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Clean Development Mechanism Criticism Surges Thanks to Success in China

Leon Kaye | Wednesday October 20th, 2010 | 5 Comments

One of many methods that exists to reduce carbon emissions on a global scale is the Clean Development Mechanism, or CDM. CDM is a form of carbon credit trading that the Kyoto Protocol negotiators established in 2006. The process, in theory, is relatively simple. Companies based in wealthier industrialized nations can sponsor a greenhouse gas emissions reduction project abroad–usually in developing nations. The sponsoring firm scores the coveted carbon credits. Meanwhile, the country in which the carbon offsetting project occurs gains cash and innovative technology.

Billions of dollars have poured into these projects around the world. What started with a seed fund from the World Bank ten years ago with US$160 million has surged to well over US$7 billion. But not everyone sees this is a positive trend. In fact, critics claim the system, while well intentioned, is open to abuse.

At issue is where these projects end up. Over 40% of CDM projects are in China, most of which are hydroelectric power stations. China has benefited from over 1000 projects that have created hydro power the past four years.

On one hand, this is a step forward for the Chinese. Many alarmists point to China’s increasing affluence, which means the demand for more electricity. The result is more coal-powered power plants that feed China’s thirst for energy and contribute more carbon emissions into the earth’s atmosphere. Therefore, stalling the increase in coal production and introducing cleaner forms of energy should be applauded.

Others do not see China’s success in attracting CDM projects in such a positive light. In their view, China is manipulating the system, generating many credits while gaining new power plants at almost no cost. For small rural electrification projects, this would not be an issue. But China has proved adept at attracting funding for huge hydropower stations–and some CDM experts allege that many of them could be built without the assistance CDM participants offer. At fault is an auditing system upon which CDM relies to verify the claims that projects really would help reduce carbon emissions. A World Wildlife Fund study found that many of the Chinese initiatives’ contribution were bogus. Meanwhile, regions of the world that CDM projects were meant to help have been ignored by CDM. Africa, for example, attracts only 2% of CDM credits.

It is unseemly that a country like China, which has amassed huge amounts of capital, has succeeded in having their large power projects subsidized by the rest of the world. Certainly plenty of other countries that could have been assisted from a carbon credit program like CDM have been left crumbs in comparison. Or does this just mean that China will pollute less in the long run–and if the Chinese really are investing vast sums of money into clean technology, the world will eventually benefit should China share this technology? After all CDM is hardly a panacea–it is one of many projects that is attempting to reduce the world’s carbon emissions. China could have paid for many of those dams on its own–but the Chinese just found loopholes that no one else was able to exploit. So do not point the fingers at China, but at those who administered the system and allowed the funneling of money to go to the Middle Kingdom instead of countries that really could have used the economic and technological boost.


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  • Anonymous

    Clean “Defense” Mechanism??

    • Jen Boynton

      thanks for the catch. The post has been updated!

  • http://nickpalmer.blogspot.com Nick Palmer

    Does anyone know how true the “denier” story is that China set up CFC manufacturing plant purely so that it could be paid for ofsetting/retiring the ozone depleting chemicals by then closing the plant?

    • Patrick

      Hi Nick,

      I think that you are probably referring to the recent UNFCCC EB scrutiny of HFC 23 elimination projects. HFC is an industrial gas who elimination created huge windfalls of CDM income. Many of these (I think there are less than 20 worldwide) are located in India or China. As far as I know, there was no cases of factories deliberately set up. However HFC projects are currently under investigation by the UN over whether or not some of these projects were artificially producing more than they would normally just to claim extra credits. Issuance from these projects are currently suspended pending further investigation.

      Regards,
      Patrick

      CIS Carbon Ratings

  • http://greengopost.com Leon Kaye

    Yes, sorry, that was one of the funniest errors I have ever made–I have no idea why I had “defense” on the brain. Pretty silly considering I’ve done some biz dev work for a CDM consultancy in the past!