Almost two decades ago, a private company began constructing a hydropower project near Ramanand Negi’s Himachali wooden home. The starkest memory he has of the construction period is of his glass windows rattling during nights when the company, Jaypee Karcham Hydro Corporation, would drill and blast into the mountain to create tunnels.
Today, three tunnels run through the mountain on which Urni, Negi’s village, is situated, at about 9,000 feet in Kinnaur district. It is through these tunnels that water from the Sutlej river is diverted, run through turbines that generate hydropower, and then, about 18 km downstream, flushed back into the river. The 1,000-MW project, known as the Karcham Wangtoo project, is classified as a “run-of-the-river” type.
The 300-MW Baspa II project is situated upstream of Karcham Wangtoo, on a tributary of Sutlej called Baspa. It diverts water through similar tunnels and releases it into the Sutlej, generating electricity along the way.
Negi’s house once looked over a gushing river – as water began to be diverted for these projects, it reduced to a trickle.
The work has also affected land and houses in the village: Negi’s and many other residents’ homes developed cracks as a result of the continuous blasting, and the area has begun to see landslides. “All this blasting and drilling has made our mountain weak,” said Negi.
In 2013, four years after the construction of Karcham Wangtoo began, a major landslide occurred in Urni in a part of the mountain that lay between two tunnels, destroying apple orchards and endangered chilgoza trees, and damaging a few houses. “We did not have landslides in this region before the project came up,” Negi said.
Even as Negi and other residents of villages in the region were dealing with the impacts of these projects, the hydropower plants were benefiting financially from a perception that as renewable energy sources, they were helping protect the environment. Specifically, they were selling carbon credits to oil and gas companies in high-income countries across the world. These included The Netherlands’ Main Energie, Germany’s EVD Energieversorgung Dormagen GmbH and Hungary’s Hungarian Gas Storage.
A carbon credit is essentially a token that a company can purchase to compensate for carbon that it emits as part of its operations. It is one of the most widely used carbon offsetting measures across the world. So, a European company can pay a renewable energy project in India for carbon credits – when the Indian project generates electricity without emitting greenhouse gases, using the revenue earned through credits, it is said to offset the harm the company does to the environment elsewhere. If a company buys enough credits to offset all its emissions, it can claim labels such as “green” or “carbon-free”.
Since 2014, Karcham Wangtoo has sold almost 30 million carbon credits to such companies. Baspa II has issued 16 million credits since 2010.
But as Scroll found in Kinnaur, communities living next to these two hydro-power projects complained of deforestation and increased landslides, and damage from the rivers changing course.
Among the flaws in the process through which these projects were registered to sell credits was that “when approvals were being given, it would be done without considering the impacts of the project on the environment and the communities”, said Prakash Bhandari, a researcher and activist with Himdhara Environment and Research Collective. “There were no benefits for them.”
Bhandari also made note of this in an objection he had filed in 2010 against the approval granted to a different hydro project in the state – Malana II. He wrote that, as he found in his ground research, promises upon which approval was granted, such as that the project would provide ample drinking water to the area, and install a drainage system and streetlights, were not adhered to.
The questionable environmental record of projects selling carbon credits is only one aspect of a broader problem with the system of carbon offsets.
Credits are bought and sold through global online registries, which assess projects and list them for trading. Buying one carbon credit is said to mitigate the emission of one tonne of carbon into the atmosphere.
In April, a German non-profit, CORRECTIV, published a report that analysed 65 projects across the world registered in a popular registry named Verra, a privately run not-for-profit headquartered in Washington, DC. These projects, which included Karcham Wangtoo and Baspa II, had sold credits to German oil and gas companies, such as RheinEnergie Trading GmbH and Stadtwerke Duisburg AG.
CORRECTIV found that over 10 million credits issued for these projects had offset either no carbon dioxide or less than the amount they were supposed to offset.
Fifteen of the projects were in India, where 3.8 million credits were found to have offset no carbon or less than the amount they were supposed to have offset. An overwhelming 76% of these credits were from four hydro projects – Karcham Wangtoo and Baspa II, as well as Allain Duhangan and Malana, also in Himachal Pradesh.
