The stated goal of the Kyoto Protocol is to reduce global greenhouse gas emissions. One of the creative ways the Protocol sought to achieve this goal was the creation of the Clean Development Mechanism (CDM). Instead of forcing industrialized countries to make expensive greenhouse gas emissions reductions, the CDM provides flexibility by allowing the industrialized countries to purchase carbon credits from carbon dioxide-reduction projects in developing countries. For countries that have agreed to limit their greenhouse gas emissions, it sounds like the CDM would be a lower-cost way to reduce emissions, but there is evidence that countries, such as China, have gamed the system. Also, the CDM itself does not necessarily lead to efficient outcomes if the goal is greenhouse gas emissions reductions. Ultimately, energy prices increase for consumers in order to pay for these programs.
What is the CDM Process?
For the CDM to work, it requires some bureaucracy. Because the CDM creates valuable credits the creation of CDM credits is supervised by an executive board under the guidance of the Conference of Parties of the United Nations Framework Convention on Climate Change. The CDM Executive Board requires that CDM projects are both validated and then registered. According to the U.N., “validation is the process of independent evaluation of a project activity by a designated operational entity against the requirements of the CDM”;[1] and “registration is the formal acceptance by the CDM Executive Board of a validated project as a CDM project activity”.[2]
After a project is both validated and registered, it can be certified and the issuance of Certified Emission Reductions (CER) can occur.[3] A CER represents one metric ton of carbon dioxide not emitted to the atmosphere. Once registered, a periodic independent review or verification is conducted of the monitored reductions in greenhouse gas (GHG) emissions that have resulted from the registered CDM projects. [4]
Any type of technology other than nuclear power can apply for CERs. Even coal plants can be awarded CERs if an improvement can be shown from constructing a new coal plant over existing power plants. Around 2 billion CERs are expected to be generated by the end of the current phase of the Kyoto Protocol in 2012.[5]
What Countries are Benefiting from the CDM?
Between 2005, when the Kyoto Protocol came into force, and November 1, 2009, more than 1800 projects have been registered through the CDM, and several thousand more have either been considered or are under consideration. Sixty percent of these projects have been registered either in China or India. In all, 652 projects have been registered in China (35 percent of the total) and 463 projects have been registered in India (25 percent of the total.).[6] Other countries having registered CDM projects include Brazil, Chile, Columbia, Indonesia, Israel, Malaysia, Mexico, South Africa, South Korea, and Thailand. By 2012, the end of the first commitment period of the Kyoto Protocol, China’s registered CDM projects are expected to reduce GHG emissions by 916,000 tons of carbon dioxide equivalent (54 percent of the total registered CDM projects), and India’s registered CDM projects are expected to reduce those emissions by 234,000 tons (14 percent). Those numbers are expected to increase, however, with China alone having an additional 34 projects in review with another 1,100 in validation — over 50 percent of its submitted projects.[7]
![clip_image002[5]](https://www.instituteforenergyresearch.org/images/KyotosCleanDevelopmentMechanismIsItProdu_E1A8/clip_image0025.gif "clip_image002[5]")
Types of Registered Projects
There are a large number of types of CDM projects. The Financial Times lists 26 different types of projects including wind, solar, hydro, geothermal, landfill gas, biomass, fossil fuel switch, coal bed methane, cement, afforestation, reforestation, and others.[8] For China, the majority of CDM credits come from hydro and wind energy projects. Of the 918 hydro projects that China has submitted thus far, 324 have been registered, representing 50 percent of its registered CDM projects. China has submitted 418 wind projects, and 139 have been registered (21 percent of its registered CDM projects). GHG emissions reductions in tons of carbon dioxide equivalents by 2012 from China’s registered CDM projects total 916, 000 tons, with 136,000 tons from hydro projects and 76,000 tons from wind projects. With 30 percent of China’s wind capacity not connected to the grid[9], it may be questionable whether all of these CO2 reductions will be verified by the CDM Executive Board.
