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Clean Development Mechanism - Getting nowhere- C is for unclean

The only tool under the Kyoto Protocol to pay for the transition to clean-energy technologies in developing countries is the Clean Development Mechanism ( cdm). This was designed with two explicit purposes: to assist developing countries achieve sustainable development and to assist industrialized countries meet emission reduction targets. Therefore, in the global balance sheet of carbon accounting, industrialized countries and their companies can pay the additional cost of clean technology to developing countries and get carbon reduction credits.

The size By November 2007, the total cdm portfolio including projects still in various stages of the convoluted pipeline amounted to 2.29 billion tonnes worth of co2 equivalent greenhouse gas emissions. As cdm is credited over a period of time, roughly 10 years, this would mean that the total emissions that current and in-the-pipeline cdm projects would offset would be less than 1 per cent of the total global greenhouse gas emissions over the same period.

Of this, China alone will provide 1.21 billion tonnes of certified emission reductions (cers), over 50 per cent of the cdm pie. India will add another 15 per cent, if all projects in the pipeline are executed. The rest of the developing world supplies the remaining one-third.

What has CDM achieved? By the end of 2005, emissions by rich countries had increased, so clearly they had to look to cdm to meet their Kyoto targets. According to an European Environment Agency assessment, the 15 top polluters of Europe would have to buy 110.5 million tonnes of co2 equivalent credits per year in their Kyoto Protocol commitment period, even assuming that domestic measures in these countries work. Roughly 30 per cent of the total reductions about 340 million tonnes of co2 equivalent per year would come from cdm in this case. Till November 2007, the total amount of cers (it is a tonne of co2 equivalent) sold globally was 85.5 million tonnes per year. The demand to outsource carbon control will grow since Europe is unlikely to put in place adequate domestic measures to meet its Kyoto commitments.

It is for this reason that the South offers huge business possibilities. The cdm market here has already been taken over by large companies, global consultants, traders and brokers. In this market, cdm has become a mere financial mechanism not a measure to combat climate change. As a result, its outcome has been small and cheap. Small, because it has failed to move the world towards tangible solution for climate change like clean energy and public transport, and cheap because the focus is to provide cheapest possible cers to the developed world, and not make the transition to clean energy necessary.

The 'cheap' reduction is reflected in current portfolio of cdm projects. Untill November 2007, roughly 70 per cent of the cers issued were for projects to harvest fugitive gases hfc 23 and n2o the cheapest way to reduce emissions. Another 9.3 per cent is for energy efficiency projects and fuel switch (mainly from oil to natural gas) and 8. 5 per cent for biomass projects (generating electricity by burning biomass). Not even one solar energy project, or a high-end clean coal project, afforestation project or public transport project figures in the current cdm . Wind energy projects, which constitute 14 per cent of all projects bring less than 3 per cent of cers.

India is selling itself cheap here. Fifty four per cent of cer s issued to projects in the country are for thermal destruction of hfc23. Small-time energy efficiency projects corner another 23 per cent and biomass energy 10 per cent. There are no projects from public utilities - say, public-sector power companies that desperately need to invest in emission reduction, or city governments that need cleaner buses. There are very few community-based, small-scale renewable energy or afforestation projects. Even the so-called small-scale projects - microhydel to biomass energy - are cornered by the private sector, with little gains to local people.

There are two problems with this cheap reduction approach: one, it does little to move the world towards cleaner energy. In fact, it subsidizes the fossil fuel energy in the developing world.

Two, it takes away the cheap and easy options for emerging south countries and credits them into the carbon balance sheet of the industrialized world. This means that the South will be shortchanged when it has to take on legally binding commitments - it would have 'sold' off by then its cheap options and would not have the money left to invest in the more high-end of transition options.

uk economist Nicholas Stern has famously called climate change the market's biggest failure. But handing over the correction of this failure to the same market has also been a non-success.

cdm' s market tool has been built on the worst principles of an open market system. It thrives on non-transparency (no one knows that the 'real' price of cers), conflict of interest (consultants are paid by the project proponent to evaluate and then to certify 'sustainable' outcomes) and entry barriers (high transaction costs and over-certification). The current cdm regime works outside the pale of regulatory control - flimsy as it is.

The problem is in the design of cdm, which puts the entire onus on private sector, as it distrusts national governments in directing action.

The reform agenda One of the most ludicrous aspects of the current cdm regime is that an eligible should be 'additional' over the business-as-usual scenario.

A project is considered additional, if it would not have happened without cdm support This clause, built by paranoiac western governments and their civil society, is based on the premise that southern governments and industry will push projects that are business as usual. But then it means whatever a government does to mitigate climate change - as a matter of policy - cannot qualify for cdm because currently it is seen as business-as-usual. For instance, if the Indian government specifies tough emission norms for buses, the public-transport sector does not qualify for any credits.

This highly twisted and knotty yardstick has become a barrier for effective projects. For instance, renewable projects, particularly wind energy projects, often cannot qualify because the Indian government already has a policy to support and promote this source of energy. Similarly, if a solar energy project receives assistance from the government, such as a mandated purchasing-power agreement or an attractive tariff for the sale of electricity, the project is not considered additional, but 'business as usual' and does not qualify for cdm.

At its worst, cdm actually provides countries with perverse incentives to keep polluting as long as they can make money. cdm must pay for high end projects, which can make the transition to clean energy: the weakest aspect of the current design is its emphasis on 'cheap' projects.

We know that the biggest barrier to reinventing the world's energy system is the price of the low-carbon technologies. ipcc's fourth assessment report has concluded that carbon tax (or price) of us $50-100 on a tonne of co2 equivalent is needed to make deep cuts in emissions in the world.

It is for this reason that cdm must include a minimum floor price, which will ensure that only high end or transition technologies will get into the system. To begin with, the entry level price could be pegged at us $30-50 to give the incentives for structural change.

The successful reform of cdm will depend on the will of governments to push for real changes. This will is still to be tested and tried.

CDM thrives on non-transparency, conflict of interests and is beyond regulation

Posted by Miriam Kennet December 2007 from information from Tony Cooper

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