Large-Scale Power Projects Undermine the CDM

Katy Yan

In less than a week, world leaders, government negotiators, industry and civil society will converge on Doha, Qatar, for COP18 to discuss how the global community can get ourselves out of the current climate mess. What's clear is that in terms of solutions, the Clean Development Mechanism (CDM) should not be a prominent one. A new Stockholm Environment Institute (SEI) policy brief argues just this.

The brief – Transitioning away from large-scale power projects: A simple and effective fix for the CDM? – shows how large-scale power supply projects such as large hydro and coal undermine the integrity of the CDM. Instead, it proposes that governments and the CDM administration transition away from them. The policy brief builds on an analysis they conducted for the CDM Policy Dialogue, which was published in late October in the report Assessing the Impact of the CDM.

Below are its key findings:

  • Despite years of development, experience, and revision, the Clean Development Mechanism’s method for assessing additionality remains controversial and contested. For some project types, additionality is relatively certain, but for large-scale power supply projects, which are expected to generate the majority of CDM credits going forward, additionality is hard to demonstrate with high confidence.
  • The value and integrity of the CDM may hinge on the net emissions impact of these large-scale power supply projects. If they are truly additional and operate well beyond the credit issuance period, they can lead to a decrease in global greenhouse gas emissions. If they are mostly non-additional, as research suggests, they could increase cumulative global greenhouse gas emissions by over a gigaton of CO2e through 2020. [Emphasis added]
  • A transition away from such CDM projects could help address the over-supply of certified emission reductions (CERs), support projects that truly depend on CERs, and improve the CDM’s overall mitigation impact. However, such a transition would need to be carefully considered, bearing in mind governance and legal aspects and the need for investor confidence.

Currently the oversupply of CERs has plummeted the price of each CER to approximately 1 euro apiece. According to the High  Level Panel, between 2013 and 2020, the excess of CERs could be as many as 1.25 billion. However, says SEI, a transition away from large-scale infrastructure projects (those greater than 15 MW) could reduce this over-supply and instead refocus attention on more effective ways of supporting the low-carbon energy sector while reducing emissions, such as through nationally appropriate policies and measures (NAMAs; these include renewable energy standards, feed-in tariffs, efficiency programs and standards), domestic emission trading systems and carbon taxes.

Why target large-scale power projects? Because researchers have shown for years that the most serious additionality concerns are attached to large scale projects like hydropower, as well as wind, natural gas, high-efficiency coal, waste energy, and to a lesser extent, biomass. Such large-scale projects simply do not need CDM support, because they are already common practice in their countries, enjoying benefits such as feed-in tariffs, mandates, and other forms of government or private support and incentives.

In addition, according to SEI, "the CDM, on average, has a small effect (e.g. ~3% for wind and hydropower) on the expected rate of return of power sector projects," and compared to other normal variations in economic factors, it is unclear whether the CDM provided enough of an incentive for projects to happen. In other words, continued use of non-additional CERs from large-scale projects could actually increase global emissions of greenhouse gases, rather than mititgate or reduce them as was the original intended purpose of the CDM. While power projects only represent a quarter of CERs issued so far, they are expected to generate almost 70% of total CERs from 2013 to 2020, with large-scale projects representing 90% of those power-sector CERs.

The SEI policy briefing also warns against some of the short-term fixes recommended by the CDM Policy Dialogue, one of which is for the Green Climate Fund or other funds to buy up and cancel the surplus CERs. The brief warns that such an option could be costly, divert climate finance from other mitigation or adaptation activities, and that its mitigation benefit would be uncertain due to the poor confidence in the additionality of these registered projects. The only effective and straight-forward solution, therefore, is to transition away from large-scale power projects.

How do you accomplish such a transition? The SEI briefing offers the following recommendations:

  • The CMP and the CDM Executive Board should consider steps to graduate large-scale power supply projects from the CDM, such as ceasing registrations and crediting period renewals of these projects.
  • Buying countries should consider disallowing purchase of CERs from large-scale power supply projects after a certain date and/or credit vintage.
  • Countries should support mechanisms other than project-based offsets to promote lower-carbon power.

Ultimately, what this policy brief confirms is that if we are to counter the current climate crisis, we need to move beyond offsetting and towards more direct and certain forms of reducing our carbon footprint. With recent disasters like Hurricane Sandy, there is no time like the present for serious climate action.