These projects, and other Indian renewable energy projects, had faced criticism even earlier for not mitigating as much carbon as they claimed to mitigate. In response, Verra in 2019 updated its standards for registering projects. Specifically, they stopped registering new renewable energy projects that were connected to the power grid, like Karcham Wangtoo and Baspa II, because these tended to be large-scale projects, and thus unlikely to depend significantly on revenue from carbon credits – this meant that they would typically begin and sustain operations even without those funds. Verra noted in 2021 that such hydropower projects had become “cost competitive with fossil-fired power generation facilities” and become common, as a result of which it would be easier for them to receive other financial aid and become viable.
But those registered earlier, including Karcham Wangtoo and Baspa II, could continue to issue credits for the period they had initially registered. This means that despite the critique and change in guidelines, these projects continue to earn revenue through such credits.
In Kinnaur, Jiya Lal Negi, a resident of Kalpa village and president of Zila Van Adhikar Samiti, which works towards the implementation of the Forest Rights Act, 2006, in the district, had heard about the sale of carbon credits by Karcham Wangtoo, and had questions about the money thus earned. “Is it being distributed within Kinnaur for development, or is it used in some other district?” he said. “We have not been made aware of it.”
Most locals Scroll spoke to did not know about carbon credits. But after hearing about it, they too had questions about them.
“Companies from developed countries are buying credits thinking these projects are clean and green,” said Rohit Negi, a resident of the village of Kupa who lives near the Baspa II project. “But looking at these impacts, would you say these projects are really beneficial to the environment?”
In a response to questions about carbon credits issued by Verra in Himachal Pradesh, the company said in an email to Scroll that they incorporate “social and environmental safeguards to address potential negative impacts of carbon offset projects”. Further, they said, “Projects undergo thorough assessment to evaluate their social and environmental risks and benefits, with criteria such as community engagement, biodiversity conservation, and sustainable development taken into account. In addition, stakeholder consultation and participation are integral to project development, ensuring that local communities are engaged and empowered throughout the process.”
Scroll emailed queries about the criticisms against the dams to the companies operating them. This story will be updated if they respond.
Carbon trading was initiated by the United Nations in 1997, under the “Clean Development Mechanism”, or CDM, which it formulated as part of the Kyoto Protocol.
Carbon trading under CDM began in 2008 – the price of one credit reached 25 Euros that year. But over the years, the price fell to just 0.5 Euros, and in 2012, owing to a range of factors, the CDM carbon market collapsed.
After this, some projects that had registered under the registry moved to other global registries, like Verra. The CDM market was a compliance market – that is, a market regulated by national or international frameworks and policies, like the Kyoto Protocol. Privately run registries like Verra, however, are part of the voluntary carbon market, which lets companies and governments voluntarily engage in trading credits.
Karcham Wangtoo was among the many projects that were first registered under CDM and then moved to Verra – the project obtained its CDM approval in 2008, and in 2018 registered with Verra.
A project can sell credits based on a comparison with a counterfactual scenario, where the electricity it generated would have instead been generated using coal, gas and diesel. The project developer calculates the emissions that their project could mitigate in this way, and sells credits based on that calculation. Accordingly, Karcham Wangtoo proponents estimated that between 2011 and 2022, the project would reduce the amount of carbon in the atmosphere by 35 million tonnes.
The dam’s crediting period ended in 2022 – that is, it could no longer sell credits for electricity it generated after that year. But it had accumulated credits up to that point, and companies could continue to buy credits for emissions that they had generated up to that year. Karcham Wangtoo issued its latest credits in April 2024 for mitigating carbon emitted in 2014.
Under CDM, hydropower projects had been a popular choice for polluters to buy credits from. A 2011 paper showed that 26% of the projects that had been selling carbon credits under the mechanism were hydropower projects, which made it the most common technology that polluters relied on under the mechanism. Carbon credit experts believe that one of the reasons for this popularity was the “supply” of such projects.
“In one way it was a volume question. If there are many hydropower plants, then companies can generate a lot of credits,” said Dr Benedict Probst, head of the Net Zero Lab at the Planck Institute for Innovation and Competition, in Munich. “If it’s a volume question, then it also becomes a price question. Credits for such projects tend to be quite cheap,” he added.
The Hindu Kush-Himalayan region and adjacent mountain areas became particularly popular for large hydropower projects – almost 60% of large hydropower projects across the world registered under the CDM were situated here.
