The CDM's missing billions

According to World Bank figures, the global carbon market was “worth” $142 billion in 2010. Most of this number relates to financial speculation on permits in the EU Emissions Trading System. The value of the money that goes to CDM projects continues to decrease. The Bank officially claims it was $1.5 billion in 2010, its lowest level since the Kyoto Protocol entered into force in 2005. However, the real figure for 2010 may be closer to $300 million.

The difference between the official and "actual" figure was explained by the Mobilizing Climate Finance report, leaked to The Guardian. It notes that

The value of transactions in the primary CDM market – the largest offset market by far – totalled around $27 billion in 2002-10, which is estimated to have been associated with around $125 billion in low-emission investment. Since the bulk of transactions are forward purchase agreements with payment on delivery, actual financial flows through the CDM have actually been lower, about $5.4 billion through 2010.

The World Bank's official figures can be recalculated with these "actual financial flows" as follows:

Year	WB Official	WB actual
2010	1.5	0.3
2009	2.7	0.54
2008	6.5	1.3
2007	7.4	1.48
2006	5.8	1.16
2005	2.6	0.52

Figures are in $ billions

Wikileaks and EU climate targets

A cable detailing a 2008 spat between the EU and US on climate change targets sheds light on the EU’s lack of ambition.

In a frank exchange on March 7, U.S. and European principals reviewed work on climate change under the Major Economies and UNFCCC Processes. U.S. principals secured EU Environment Commissioner Dimas' admission that current EU proposals will permit some EU Member States to record absolute increases in emissions by 2020.

Dimas conceded that “some EU Member States will be permitted under the EU's proposals to record an absolute increase in emissions by 2020.”

Jim Connaughton, Chairman of the White House Council on Environmental Quality at the time, further questioned the EU’s achievements in relation to its Kyoto targets:

for Europe, 1990 as a reference year incorporates the early 1990s economic collapse of eastern Europe, which no policymaker would recommend be repeated; the UK's decision to move away from coal to natural gas, long before climate change was a policy issue; and the EU's use of diesel fuel, at the expense of air quality and human health.

Wikileaks and the CDM: no "additionality" in India

Several of the recently released wikileaks cables discuss the CDM in passing. A cable on the CDM in India is particularly enlightening, however. It reports on a seminar with the US Consulate General Office (Congenoff) and analysts from the Government Accountability Office (which later released a skeptical study on offsets).

At a seminar on CDM in Mumbai, R K Sethi, Member Secretary of the National CDM Authority and the present Chairman of the CDM Executive Board, publicly admitted that the National CDM Authority takes the "project developer at his word" for clearing the "additionality" barriers. Mathsy Kutty of Det Norske Veritas (DNV), a CDM Executive Board-accredited validation and verification organization for CDM projects, told ConGenoff that the designated authorities of host countries approve projects in a cursory manner and do not check to see whether the project meets all the requirements laid down by the CDM Executive Board. CDM projects in India do not have to be validated or verified to get host country approval while both processes are mandatory to get the project registered with the UNFCCC, she continued. For this reason, she pointed out, Indian projects account for 44 percent of the total projects rejected by the CDM Executive Board.

Most Indian CDM projects are initiated without foreign backing, and

For this reason, Santonu Kashyap of Asia Carbon maintains that Indian projects can never fulfill the additionality requirement as no developer will risk investing in a project unless he is certain of a revenue stream independent of the CDM incentive. In a separate discussion with GAO analysts and ConGenoff, Jamshed Irani, Director of Tata Sons and the Chairman of the Tata group's Steering Committee on Sustainability, agreed that no Indian company is brave enough to rely entirely on a CDM-driven revenue stream.

Although all of the CDM project developers spoken to claim that their projects have sustainability benefits, the cable concludes that

Amidst complaints about the "arbitrary" decisions of the CDM Executive Board, all interlocutors conceded that all Indian projects fail to meet the additionality in investment criteria and none should qualify for carbon credits.

Technology Transfer in the CDM: some basic considerations

“Technology transfer” is often described as one of the key “co-benefits” of the Clean Development Mechanism, but it is a concept that requires further elaboration.

The UNFCCC's CDM Registration & Issuance Unit tried to measure the extent of CDM “technology transfer” at one point by looking at how many projects involved technology imports. It used companies' own reporting of "the use of equipment or knowledge not previously available in the host country for the CDM project." Industrial gas projects (such as those involving HFCs) came out well in this study.

Taking technology imports as a measure is fairly useless measure of the potential benefits, however. Further analysis of the HFC cases have shown that a fairly simple, pre-existing piece of technology was transferred in a massively inefficient manner, as this February 2007 article by Michael Wara demonstrated.

The extent to which HFC projects have contributed to a series of other perverse incentives has since been established in far more detail, with even the European Commission now accepting that they suffer a total lack of environmental integrity.

More fundamentally, though, a better definition of "technology transfer" is needed - and a clearer understanding of the context in which it works, is helpful. Three key points may be raised here.

