Trade & Climate Change: Clean Development Mechanism in SME Sector can reduce exposure and vulnerability to weather and climate events.

05 Jan

The Small & Medium Enterprise and Business in many Countries play a vital role in the growth of the Nation. It is a fountain of creative ideas of which many have made it big over time, World over. It is one of the most dynamic part of a countries growth as it more often than not linked directly at the grass root level.

As per the Small & Medium Business Development Chamber of India;

The Small and Medium Enterprises (SMEs) play a vital role for the growth of Indian economy by contributing 45% of industrial output, 40% of exports, employing 60 million people, create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets. SME’s Contribution towards GDP in 2011 was 17% which is expected to increase to 22% by 2012. There are approximately 30 million MSME Units in India and 12 million persons are expected to join the workforce in the next 3 years. SMEs are the fountain head of several innovations in manufacturing and service sectors, the major link in the supply chain to corporate and the PSUs. The Indian market is growing rapidly and Indian entrepreneurs are making remarkable progress in various Industries like Manufacturing, Precision Engineering Design, Food Processing, Pharmaceutical, Textile & Garments, Retail, IT and ITES, Agro and Service sector.

Greenhouse Effect

If one just looks at the scale, it could be well understood the potential it has in terms of creating a sea-change in the quest for reduction of GHG and thereby reduce the Green House Effect, provided it is given the support and attention it deserves.

The UNFCCC COP-17 meet at Durban has underscored the need to move at a faster pace in the Worlds effort to abate Global Warming & Climate. The IPCC‘s  report examines how disaster risk management and adaptation to climate change can reduce exposure and vulnerability to weather and climate events and thus reduce disaster risk, as well as increase resilience to the risks that cannot be eliminated.

The IPCC’s special report states under DISASTER LOSSES which would come about due to extreme weather events caused by Global Warming,  four major points;

1.Economic losses from weather and climate-related disasters have increased, but with large spatial and inter-annual variability (high confidence, based on high agreement, medium evidence).

2.Economic, including insured, disaster losses associated with weather, climate, and geophysical events 4 are higher in developed countries. Fatality rates and economic losses expressed as a proportion of GDP are higher in developing countries (high confidence).

3.Increasing exposure of people and economic assets has been the major cause of the long-term increases in economic losses from weather and climate-related disasters (high confidence).

4.Long-term trends in economic disaster losses adjusted for wealth and

population increases have not been attributed to climate change, but a role for climate change has not been excluded (medium evidence, high agreement).

Although it is argued that large corporations have a greater responsibility to respond to the challenges of Global warming it must be noted that they are in many cases moving positively in that direction. It can be safely argued that for large corporations, changing the process is time consuming principally due to its size and no quick turn around is possible. Further they require much more assistance both technically and financially to do so viably.

But the problem of Climate Change being of humongous proportion, the effort on ground as of now need more participation. This is where, I would like to point the direction towards SME’s. Typically in India, the SME sector can be further subdivided as:

Manufacturing Enterprises – Investment in Plant & Machinery

Description                                                                       USD($)

Micro Enterprises                                                upto $ 62,500

Small Enterprises                                         $ 62,500 & upto $ 1.25 million

Medium Enterprises                  above $ 1.25 million & upto $ 2.5 million

Service Enterprises – Investment in Equipments

Description                                                                      USD($)

Micro Enterprises                                                  upto $ 25,000

Small Enterprises                            above $ 25,000 & upto $ 0.5 million

Medium Enterprises                   above $ 0.5 million & upto $ 1.5 million

In India, the SMEs are spread thin. Wherever clustering approach has been developed, and organizations like UNIDO have brought technology transfer and support to clusters, they have seen to embark on an improved profitability and competitiveness route. There are more than 8 million SMEs in India today – small companies that churn out auto components or electronic parts, garments, etc. – making manufacturing the biggest engine for job creation in our economy, and contribute to 60 per cent of India’s exports. About 40 million workers are employed by the manufacturing sector, as per the National Sample Survey 2000.

