On the fringes of the talks on the future of the Kyoto Protocol which took place recently in Nairobi, Kenya, indigenous people and NGOs have been telling delegates how the investments in developing countries’ “clean energy” projects — which are now fuelling world carbon markets — are exacting a terrible price, with communities being robbed of their land, and livelihoods damaged by projects such as hydro-electric dams and fast-growing tree plantations.
The projects, which are supposed to reduce greenhouse gases and contribute to sustainable development, are awarded certified emissions reductions (CERs), which can be used either by governments buying them to help meet Kyoto targets or by companies surrendering them to help meet their allocations under the European Union emissions trading scheme.
It is a new international market that is developing rapidly, but critics say it is encouraging destructive development and lining the pockets of the rich. “We are not only victims of climate change, we are now victims of the carbon market,” says Jocelyn Therese, a spokesperson for Coica, the coordinating body of indigenous organisations in the Amazon Basin.
Moreover, the projects are doing little to help encourage sustainable development in poor countries, say critics as authoritative as climate economist Sir Nicholas Stern, whose report last week changed many people’s understanding of the need to address climate change.
Deep within the Stern report on the economics of climate change is a stinging criticism of the United Nation’s Kyoto Protocol Clean Development Mechanism (CDM), which allows countries and businesses in the rich north to trade in carbon “credits” with the south. “The CDM in its current form is making only a small difference to investment in long-lived energy and transport infrastructure,” he said. “While a substantial international flow of funds is being generated through CDM, it falls significantly short of the scale and nature of incentives required to reduce future emissions in developing countries.”
One has only to look at where the money has gone up to now to see why. CDM projects are expected to secure 1,4-billion tons of CO2 emission reductions by the end of 2012, with 400 projects approved by the CDM’s executive board and 900 more in the pipeline. But, according to the World Bank, only 10% of CDM projects by volume in the 15 months to March this year involved energy efficiency, fuel switch, biomass or other renewables projects — areas that Stern says are critical to the long-term reduction of greenhouse-gas emissions.
Almost 60% involved destroying the industrial gas HFC 23, a greenhouse gas nearly 12 000 times more destructive than CO2, but which costs as little as $0,75 per ton of CO2 equivalent to deliver — and can be traded for as much as 10 times that.
In their pursuit of cheap HFC credits in countries such as China and India, African countries have been almost entirely bypassed, despite the fact they have the most to lose through climate change. Ricardo Nogueira, investment adviser at Trading Emissions, says his company would like to invest in Africa and is looking at a couple of prospective projects, mainly to siphon off methane from large landfill sites. “We feel we have a duty and obligation to make CDM work in Africa,” he says.
But there are huge barriers, including a shortage of large enough projects to justify the hefty transaction fees and a critical lack of information to get projects through the CDM’s strict verification process.
“It’s a fractured continent with many, many countries dividing up limited resources,” he says. “A lot haven’t got very far in developing their approval processes.”
For Larry Lohmann, author of Carbon Trading, carbon credits are just a new instrument for northern energy companies to exploit the developing world.
“Added to classic local conflicts over extraction, pollution and labour abuse are now, increasingly, local conflicts over ‘carbon offsets’ — the projects that license and excuse the extraction, the pollution and the abuse,” he says.
Axel Michaelis, a member of the registration and issuance team advising the CDM executive board, accepts that many of the early projects approved for carbon credits were dodgy. “In the first six months, it was like the wild west — everything was passed,” he says. In March this year, however, the CDM board set up his team as a second level of scrutiny, and he is convinced bogus projects are now being blocked.
Michaelis says transaction costs have fallen, sometimes by half, because there were more projects, bringing down the barriers for small renewables projects. And though the scheme is far from perfect, the CDM has actually succeeded in cutting emissions. “You can criticise the industrial gases projects, but they are reducing emissions and they aren’t having a negative impact on local communities,” he says. “Four years ago, no one was talking about HFCs.” Other CDM supporters say it has encouraged cuts in the easiest areas first — what are called “the low-hanging fruit” — and that China has reinvested 80% of the money it makes from CDM projects into renewable energy projects.
Michael Grubb, visiting professor of climate change at Imperial College London and chief economist with the Carbon Trust, says it is ironic that CDM, which was established as the most cost-effective way to reduce global emissions, was being criticised for doing just that.
“CDM is a funny hybrid between a market and a political construct,” he says. “It’s not a pure market by any stretch and there’s a lot of discretion being taken about where people want to spend money [in the developing world]. But it’s better than nothing and it’s something that can be improved.”
But critics say the CDM’s premise that carbon can be commodified is false, and that time, money and expertise are being wasted trying to perpetuate that fiction instead of making the structural changes and long-term investments that Stern says are needed to save the planet.
Lohmann points out there is already an international protocol to eradicate HFCs, but the fact that companies can make money out of HFCs through the carbon market means HFC production may be going up and governments are unlikely to take action.
“There’s a fundamental contradiction in the CDM,” says Lohmann. “You either have cheap, meaningless, unverifiable projects or those that are verifiable and plausible where you need to invest too much money and take too much political risk. I don’t believe renewables will ever be supported by this carbon market.” — Â