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Sustainable Development: the Forgotten Aspect of the CDM?
The big surprise of Kyoto 1997 was that Brazil and the USA joined forces to promote the concept of the ‘Clean Development Mechanism’. Developing countries only swallowed the bitter pill of the market mechanism due to the sugar coating of ‘clean development’ getting the same formal attention as the cost-efficient provision of greenhouse gas reduction. What has become of this promise eight years and 500 CDM projects later?
The market aspect of the CDM has been a resounding success – more than 750 m Certified Emission Reductions (CERs) are estimated by the year 2012. The search for cheap reductions has led to the emergence of large-scale technologies that no observer would have forecast even three years ago – reduction of HFC-23 from production of refrigerants and N2O from chemical industry. The CDM has also mobilised a large number of unilateral projects, showing that entrepreneurs in developing countries are eager to take up the opportunities. Surprisingly, many very small projects have come up despite the high transaction costs of the CDM project cycle.
Miracle technology
Concerning sustainable development, the picture is much more patchy. At a conference ‘Climate or development’ held at Hamburg Institute (HWWI) in October 2005, all presenters agreed that development benefits of CDM projects have been relatively limited.1 The large ‘miracle technology’ projects do not create many jobs and also do not contribute directly to community development unless a part of the CER revenues is spent for this purpose as done in a HFC reduction project in India and a N2O project in Brazil.
Renewable energy is represented through a large number of projects, but usually with relatively low CER volumes per project. Of 490 projects available on the CDM Executive Board’s website on 16 December 2005, only 8 projects explicitly address rural energy provision. Another 115 biomass power projects with capacities of 3-25 MW, using agricultural wastes such as bagasse and rice husk, generate indirect benefits for the rural population. Due to the demand for agricultural wastes, farmers can now sell them to power plant operators and increase their income. In India, for example, prices for rice husk have quadrupled over the last three years.
However, it is likely that the major share of agricultural wastes will come from wealthy farmers (being proportional to production levels) and that the poor, landless rural population will only marginally benefit or even suffer as they will no longer have access to free fodder for their animals. 58 small hydro plants of a few MW are built in rural areas and thus could provide intermittent benefits through job creation and electricity provision for the surrounding villages. However, in most cases, the power will be delivered to the cities and migrant labour employed for the construction work, which in turn will lead to conflicts about water use. So the development impact for the direct vicinity of the plant may on average be negative.
Rubber-stamp
Project types with high development benefits such as energy efficiency and transport suffer from the lack of approved methodologies and difficulties of organising many different stakeholders. So far, in many countries the Designated National Authorities (DNAs) do not really check the sustainability benefits as would be their tasks. Even poor countries like India with a long list of sustainability criteria essentially rubber-stamp projects. This has led to strong and justified criticism by the Indian NGO ‘Centre for Science and Environment’, but still the Indian DNA approves over 50 project proposals in one meeting.
While poverty reduction would require a regional focus on sub-Saharan Africa and South Asia, only the latter region has profited from the CDM so far. While over e35 m have been spent on CDM capacity and institution building, only a small part came to the benefit to sub-Saharan African countries or LDCs as most funds focused on the large emerging economies. Many host countries criticise this tendency. The Government of China has introduced a differentiated CER tax with a rate of 65% for HFC23, 30% for N2O and 2% for renewable energy. However, revenues of this tax are earmarked for further climate policy projects and not for general development activities.
Surprisingly, many DNAs also do not care about additionality of CDM projects. Non-additional projects do not provide any development benefits at all as they would also happen under business-as-usual circumstances. Only the CER revenues could generate some benefits and as they accrue to business people, they are unlikely to provide more development impacts than general economic growth. Unfortunately, NGOs have so far failed to play the role of a reliable watchdog criticizing non-additional projects.
CER premium prices
The Gold Standard initiative provides a set of criteria that aims to guarantee development benefits. While some Gold Standard projects such as the Kuyasa housing energy efficiency improvement in South Africa have managed to get premium prices for their CERs, the overall share of Gold Standard projects in the CDM is minuscule. The situation is similar to the ‘green electricity’ sales in Europe that never reached more than a few percentage points of the population.
There is a real risk of a backlash against the CDM if its sustainability performance does not improve. This requires strong DNA action such as taxation and rejection of non-additional projects supported by NGOs that identify the ‘black sheep’. If Gold Standard projects manage to generate high premiums, they could leave their niche. A judicious mix of carrots and sticks can help to strengthen the sustainability leg of the CDM without which it will fall.
1 See: http://www.hwwa.de/Forschung/Handel_&_Entwicklung/Veranstaltungen/Climate_or_Development_2005.htm
Discussion Platform in JIQ Issue October 2005
Mr Jusen Asuka and Mr Tadashi Okimura on the Quality and Price of Carbon Credits
Discussion Platform in JIQ Issue July 2005
Mr John O. Niles on the CCB Standards
Discussion Platform in JIQ Issue April 2005
Mr Jason Anderson on Efficiency Standards
Discussion Platform in JIQ Issue December 2004
Mr Wytze van der Gaast and Mr Joris Laseur on Unilateral CDM
Discussion Platform in JIQ Issue October 2004
Mr Donald Goldberg and Mr Kevin Baumert on Action Targets
Mr Andreas Oberheitmann and Mr Manuel Frondel on CDM in China
Discussion Platform in previous JIQ Issues
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