As the Copenhagen climate conference opens, the existing mechanism for carbon trading is drawing close scrutiny. The Chinese authorities’ misuse of the carbon credit scheme, CDM, has come to the surface, challenging the effectiveness of the global carbon trade in reducing greenhouse gas emissions.
CDM, or Clean Development Mechanism, allows developed countries to meet their carbon reduction quota by buying credits, or certified emission reductions (CERs), from developing countries. CDM was established in 2005 under the Kyoto Protocol to fund carbon reduction projects. China has been the largest beneficiary of CDM, taking over 40 percent of its carbon credits through hydropower, wind power, and other carbon-reduction projects.
Concerns over China’s abuse of the CDM funding involve eligibility for funding and the adverse impact of some of China’s CDM projects.
Some projects have been questioned for not meeting the CDM’s requirement for additionality. CDM projects aim to produce “additional” greenhouse gas reduction. Only projects whose implementation depends upon the awarding of CDM funding are eligible for inclusion in the program. This requirement is to ensure that CDM can generate a net reduction of greenhouse gasses in the atmosphere.
Critics say that many of China’s projects were part of China’s development plan and would have been built anyway. As such, they do not provide any additional carbon reduction.
“It is hard to believe that there is additionality in many of the energy projects in China right now,” said Michael Wara of Stanford University to the Financial Times (FT).
Recently, CDM has questioned two dozen wind-power projects in China. According to Lex de Jonge, chairman of the executive board of CDM, the concern is whether the projects need the CDM funding to be economically feasible. The reviews were reported by the Financial Times.
According to a report by the AP, the Xiaoxi hydropower dam in China’s Hunan Province had begun construction in 2004, two years prior to the developers’ application for CDM credits.
As CDM projects like the Xiaoxi dam won’t produce any additional reduction, they simply transfer greenhouse gas emissions from industrialized countries to developing countries.
The second major problem with China’s CDM projects concerns their adverse environmental and social impacts, especially in the case of the hydropower projects.
AP reports that the Xiaoxi dam, which is CDM registered, displaced 7,500 people without giving them proper compensation. Both the organizations International Rivers and Probe International expressed concerns about this CDM project.
Based on the Chinese CDM Web site, of the total 1,882 projects approved by China for CDM registration by February 2009, 783 were hydropower dams, followed by 318 wind power projects.
There is big money to be made from carbon credits. The Xiaoxi hydropower project is estimated to produce a reduction of 423,395 metric tons of carbon dioxide, according to the CDM Web site. According to the Guardian, the European Union gives allowance of €10.15 (US$14.92)per CER unit, which equals one metric ton of carbon dioxide. Thus, the Xiaoxi hydropower project alone is worth over US$6 million per year. The German power utility RWE, one of the biggest CO2 emitters in Europe, buys these carbon credits to meet its emissions requirement.
The AP report says that China has 763 or more hydro projects in the CDM approval pipeline, adding an average of 25 more each month. By 2012, these projects will generate more than 300 million CERs, worth as much as $4 billion annually at current market rates. After Copenhagen, emissions traders expect the United States to enter into the carbon-trade market.
China’s questionable record regarding additionality and the social-environmental effects of CDM projects casts a shadow over the existing carbon-trading scheme. CDM "is an excessive subsidy that represents a massive waste of developed world resources," says Stanford University's Michael Wara to FT.
With the expiration of Kyoto Protocol in 2012, CDM will terminate, and China's delegation in Copenhagen is keen on maintaining the CDM carbon-trading mechanism. According to the Chinese Embassy’s Web site, China wants to keep to the U.N. framework, the Kyoto Protocol, and the Bali roadmap, based on which the CDM carbon scheme was established. Furthermore, Chinese officials ask that the developed countries provide “new, additional, adequate, and predictable financial resources” for climate-carbon mitigation.
Hong Jiang, associate professor of geography, teaches at the University of Hawaii at Manoa. She specializes in the cultural geography of the environment, environmental politics, and resource use in China.