CDM needs a rethink, feel critics

Commodity Online - 2008-06-02

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NEW DELHI: The UN’s Clean Development Mechanism (CDM) program is inviting the wrath of critics across the world.

The criticism is gaining momentum even as the US Congress preparing to check global warming with a cap on greenhouse gases — and then allows firms to pollute if they buy ‘carbon offsets’ elsewhere.

The UN started CDM to help companies in industrialised countries invest in projects in poorer nations that cut greenhouse gas emissions as part of their countries’ commitment under the Kyoto Protocol or the European Union’s emissions plan.

However, the idea has not gone down well with everybody. The UN’s basic idea was that cutting emissions anywhere is equally effective in fighting global warming.

Then, critics ask, why not keep polluting at home and simply pay, under this so-called cap-and-trade system, to close a polluting plant in China or to save a forest in Brazil? The cost of financing wind turbines in Bangladesh, for instance, is much less than scrubbing carbon dioxide from smokestacks in Germany.

Researchers who’ve studied the CDM say the emissions cuts are largely illusory: As many as two-thirds of the programs funded contribute nothing new to reducing emissions.

One problem is that many offset payments are meant to prevent something from happening that might worsen climate change.

The CDM must somehow prove a project has “additionality”, that it would not have occurred anyway without a payment. But that isn’t working out in practice, the researchers say.

The CDM also creates perverse incentives, says another researcher. A chemical company in China, for example, may actually produce more of one potent greenhouse gas — HFC-23, a byproduct of making refrigerant gases — in order to sell an offset credit. The money earned through CDM is greater than the cost of making HFC-23.

CDM asks that a project not be something that’s already “common practice”. But that logic only dissuades a poor country from promoting energy-efficiency or, say, curbing methane from landfills. Why take such actions if they will disqualify a company from CDM credits?

Next week, the US Senate takes up a Bill that would impose a cap-and-trade system that includes the buying and selling of licences to emit carbon.

No doubt some CDM projects do make real cuts in emissions. But as a whole, the CDM is clearly flawed and needs, at the very least, significant reform. It's one more sign that a cap-and-trade system is a complex and highly suspect way to make emissions cuts. A more honest, reliable course is a simple tax on carbon emissions. The dodges are easier to spot.

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