifests itself in the way

the incumbent regime, largely centered around the continued use of fossil fuels,

accommodates niche initiatives on clean energy without reducing its position of

power within India’s energy regime.

Instances of un-governance or deliberate neglect become most apparent in cases

where plans for renewable energy generation or enhanced environmental concern

begin to imply limits on fossil energy development. This tends to occur only in the

rare cases when clean energy measures are positioned outside of the dominant

discursive framing of clean energy ‘co-benefits’ in India. Hence, while India’s much

feted MNRE is the only ministry in the world dedicated solely to renewable energy

and has seen large budgetary increases over recent years (Planning Commission

2010), the financial allocation for renewable energy remains small in comparison to

total energy allocation which continues to favor the incumbent coal regime.

Moreover, the decision to form a National Clean Energy Fund from a tax on

domestic and imported coal21, which might appear as a loss for coal interests, has

been considered by some observers to be politically feasible only because the

25
revenue collected is essentially small enough to constitute no real threat to the coal

industry.22

The Ministries of Power and Coal command much greater financial resources and

political power within government than either MNRE or MoEF. When former

Minister of Environment and Forests Jairam Ramesh began to enforce previously

perfunctory procedures on environmental clearances for proposed industrial and

energy developments, it aroused significant disquiet among more powerful

ministries involved in energy policy who characterized his position as ‘anti-business’

(Ramesh 2010). While staff in MNRE in particular are keen to utilize the CDM to

support greater ambition in the development of policies such as the National Solar

Mission,23 the CDM does not garner significant interest from the Ministry of Power

(MoP) despite the significant proportion of India’s CERs generated from India’s

capital intensive large coal power plants.24 Indeed, the prominent industrial

developers of such projects are largely those with the capacity to engage with CDM

procedures and accounting exercises, such that state steering or sectoral prioritization

of the CDM may appear of little relevance to powerful ministries such as the MoP.

Any potential prioritization of particular energy service needs for poverty alleviation,

or particular technologies and associated knowledge that might strengthen Indian

industry expertise would, in effect, challenge this ability of existing political interests

to benefit from climate finance. And whilst the MNRE may provide avenues of

stakeholder engagement (however imperfect) for promoting low carbon, pro-poor

energy technologies, there is no evidence to suggest that the Ministry of Power is

obliged to include MNRE within its decision making on policies that affect the

power sector (Mahalingham et al., 2006).

26
In light of the differential power among energy ministries, India’s Planning

Commission – the coordinating body for Five Year Plans and ‘holistic’ energy

planning exercises such as the Integrated Energy Policy – has a potentially important

role in steering Indian energy policies towards simultaneously addressing climate

change and energy poverty concerns. For example, in preparation for the country’s

next Five Year Plan (2012-2017), the Planning Commission was tasked with

preparing a roadmap for inclusive low carbon growth, including how the government

may meet its carbon intensity target. Yet the Planning Commission is not deemed to

have the authority nor the mechanisms to enforce change in the relevant ministries,

or to ensure coherence between them (Dubash 2011). Its ability to unsettle existing

power relations remains in doubt therefore. Alongside national policies that

specifically address clean energy growth, the nature of these power relations in the

energy sector in India play a critical role in determining how India will govern clean

energy and how carbon and climate finance will be received into the political

economy of energy in India over the coming years.

Conclusion

Our analysis has sought to highlight the role of politics, power and political economy

in understanding how and whether schemes such as the CDM are capable of

producing social and development benefits while levering additional sources of clean

energy finance in India. In so doing it has added to, and gone beyond, an

understanding of a narrower set of state-based governance factors such as capacity,

efficiency and accountability explored by existing studies. Although some of the

27
governance factors that influence the performance of the CDM are determined by the

structural design of the mechanism itself, we have argued that in the case of India,

‘governance from below’ by a multitude of actors and institutions at national, state

and local level shapes how and whether benefits flow from the CDM to their

intended beneficiaries. Future interventions, if they are to be effective in producing

large-scale change, need to understand, engage and ultimately unsettle this broader

political terrain.

The approach to examining governance presented here has included the governing

roles of a range of actors across the public-private spectrum; across scales from

village institutions to global institutions; and including both formal institutions and

the informal practices of day to day governance. Using this wide definition, we have

considered how the power and influence over energy policy-making and

administrative procedures concerning the CDM has impacted upon the creation and

design of CDM governance, who influences decisions at national and local levels,

and therefore who benefits from clean energy financing. These processes in turn

shape how significant a role ‘clean energy’ initiatives including the CDM come to

play in India’s energy regime. Far from being technocratic or purely managerial

issues (Bhattacharyya 2010), decision-making about the bankability and financial

viability of projects, the degree of integration of clean energy initiatives within

overall state energy strategies, and decisions about who has the right to participate in

decisions about projects and policy, are aspects of governance that are highly

political by virtue of their importance in directing and shaping the flows of

international and domestic clean energy finance and the associated benefits and

trade-offs. This, we argue, is critical for understanding the ‘governance in practice’

28
of market-based mechanisms such as the CDM. Here in particular, the ‘un-

governance’ of clean energy often has significant impacts on whether or not clean

energy goals are achieved: the actors and policy processes that are not typically

perceived as the subjects of clean energy governance but which can undermine the

effect of clean energy policies, through ongoing investments in fossil fuels and

directing of flows of foreign finance towards that end.