Some scientists have argued that in many cases, selling credits from hydropower projects is flawed because doing so does not result in any additional positive impact on the environment – or, in carbon trading terms, the projects lack “additionality.”
A project is said to have additionality if it can be shown that it would only be financially viable with the revenue generated by selling carbon credits to polluting companies. If credits are not the primary source of revenue for the project, scientists argue, the project would have been built anyway.
The additionality of a project is key to the system of carbon offsets, and all projects applying to sell credits through mechanisms and registries like CDM and Verra, have to prove that it is the revenue through carbon credits that will make their project viable. For instance, the documents for Karcham Wangtoo stated that “in the absence of CDM revenue, it would have been difficult for the project proponents to implement the project activity on account of the lower returns”.
However, a 2011 paper by Alexander Erlewein and Marcus Nüsser showed that Karcham Wangtoo did not satisfy the condition of additionality. It noted that the developers did not wait for registration by CDM authorities and started construction without knowing whether it had been approved.
An official of the project who Erlewein and Nüsser interviewed confirmed this. The official said that the main lender was willing to finance the project “even without taking into consideration additional revenues from selling of carbon credits”.
This was also apparent from project documents that Scroll accessed. In March 2006, ICICI bank came on board as the leading financial institution for the project, which needed a total of Rs 56 billion. The project was to raise 70% of this money as debt from “various banks/financial institutions by way of long-term rupee loan”. The remaining 30% was provided by the Jaypee group of companies in exchange for equity in the project. This indicated that the project had already secured all the financing it needed to go ahead through these sources. (In 2014, the Jaypee group’s equity was sold to the JSW group.)
Civil work on the project began in November 2005. It was only in April 2008 that the project obtained CDM approval.
Meanwhile, Baspa II project documents noted that “arranging finances is one of the major barriers for execution of hydro power projects” in India, and this has been a “major reason for falling short of the target of hydro-electric projects”. It further stated that “arranging long-term finance for the Baspa hydro power project was a tedious and cumbersome process”.
But in a 2011 paper, researchers Barbara Haya and Payal Parekh showed that most analyses of investments needed for projects were inaccurate owing to “uncertainty” in project costs. They noted that while these costs are documented and used in CDM project applications, they are at most “best estimates”. Since “hydropower is notorious for large cost overruns”, developers use higher estimates to show that projects are less financially viable without carbon credit revenue than they really are.
The paper examined 180 hydropower projects and found that in 89% of them, construction had begun before they had been registered under CDM, and in fact before the validation process had even begun. This, the authors note, indicated “that certainty about a positive validation or registration was not needed for the decision to build the project to be made”.
In Himachal Pradesh, dam officials told Scroll that revenue from carbon credits was being used to repay the loans that the hydro projects had undertaken from financial institutions like banks.
But carbon credit experts argued that it was very unlikely that the loans were sanctioned under the agreement that revenue from credits would be used to repay them. This is because when hydropower projects depend on loans, they have to show a “secure revenue stream” to guarantee repayment, Probst said. “You cannot show this through carbon credits. They fluctuate in price, it is difficult to anticipate when these might even crash. It would be very unlikely that carbon credits could meet the loan requirements.”
In parts of Kinnaur, amidst apple orchards and pine nuts trees, locals had one question after they learnt more about the carbon credits system – can hydropower projects be considered beneficial to the environment just because they sell carbon credits, when they wreak destruction on the local environment?
Last July, during the monsoons, lands of about 40 families were submerged because the Baspa II dam’s gates were not opened to regulate the river’s heavy flow, residents said. Ajay Dodiyan, a resident of Kupa village lost half a bigha of his land, and with it his crop of apple and peas.
“Some parts of the lands are still under water this year,” said Dodiyan. “Not only did we lose our revenue from last year’s damage, but even this year we have not been able to crop.” Dodiyan estimated that land of at least ten families was still under water this year.
Apart from this, residents said they were also seeing a slow “cutting” of agricultural land situated along the banks of the project’s reservoir.
To protect their lands from such submergence and erosion, locals have been demanding a permanent solution, like cemented walls along the reservoir, instead of wire crates filled with stones – the project administration put the latter measure in place after locals raised this issue last year. “The water is still going through the stone and wire crates, so there is no point of this,” Negi said, pointing out water seepage behind crates placed along his neighbour’s land, adjacent to the reservoir.
