Why the UN’s ‘clean’ development mechanism is dirty

by Lorrie Goldstein, Toronto Sun
One of the great scams of the cap-and-trade market — a regional version of which Premier Dalton McGuinty wants to bring to Ontario some day— is the purchase of carbon credits through the United Nation’s hopelessly inept and ironically named Clean Development Mechanism (CDM).

I’ve written before about what a spectacular mess the CDM is — denounced even by some environmentalists as riddled with fraud, corruption and profiteering.

So it’s both gratifying and horrifying to see it blowing up, yet again, while naive “green” politicians try to ignore the growing controversies.

The CDM was supposed to be central to the UN’s plan to save the planet from man-made global warming via the Kyoto accord, by facilitating a transfer of wealth from the developed to the developing world. (What Prime Minister Stephen Harper correctly identified as a socialist, money-sucking scheme, when he was in opposition.) The CDM allows rich nations and corporations to offset their carbon dioxide emissions by investing in supposed greenhouse gas reduction projects such as wind farms and hydroelectric power in the developing world, thus generating carbon credits, which they can sell on carbon markets for a profit.

The theory was this would be cheaper to do in poor nations than rich ones, where many technological improvements have already been made, since it didn’t matter where reductions occurred, only that they did.

Just one problem. It’s been revealed, repeatedly, that many so-called emission reduction projects should never have been approved under the CDM.

The latest fiasco, reported by the science journal, Nature, is based on the recent publication by WikiLeaks of a 2008 U.S. state department cable.

It reveals discussions between U.S. diplomats and Indian government officials and business executives in Mumbai, suggesting most CDM projects in India — one of the world’s largest generators of carbon credits along with China, where there have been similar problems — shouldn’t have been approved because they would have happened anyway, without foreign investment.

Indian officials apparently knew about the problem for at least two years.

The key test for certification of CDM projects is they must satisfy inspectors — assuming there are any — they meet the “additionality” test.

That is, emission reductions that result — and the carbon credits this generates — must occur solely because of foreign investment attracted by the CDM and must be in addition to projects that would have happened domestically, without the program.

The cable quotes a senior CDM official in India acknowledging while projects are supposed to go through a two-step validation and verification process, India “takes the project developer at his word for clearing the additionality barrier.” Since the developer has a financial interest in this, that’s not a good idea.

As Eva Filzmoser of CDM Watch, a Brussels-based organization, told Nature: “What has leaked just confirms our view that in its present form the CDM is basically a farce … it is no wonder the United States has backed away from emissions trading.” Canadians should be thankful they just elected a Harper majority government. Had it been an NDP or Liberal one, or an NDP-Liberal minority, Canada would now be setting up a cap-and-trade market. This would have undermined our economy, imposing a new cost on Canadian businesses not reflected in the policies of the U.S., our largest trading partner, towards its industries.

We would also have been walking, like babes in the woods, into the international carbon trading market, whose sole achievement to date has not been to lower emissions, but to raise consumer prices for electricity and other goods and services.

Cap-and-trade has become so controversial even McGuinty has lost some of his early enthusiasm for the idea.

In 2008, the Wall Street Journal reported how a multinational French chemical company manufacturing adipic acid, used in the making of nylon, found a legal way under the CDM to make hundreds of millions of dollars not by doing that, but by destroying an unwanted byproduct of the manufacturing process — nitrous oxide (laughing gas), also a potent greenhouse gas. This simply to generate carbon credits.

Bizarrely, destroying nitrous oxide at two outdated plants in South Korea and Brazil became the corporation’s most profitable international business, generating revenues far beyond what it earned for producing adipic acid for nylon.

Critics questioned effectively paying the firm hundreds of millions of dollars for destroying laughing gas, when the same thing could have been accomplished by simply paying it the $15 million installation cost of its pollution-abatement equipment.

But that’s how the CDM, um, “works.”

9 thoughts on “Why the UN’s ‘clean’ development mechanism is dirty

  1. Wikileaks Carbon credits U.S. State Department cable from Mumbai to Washington
    http://wikileaks.org/cable/2008/07/08MUMBAI340.html
    Note paragraphs 5-7 which mentions that enough carbon credits can be had to pay for a project and it is difficult to justify the added costs of of using green technology without a carbon credit revenue stream.This is why the Ontario Green Energy act has carbon trading provisions

  2. No surprise at all. Additionality is very hard to demonstrate. It’s an issue that won’t go away.

  3. In the contracts with the OPA, Ontario FIT and other project developers give up rights to the Environmental Attributes of their projects. This means they can’t be paid twice, i.e. through high FIT rates and with carbon credits. The implied carbon prices embedded in the FIT rates are way, way higher than any carbon prices currently being discussed.

Comments are closed.