India’s early state-led growth in clean energy technologies has largely dictated the

role that the CDM has come to play in the country. In this regard, the extent to which

the CDM can fulfill its dual aims of creating sustainable development benefits

alongside emissions reductions is dependent on the broader institutional environment

and political economy of energy policy and the relations of power which characterize

the domestic energy sector. In turn, we argue that this implies an appreciation of how

the influence and power of ‘incumbent’ versus ‘niche’ actors, for example, shapes

the extent to which national policy is steered towards particular public goals and

reflects certain interests over others in attempts to simultaneously address climate

change, energy poverty and energy security. We have argued here for greater

appreciation in scholarship and policy making of the role that national and local

energy governance and politics plays in determining whether the CDM becomes

aligned with domestic clean energy politics and, ultimately, in shaping its prospects

for contributing to low carbon energy transitions in industrializing countries such as

India.

29
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1
In this paper we consider energy generation defined as ‘clean’ through the CDM and through

various aspects of Indian energy policy, while recognising that definitions of clean energy are

contested (Newell et al. 2009).

2
The paper is based on 36 semi-structured interviews and a series of meetings during September 2010

with a range of Delhi-based policy makers and bureaucrats in relevant government ministries and

authorities, project developers, consultants, private foundations, financiers, representatives of various

bilateral and multilateral donors, and representatives of non-governmental organisations and civil

society (Appendix 1). Interviewee data has been triangulated prior to interpretation in order to assess

the validity of claims.

3
Authors’ interview with Member Secretary of DNA, MOEF, New Delhi, September 2010
4
Authors’ interview with GIZ representative, India Carbon Market Conclave 2010, New Delhi,

September 2010.
5
Authors’ interviews with a carbon market services consultant; and with a Director, MNRE, New

Delhi, September 2010.

6
Both ADB and IFC are providing $450m of debt finance to the project, with IFC providing a further

$50m in equity.
7
In addition to the REC scheme, the most significant of these is the Perform, Achieve and Trade

(PAT) scheme for trade in energy efficiency measures, which came into force during August 2012.

Pilot schemes are also planned for the introduction of domestic trade in sulphur- and nitrogen-based

industrial air pollutants (Singh 2011).

36
8
Authors’ interviews with private, public and third sector project developers, New Delhi, September

2010.
9
Authors’ interviews with carbon market consultants and project developers, New Delhi, September

2010.
10
Authors’ interview with Member Secretary of the DNA, MoEF, New Delhi, September 2010
11
Authors’ interviews with carbon market consultants and project developers, New Delhi, September

2010.
12
Authors’ interviews with Programme Manager, Gold Standard Foundation, New Delhi; Project

Developers, Carbon Market Conclave 2010, New Delhi; Senior Program Officer of an international

NGO and former staff member in the Maharashtra State Government, Gurgaon, September 2010.
13
We thank an anonymous reviewer for highlighting this point.
14
Authors’ interview with Senior Program Officer of an international NGO and former staff member

in the Maharashtra State Government, Gurgaon, September 2010.

15
Authors’ interview with Senior Program Officer of an international NGO and former staff member

in the Maharashtra State Government, Gurgaon, September 2010.

16
Authors’ Interview with Senior Climate Finance Advisor, DfID, New Delhi, September 2011.
17
Gram Sabha is a village assembly open to all citizens.
18
Authors’ interview with Deputy Marketing Manager, Suzlon, New Delhi, September 2010.
19
Authors’ interview with senior staff member, Social, Environment and Water Resources

Management Unit, World Bank, New Delhi, September 2010.

20
The MNRE cites Central Electricity Regulatory Commission (CERC) data that suggests that India’s

target of 15 per cent of renewable energy in the electricity mix can be met without additional costs to

the end-user, with additional costs borne by state electricity utilities (Gupta 2010).
21
A $1.1 per tonne tax was placed on coal in the 2010 budget.
22
Authors’ interview with Director, MNRE, New Delhi, September 2010.
23
Interview with Director of MNRE, New Delhi, September 2010
24
Interview with Director in the Ministry of Power, New Delhi, September 2010

Appendix 1 – List of interviewee institutions

37
Ministry of Environment and Forests (MoEF)

CDM Designated National Authority (DNA), MoEF

Ministry of New and Renewable Energy (MNRE)

Planning Commission

Central Electricity Authority (CEA)

former staff of Maharashtra State government

Ministry of Power

Bureau of Energy Efficiency (BEE), Ministry of Power

Former international climate change negotiator for Indian delegation

Carbon market consultants

Suzlon

Project developers – public, private and third sector

Confederation of Indian Industry (CII)

Federation of Indian Chambers of Commerce and Industry (FICCI)

Gold Standard Foundation

Centre for Science and Environment

Winrock International

The Energy and Resources Institute (TERI)

Centre for Policy Research (CPR)

Integrated Research and Action for Development (IRADe)

WWF

Research for Information System for Developing Countries (RIS)

GTZ (now GIZ)

UK Department for International Development (DfID)

World Bank: Social, Environment and Water Resources Management Unit,

38
Renewable Energy and Energy Efficiency Partnership (REEEP)

39