CLIMATE CHANGE: A Disappointing Start for the Clean Development Mechanism

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Dec 9 2004 (IPS) - In 1997, when the developing South agreed to a market incentive for industrialised nations that would allow them to reduce greenhouse gas emissions through development projects in poor countries, the expected result was investment in clean technologies.

So far, however, the results have fallen far short of expectations.

Raúl Estrada, director of environmental affairs in Argentina’s Foreign Ministry and the head of the Argentine delegation at the 10th Conference of the Parties to the U.N. Framework Convention on Climate Change (COP-10), currently underway in Buenos Aires, admitted on Wednesday that the projects being submitted to the Clean Development Mechanism (CDM) do little to promote renewable sources of energy and involve minimal technology transfer.

“This was not what we had in mind,” said Estrada, who presided over the committee that drafted the Kyoto Protocol in 1997. He was addressing the COP-10 plenary session devoted to discussion of the 2003-2004 report from the CDM Executive Board, made up of 10 representatives from different member countries. The results of the report are nothing less than disappointing.

The protocol signed in Kyoto, Japan, and scheduled to enter into force on Feb. 16 with 129 member countries, was designed to establish quantitative and measurable commitments on the part of the industrialised nations to reduce emissions of carbon dioxide, methane and other gases that trap heat in the earth’s atmosphere and lead to global warming.

The CDM is one of the “flexible mechanisms” of the Kyoto Protocol, which make it easier and less costly for industrialised nations to meet the greenhouse gas (GHG) emission reduction targets that they have agreed to under the protocol.

Through this mechanism, an industrialised country with a GHG reduction target can invest in a project in a developing country without a target, and claim credit for the emission reduction that the project achieves.

The 30 industrialised countries that have ratified the Kyoto Protocol have accepted the commitment to reduce GHG emissions to levels 5.2 percent lower than in 1990, by a deadline that ranges from 2008 to 2012.

To take advantage of the mechanism, a large number of private companies in industrialised nations have submitted projects to the CDM Executive Board, but few have been deemed satisfactory by the proposed receptor countries.

Australia, a major GHG producer, has still not ratified the Kyoto Protocol. As for the United States – which is responsible for 25 percent of global GHG emissions – President George W. Bush actually withdrew completely from the treaty in 2001, after it had been signed by his predecessor, Bill Clinton (1993-2001).

“We thought that the methodologies proposed would measure up to the commitments made, but the board’s work has been complicated by the shortcomings of the projects submitted, and this is absolutely unacceptable,” Estrada told the plenary.

His stance was backed up by numerous delegations from countries of the South, with India stressing the fact that the mechanism expressly states the intent of promoting development in receptor countries.

Estrada also noted that the CDM Executive Board has to negotiate with teams from the applicant companies that work on these projects full time, which means that the board members are at a distinct disadvantage.

“We need to do more to protect the members of the board, and even establish immunity to prevent them from being subject to lawsuits,” he added.

For its part, the Chilean delegation recommended making more resources available to the Executive Board, to allow its members to concentrate on their task, and not find themselves rushed into approving projects of doubtful environmental integrity.

As of now, the only project to be approved by the CDM board is a Brazilian plan to capture methane gas from landfills and use it to fuel a thermoelectric plant that will supply power to a poor suburb of Rio de Janeiro. The initiative is expected to reduce emissions by 12 million tons over the next 21 years.

But some environmentalists do not think the project is a model to be emulated.

Juan Carlos Villalonga, an energy specialist from the Argentine chapter of the environmental watchdog Greenpeace, told IPS that the Brazilian project, and others being submitted for implementation in developing countries, make an extremely limited contribution in terms of new technology.

He explained the challenges facing the CDM using the same “market logic” principles that served as its foundation.

“There is a large supply of countries in the South that want to be the recipients of these projects, but not a very high demand for emission reductions,” Villalonga explained. One of the main reasons for this is that the United States, which should represent the highest demand for emission reduction, has pulled out of the treaty.

Complicating matters further is the fact that Russia, which ratified the Kyoto Protocol in November and suffered the collapse of its industrial sector in the late 1990s, has a large supply of emission-reduction credits that it could place on the “emissions trading” market, another mechanism of the treaty.

Because of the decline of industry in Russia, its carbon dioxide emissions are already far lower than they were in 1990, and thus lower than the target it is committed to meet through the protocol. As a result, other countries can purchase this “surplus reduction” to help meet their own targets.

This large supply of emission reduction credits, combined with a low demand, has led to a drop in the “price” of carbon emissions, so to speak. And if the price of carbon emissions is low, the projects proposed will be less ambitious, Villalonga said.

“The value of carbon emissions will determine the quality of projects,” he noted. “A higher price is better for the developing countries, because it can attract investment in more sophisticated technology, like wind power.”

For the time being, however, even with the potential for emission reduction credits, there is no way that investments in projects like these can be profitable.

Villalonga pointed out that the original spirit behind the Kyoto Protocol was to create a fund for the transfer of technology to the South, as a means of compensating for increased GHG emissions in the North. But then market incentives were introduced as a result of pressure from the United States, he said.

“These mechanisms have basically become loopholes that need to be plugged, because if they start approving projects with emission reduction objectives that are doubtful or difficult to verify, as in the case of carbon sinks, then the system will be debased, and emission reduction certificates will start circulating like counterfeit money.”

These certificates are obtained by private companies that execute CDM projects and can then be purchased by industrialised countries to make up for any shortfall in their own emission reduction targets.

The CDM was established to create a form of profit incentive for projects that would not be profitable in their own right. But unfortunately, until now, that incentive has not been powerful enough to spur investment in renewable energy sources, Villalonga concluded.