 These are big numbers, with the latent potential to grow bigger, and signify one thing clearly: the SME sector can play a crucial role in the economic growth of India. Conversely it also means that it has the potential to spew enormous amount of GHG( Green House Gas). Moreover the SME sector, which by default is set up in the fringe districts of any city, faces acute electricity and water shortages. Sometimes both and at times mostly electricity. This hampers productivity. And also creates space for using diesel power generating system which are a prime source for GHG emission. This, in the present Global concern towards Climate change, would act as an impediment for favorable negotiations for India post 2012. These negotiations would begin for framing the new convention which would take over form the present Climate Change Treaty, the world follows – the Kyoto Protocol.  The second crediting period of the KP would be over by 2015 and as the world is teetering towards Global Warming of enormous proportions, the rewards and punishment for helping or not helping in its mitigation would be huge. In the last meet of the 194 member states of the UN at Durban, a $ 100 Billion per year Green Climate Fund by  A.D 2020 has been agreed upon.

 As globalization is increasing and competition is becoming more vigorous there is increased  awareness amongst all stake holders that Climate Change is a potential risk to business and its mitigation is an absolute necessity. The risks have already been mentioned in the paragraphs above. Now to succeed in a competitive environment, which is also in the midst of a Global Economic slowdown, the manufacturing sector has to adopt some best practices and embrace some new age tools. One of the key differentiators can be Sustainable Design & Renewable Energy Technology and its wide adoption by Indian SMEs, which can play a significant part in enhancing their competitiveness on the world stage.

 Further India is one of the emerging economy on whom the world is focusing along with other BASIC Nations (Brazil; South Africa; India; China) to support the climate change initiative taken up in the recently concluded UNFCCC’s  COP-17 at Durban South Africa; it is imperative for the Nation to look into and address the GHG abatement potential across the SME sector. Else it would be put into disadvantage in future negotiations set to take place for a new framework convention beyond 2015, when the Kyoto Protocol part -II is set to end. These negotiations are set to take place from 2012 onwards and culminate towards Rio+20, the UNFCCC’s COP 18, scheduled in Brazil this year. India has however the National Action Plan for Climate Change( NAPCC) in place which has Eight Mission programs, and some of them are operational as of now. Amongst them the National Mission for Enhanced Energy Efficiency(NMEEE) covering Nine  industrial sectors must be adopted by the SME sector too and its scope increased to include more sectors.

 Now what would be the process and advantage for the SME to look at the Energy Efficient Building & Renewable Energy Technology, otherwise known as Green of Clean technology? For starters, one must adopt the guidelines given under the two Green Building rating system prevalent in India. The National GRIHA (Green Rating  for Integrated Habitat Assessment) and the IGBC ( Indian Green Building Council ). These are guided by the prestigious The Energy and Resource Institute (TERI) and the later by the Confederation of Indian Industries (CII). Under the IGBC we have guidelines both for retro-fit as well as new industries , namely the ” Green Co” and the “Green Factory” rating system.  As to the advantages, primer companies such as Wipro, Godrej, Larsen & Toubro, GE, JSW and many others industrial sectors  have adopted the systems across its various rating system and have found favorable variations in there CAPEX & OPEX, but what is most important in this discussion is that there is a significant reduction to the GHG, as much as 20%.

 Having said that, to make the SME sector adapt to new age technology, the various associations for SME should petition both State & Central Government to create favorable Credit policy for them.  The SME sector mostly does not seek any grant or subsidy and industrious enough to pull through with its own resources, however Credit for expansion or setting up a new venture for this sector is hard to come by, principally because most do not have the wherewithal to afford big consultation or credit rating companies, which could facilitate and guide them to become Credit worthy in terms of banking rules. There needs to be some thought on this.

Courtesy: For data on SME’s – Rajiv Sodhi in  & the SME Chamber of India

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