As of November 1, 2009, China had submitted only 5 solar projects, of which 2 have been registered by the CDM Executive Board. China excels in factories that make photovoltaic cells for solar plants but ships these overseas to Europe and North America. At one time Germany was a major supplier of photovoltaic solar equipment, but the Chinese have overtaken the Germans in this market since the Chinese are able to provide the equipment at a 30 percent lower production cost.[10]
![clip_image002[7]](https://www.instituteforenergyresearch.org/images/KyotosCleanDevelopmentMechanismIsItProdu_E1A8/clip_image0027.gif "clip_image002[7]")
It is interesting to note that China’s 11 HFC registered projects generate the most reductions of CO2 equivalents, 363,000 tons by 2012, of any project type. HFC-23, a greenhouse gas, is a waste product from the manufacture of a refrigerant gas. CDM credits can be obtained from destroying the gas, a relatively cheap process.[11] The secretariat of the Clean Development Mechanism estimates that a ton of HFC-23 in the atmosphere has the same effect as 11,700 tons of carbon dioxide.[12] Because of this massive "global warming potential," chemical companies can earn almost twice as much from selling CERs as from selling refrigerant gases,[13] spurring concern that refrigerant producers may be increasing their output solely so that they can produce and destroy more waste gases.[14]
Additionality
For a project to be accepted as a CDM project, one major condition is that it must be “additional” to the business as usual scenario. In other words, the project is a result of the CDM program and not required by regulations or done for other business reasons, including merely to increase efficiency.[15] The U.N. started questioning whether some of China’s projects were additional last summer when it found the country lowering its renewable energy subsidies in order for the projects to qualify for additionality and thus be built by investment from industrialized countries. It was purported that the CDM board had refused approval for about 50 wind power projects, and doubts over whether CDM funding will be available in the future prompted power companies to stall some new wind power investments.[16]
A signal that many of the projects may not be additional is that almost 75 percent of those approved by the CDM’s Executive Board were already complete at the time of board approval. According to analysts from Stanford University, CDM offsets were requested for "essentially all" new hydro, wind and natural gas fired projects being constructed in China, implying that without the CDM virtually no hydro, wind or gas projects would be under construction. This is very unlikely given that many hydro projects were built in China prior to CDM offsets.[17]
Conclusion
As a way to reduce GHG emissions at lower cost, the creators of the Kyoto Protocol devised the Clean Development Mechanism. The CDM allows net GHG emissions to be reduced at a lower global cost by financing emissions reduction projects in developing countries where costs are lower than in industrialized countries. However, in recent years, criticism against the mechanism has increased, mostly due to whether the project was additional to what the host country would have built in the absence of CDM funding. China has been the major beneficiary of the program, which is helping it achieve the goal of producing 15 percent of its energy from renewables by 2020,[18] while still undertaking a massive construction program of coal-fired and nuclear power plants that aims to build one or two such plants each and every week.[19]
It is difficult to blame China for gaming the CDM system. They have been playing by the rules set up by the U.N. and reaping the benefits. U.S. policymakers should be watching this program closely, as most “climate change” proposals here offer similarly structured offsetting credits, with all of the same opportunities for abuse of the system.
[1] http://cdm.unfccc.int/Reference/Guidclarif/glos_CDM.pdf
[2] http://cdm.unfccc.int/EB/039/eb39annagan1.pdf
[3] http://cdm.unfccc.int/Reference/Guidclarif/glos_CDM.pdf
[4] http://cdm.unfccc.int/Reference/Guidclarif/glos_CDM.pdf
[5] Kyoto’s Great Carbon Offset Swindle, June 9, 2008, http://www.renewableenergyworld.com/rea/news/article/2008/06/kyotos-great-carbon-offset-swindle-52713
[6] Financial Times, http://www.ft.com/cms/s/0/ec137b16-ddb0-11de-9f8b-00144feabdc0,dwp_uuid=2dc4abc2-db61-11de-9023-00144feabdc0.html
[7]Financial Times, http://www.ft.com/cms/s/0/ec137b16-ddb0-11de-9f8b-00144feabdc0,dwp_uuid=2dc4abc2-db61-11de-9023-00144feabdc0.html
[8] Ibid.
[9] The Wall Street Journal, “China’s Wind Farms Come with a Catch: Coal Plants”, September 28, 2009, http://online.wsj.com/article/SB125409730711245037.html
[10] “Solar-Power Incentives in Germany Draw Fire,” Vanessa Fuhrmans, Wall Street Journal, September 28, 2009, http://online.wsj.com/article/SB125383541153239329.html
[11] Kyoto Protocol ‘loophole’ has cost $6 billion, February 9, 2007, http://www.newscientist.com/article/dn11155
[12] http://en.wikipedia.org/wiki/Fluoroform
[13] Kyoto Protocol ‘loophole’ has cost $6 billion, February 9, 2007, http://www.newscientist.com/article/dn11155
[14] Kyoto’s Great Carbon Offset Swindle, June 9, 2008, http://www.renewableenergyworld.com/rea/news/article/2008/06/kyotos-great-carbon-offset-swindle-52713
[15] See UNFCCC, Glossary of CDM terms (Version 05), http://cdm.unfccc.int/Reference/Guidclarif/glos_CDM.pdf. The UNFCCC defines additionality of a program of activities as, “A PoA is additional if it can be demonstrated that in the absence of the CDM (i) the proposed voluntary measure would not be implemented, or (ii) the mandatory policy/regulation would be systematically not enforced and that noncompliance with those requirements is widespread in the country/region, or (iii) that the PoA will lead to a greater level of enforcement of the existing mandatory policy /regulation. This shall constitute the demonstration of additionality of the PoA as a whole.”
[16] CNN,” U.N. halts funds to China wind farms”, December 1, 2010, http://edition.cnn.com/2009/BUSINESS/12/01/un.china.wind.ft/index.html
[17] Kyoto’s Great Carbon Offset Swindle, June 9, 2008, http://www.renewableenergyworld.com/rea/news/article/2008/06/kyotos-great-carbon-offset-swindle-52713
[18] USA Today, “China Pushes Solar, Wind Power Development”, http://www.usatoday.com/money/industries/energy/environment/2009-11-17-chinasolar17_CV_N.htm
[19] Roger Harrabin, “China building more power plants”, BBC News, http://news.bbc.co.uk/2/hi/6769743.stm
