Kushal Cdm

The ground realities of CDM
Centre for Science and Environment
New Delhi
CDM: Cheap Mechanism Clever accounting

Vulnerable. Poor. Pressured.
CDM -- Stated objectives:
Give industrialised nations flexibility to meet emission reduction obligations by investing in clean energy projects in the South and taking climate credits in their balance sheet
Promote sustainable development in developing countries.
Invest in clean technologies
But is this happening?

The Carbon market
August 19, 2009: More than 4200 CDM projects were in the pipeline out of which 1774 were registered
Reductions: 2.9 billion tonnes of CO2 equivalent gases

CDM in India
Projects in India – Till 2007

Process: Carbon accounting
Deals are private-private, ultra-secretive. Money from the rich in the developed countries coming to rich in developing countries
No real investment in clean technologies

Creative carbon accounting?
Project design document is the base document for projects. It also involves stakeholder consultation and study of sustainability of the project
Therefore is unique for every project
But what we found looking at few India PDDs is shocking

Creative? Or Cut and Paste?
Excerpts from official project design document :
GFL : SRF :

Creative? Or Cut and Paste? Excerpts from official project design document :

No evaluation
There is no mechanism by UNFCCC or the DNA (MoEF in case of India) to keep a check on the projects
Industry marks its own papers and there is ample scope of fudging data

Convoluted process
The CDM market has been totally dominated by large companies, global consultants, traders and brokers
Transaction costs very high
CDM here has become a mere financial mechanism—not a measure to combat climate change
Its outcome has been small and cheap

The truth about markets
CDM market has come down in the last one-year due to economic recession
A recent World Bank report says that overall confirmed primary CDM transaction volumes were 389 MtCO2e in 2008, down by about 30% from 2007
So the money flow must be down too. NO

Strangely the global carbon market doubled to US$ 126 billion in 2008
WHY?
Because one of the largest segment of this market is the secondary carbon market -- a market with spot, futures and options transactions -- in excess of US$26 billion representing a five-fold increase in both value and volume over 2007

World Bank report admits that -- These trades do not directly give rise to emission reductions unlike transactions in the primary market
Clearly means that money is being made on carbon credits without real reduction happening and that somebody else is making money by trading credits and not the developing countries, who were supposed to be the real beneficiaries

Who is buying?

Outsourcing reductions
The 15 EU states as a group committed themselves to reducing emissions 8% below 1990 levels
In the 2008 forecast, the group assumed that, by 2010, 3 per cent of the 8 per cent reduction – or, more than a third – would be achieved through the “application of the Kyoto mechanisms”
Another 1.4 per cent would come from forest sinks. Meaning?

EU is not leading anybody, as is often projected, in meeting Kyoto targets
60 per cent of Kyoto I reduction target of the European Union would be met by buying cheap and dirty carbon credits

Even in its newly announced targets for phase II EU allows 66% reductions through offsets in developing countries
Most other developed countries, which have announced reduction targets or are in the process of doing so, are also depending on cheap offsets.

What is shocking is that for some countries this figure more than is 100%
Take the case of Luxembourg

Luxembourg: 100% outsourced
Luxembourg has one of the highest per capita emissions in the world – 26.8 tonnes of CO2 equivalent per capita, even more than the US
Under the Kyoto protocol it has an individual reduction target of 28 per cent below 1990 levels

But the country has conceded that its target of a 28 per cent emissions reduction would not be achieved
Average emissions for the years 2008 - 2012 is actually expected to be 3 per cent above the 1990 base year level
This would mean that Luxembourg would have to actually decrease its emissions by 31 per cent to meet the Kyoto target

As per current information the country plans to reduce 30 per cent through offsets while domestic actions will only reduce 1%
This means that Luxembourg is meeting 100% of its Kyoto obligations by offsetting
Not only that, 66% of the increased emissions over 1990 levels will also be offset
Talk about Kyoto compliance

This is clearly contrary to the article 6. (d) of the Kyoto Protocol, which states the purchase of emission rights shall only be “supplemental” to domestic measures

Behind this lies an economic calculation that these credits can be purchased abroad more cheaply than domestic reductions
Is it in our interest to sell of our reductions options so cheaply?

Reforms: The way ahead
Additionality: The most ludicrous aspects of the current CDM regime
A project is considered additional, if it would not have happened without CDM support
But it is flawed in its very concept. Why?

Because if a government takes a low-carbon policy option for projects it will not qualify as ‘additional’. Policies are not considered additional
Take the instance of public transport
Tough measures to promote public transport in our cities would ensure reduction in vehicular emissions – a major contributor

But under the current regime it will be non-additional or ‘business-as-usual’
This highly twisted and knotty yardstick has become a barrier for effective projects
CDM has become a perverse incentive for developed world to keep polluting as long they can buy cheap offsets

This must change
CDM should pay for high-end, leap fron technologies. It should pay for transition from biomass to solar energy
The biggest barrier is cost: IPCC’S fourth assessment report concluded that carbon price of US $50-100 on a tonne of CO2 equivalent is needed to make deep emissions cuts – not the current US $5-15

To start with a minimum price of US$ 50 is must per tonne of CO2
The will to pay this price will be critical to getting the low-carbon technologies
Else the process is bound to fail

Kushal Cdm

by equitywatch on Aug 28, 2009

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Kushal Cdm — Presentation Transcript