In Miroo village, Lalit Mohan explained the damages to the environment that he and other residents have been witnessing due to the Karcham Wangtoo project. “The transmission lines for all these hydro projects go through Miroo and Urni villages,” Mohan said, as he took a break from watering his apple orchards. “While the work for this was ongoing, a lot of muck was dumped, which harmed our chilgoza trees.” Negi added that in Urni, trees were also cut to erect these transmission lines.
Negi explained that after the 2013 landslide, to limit the impact of landslides in Urni, the administration had attempted to put wire crates along the slopes – but they could not hold the weight of the rocks and sliding land, and collapsed soon after. In both Urni and Miroo, residents also complained that natural springs had dried up since the blasting and tunnelling began.
A government geologist who works on dam building in Kinnaur confirmed to Scroll that springs could dry up due to blasting and tunnelling. He also said that in geological terms, the Himalayas are a “recent geography” and hence the mountains are not “stabilised” and “competent”, and thus could see landslides often.
Such local experience of impacts of hydropower have also been of interest to researchers. “In the last decade,” the researchers Manshi Asher and Prakash Bhandari wrote in a 2021 paper, “the ‘clean energy’ narrative behind the proliferation of hydropower development in the Himalayas has been challenged on grounds of adverse environmental impacts”. They noted that researchers had studied the disruption of river flows due to the diversion of rivers through tunnels, the loss of forests, landslides, and changes in land use and land cover due to the dam construction, all of which showed that the “impact is not limited to riverine ecology” alone.
The ground-level adverse impacts of hydropower projects that are considered “green” is unsurprising given that registries do not independently assess the environmental impacts of projects that seek to be listed for carbon trading.
Vaibhav Chaturvedi, a fellow at the Council on Energy, Environment, and Water, argued that it was not the responsibility of registries like Verra to conduct such assessments. “The environmental impact process is a fairly detailed one, and the local jurisdiction’s environmental authority is supposed to ensure that the environmental impact assessment process is followed,” he said. “It is neither the responsibility of a private player or the UN to check the environmental impact of each project suited for carbon credit generation across countries, nor is it practically possible.”
In India, under a 2006 Central government notification, every hydropower project has to obtain an environmental impact assessment, or EIA, prepared by a third-party consultant. Dam proponents usually include parts of the EIA of a project when they submit their project design document to a registry like Verra – this is a key document, based on which the project is verified and listed for carbon trading.
But Probst noted that many hydro projects in India came up decades ago when standards were older and less stringent, and hence “often lack in major qualitative assurance”.
The Baspa II project’s design document, for instance, notes that at the time of its implementation, the government did not require hydropower projects to obtain an environmental impact assessment. (The project did, however, procure one.)
For Karcham Wangtoo, while the environmental impact assessment was conducted and included in the project design document, residents of project-impacted villages are experiencing far greater impacts than the document indicated they would. The document noted that there is “no evidence to suggest that the project activity has any adverse impact on the water sources in the region”, that “landslides in the project area are minimised through site specific engineering measures,” and that some of the impacts “may affect the environment temporarily”.
But as Scroll’s ground reporting found, water sources such as springs had been damaged and landslides continued to occur. Negi observed, “These are not temporary impacts. The landslides have happened years after the operation of Karcham Wangtoo began. So it’s not correct to say that these impacts would have occurred only during the construction.”
Experts also note that there are significant problems when it comes to assessing the operation of projects. They note that most registries do not require projects to be independently monitored to ensure that the carbon credit trading they are carrying out is credible.
Verra told Scroll that they have a rigorous verification and validation process to ensure that entities assessing projects seeking registration or issuance of credits “deliver consistent high quality audits.” They added that “this includes the Auditing and Accreditation Team launched in January and its Performance Monitoring Program (PMP) for validation/verification bodies (VVBs).”
But Probst explained that typically, validation and verification bodies only check to what extent a project developer is complying with the existing standards and methodologies, and do not assess whether the methodology itself is adequate to assess the project.
“Without real watchdogs, no one within the market has the incentive to be cautious while issuing credits.” Probst said. “If you do not have them within a system, then credit issuance will be maximised, and that is what is happening.”
