China’s CDM (Hydro) Projects in Hot Water

Payal Parekh and Katy Yan
Tuesday, June 8, 2010

Originally published in The Asia Water Project

The Clean Development Mechanism (CDM), created under the Kyoto Protocol, allows developed countries to push their emission-reduction responsibilities onto developing countries. In theory, instead of reducing emissions domestically, developed countries get to save money by buying emission-reduction credits rather than cutting their own emissions, and developing countries get the proceeds to fund clean development projects

Unfortunately, the program has been a flop. Many of the credits don't represent actual avoided pollution. A project must prove that it is "additional" - that it could only have moved forward with the extra income from selling carbon credits. However, to prove additionality, we would need to know what would have happened in place of the CDM credits. Without a crystal ball, proving additionality is impossible. We do know that as of December 2009, around three quarters of all registered CDM projects (not just hydro) were already up and running when they were approved by the CDM.1 This suggests that these projects did not require CDM revenues to go forward, since the developers were willing to accept the risk that their projects would not be successfully registered under the CDM.

Another problem with the CDM is that the project developer hires consulting and certification firms (or "designated operational entities" in UN parlance) to check claims of additionality and sustainable development. This creates a conflict of interest, since these firms wish to attract future business. The poor job done by these consultants and validators has been well documented. The CDM Executive Board, the governing body of the CDM, has recognized this and has been scrutinizing the shoddy work of the consultants more closely. But to be fair to the consultants, they are given an impossible task because additionality is such a flawed concept.

Hydropower is the most common type of project being funded by the CDM, representing approximately one-quarter of all projects. As of April 2010, 64% of all hydropower projects and 40% of all projects in the CDM pipeline were in China. China and the other big winners of the CDM, Brazil and India, are quite content with the CDM as it is, since their industries profit from the fundamentally flawed system.

Besides proving additionality, projects must also promote sustainable development. The CDM also fails on this front. It is well known that hydropower projects, especially large dams, can have adverse social and environmental impacts. International Rivers sent an investigative reporter to visit the Xiaoxi Dam in China's Hunnan Province, a hydropower project approved by the CDM. She found that, among other problems, 7,500 people had been evicted without proper compensation. The CDM is toothless in this regard: it doesn't have any guidelines for defining sustainable development. Instead, the CDM leaves it up to the host country to decide.

For European countries - the largest purchaser of carbon credits - credits from large hydropower projects (i.e., those larger than 15 MW) must also adhere to guidelines set by the World Commission on Dams (WCD), a multi-stakeholder commission that set high social and environmental guidelines for dams. These guidelines, widely recognized as the gold standard of dam building, are obviously more stringent than sustainable development indicators employed by host countries like China. The Xiaoxi project was approved by the German government as being WCD-compliant, but our report has now forced the German government to review its decision. We are still awaiting the outcome of their decision.

Thanks to the work of International Rivers and our partners such as CDMWatch in Germany, the CDM Board is taking a closer look at hydropower projects and flagging a larger number of projects for review. At the CDM's board meeting in February, a record number of 38 Chinese hydropower projects were flagged for further review and scrutiny. Of the 24 hydropower projects to have ever been rejected or withdrawn from the CDM, 11 come from China - more than any other country.2

Investing in CDM hydropower projects from China (or in the other big CDM host countries, India and Brazil) is hardly a smart choice. The investment uncertainty is huge. Not only must the project receive approval from the CDM Board, but also if a European company is going to buy the credits, the project must be WCD compliant. The European Climate Exchange (ECX), a leading carbon trading market, continues to ban carbon credits from hydro projects because of investment uncertainty.

More importantly, the CDM doesn't help people or the environment. Because many of the emissions reductions are not additional, projects that would have happened anyway are being funded rather than cutting-edge technologies that need the extra income to compete with conventional technologies and lead us into a low or no-carbon future. With the CDM, global emissions will continue to increase and contribute to climate change impacts, which hurt poor nations and communities the most. The CDM acts as a major loophole for developed countries, allowing them to shift the burden of emissions reductions onto developing economies instead of cleaning up their own pollution mess. International Rivers is working hard to have the CDM scrapped, or at the very least have large hydropower banned as a project type.

1Updated analysis from Barbara Haya (2009) Measuring Emissions Against an Alternative Future: Fundamental Flaws in the Structure of the Kyoto Protocol's Clean Development Mechanism. Energy and Resources Group Working Paper ERG09-001, University of California, Berkeley

2UNEP Risoe Centre, CDM Pipeline Database, 1 March 2010.