First, the CDM can serve to disincentivise and delay the passing of environmental regulations.

As the CDM program became active, policymakers realized that the additionality requirement provided incentives to retard the process of creating developing countries’ policy in order to preserve credit eligibility.
-David Drieseen and David Popp

Second, technology transfers through imports by private actors can crowd out domestic industry - as the work of Ha-Joon Chang (eg. the books "Bad Samaritans" and "Kicking away the Ladder") eloquently demonstrates.

Third, the CDM promotes a development model that eclipses local technologies. As Larry Lohmann argues,

'technology transfer' continues to carry the connotation, as it always has, of moving Northern technology into a ‘technology-deprived’ area in the South. In practice, this typically plays out in the degradation, skewing or destruction of one set of technologies in favour of another.

Although Chang and Lohmann appear to be making similar points, the latter engages in a more fundamental critique of the benefits of "development" regimes.

World Bank Partnership for Market Readiness begins push for new carbon markets

The World Bank is busily encouraging “middle income” countries to create new carbon trading schemes. It hopes that this will lead to a “scaling up” of carbon markets and has created a new Fund, the “Partnership for Market Readiness” (PMR), to meet this aim.

Without much fanfare, the Fund's first meeting took place on 30-31 May in Barcelona, just ahead of Carbon Expo, a huge carbon trading jamboree co-organised by the World Bank and the International Emissions Trading Association (IETA). Representatives of over 30 countries joined the meeting, according to the Bank.

The Partnership approved initial grants of $350,000 to Chile, China, Columbia, Costa Rica, Indonesia, Mexico, Thailand and Turkey. Each of the eight countries will now develop a “Market Readiness Proposal” to detail their plans. Two further countries, Morocco and Ukraine, have been confirmed as participants.

The Bank hopes that the PMR will stimulate two main activities: the creation of new cap and trade-style carbon markets, and engagement in “NAMA crediting.” The latter suggestion pre-empts ongoing debates within the United Nations Framework Convention on Climate Change (UNFCCC), which has yet to agree to this controversial means of “scaling up” carbon finance beyond carbon offset projects.

A range of economic activities might be covered, with the current (non-exhaustive) list including: power generation, iron and steel, transport, construction/buildings/housing, cement, energy efficiency, waste management, and NAMAs for “low-carbon cities”. In Mexico, the PMR will work to set up a carbon offset registry, while in China it is promoting the creation of regional emissions trading pilot schemes.

Funding pledges so far come from: Australia, the European Commission, Germany, Japan, Norway, The Netherlands, Spain, Switzerland, the United Kingdom and United States. These amount to a little under $70 million of the $100 million expected total.

The latest pledges include $7 million from the International Climate Fund (ICF), the UK government's means of channelling climate money through the World Bank. This follows the usual UK-government practice of re-announcing the same money several times: the money can be double-counted as part of the UK's Official Development Assistance (ODA) funding, and this same money also forms the UK's contribution to “fast-start financing.”

For “fast” read “slow” - while the rhetoric suggests that money will be directed towards the immediate needs of people already facing the impacts of climate change, the use of such funds to develop new market-mechanisms is a boost for schemes that are notable for delaying action to address climate change.

The vast majority of the money from the PMR will be directed towards establishing systems for “monitoring, reporting and verification” (MRV) – in other words, technical support for the creation of a system of tradeable carbon credits. However, this remains a small proportion of the total needed to pilot market mechanisms, meaning that the scheme's “beneficiaries” are likely to spend far more on the schemes than the money that the Bank puts in.

More information
Carbon Trade Watch, Partnership for Market Readiness: a critical introduction, January 2011

The case against sectoral carbon markets

The global carbon market is in crisis. Proposed emissions trading schemes in the USA, Japan and Canada have stalled indefinitely; new markets in Australia and South Korea face significant delays; and climate justice activists have successfully blocked the start of a planned scheme in California. Trading has become ever more concentrated around the EU Emissions Trading System (ETS), which could well see carbon permit prices drop to zero if the 27-country bloc adopts stricter guidelines on energy efficiency. Overall carbon trading volumes were lower in 2010 than in the previous year, and are predicted to stagnate in subsequent years; and the Clean Development Mechanism (CDM) has declined for four years running, with fewer credits purchased from new projects than at any time since the Kyoto Protocol came into force in 2005.

Perhaps confusing these contractions for birth pangs, there is currently a push to create new international carbon market mechanisms in the context of United Nations Framework Convention on Climate Change (UNFCCC) international climate negotiations. The World Bank is offering further encouragement, in the guise of a new Partnership for Market Readiness (PMR) to promote carbon markets in middle-income countries.

I've written a new report new report that critically examines the reasons behind and potential consequences of creating new carbon market mechanisms. In particular, it focuses on “sectoral” carbon markets, which would move beyond the project-by-project basis of the CDM and issue carbon allowances in relation whole sectors of the economy.

Click here to download a pdf of the report

Industry lobbyists gunning for EU climate targets

Proposals to increase the EU's carbon emissions target from 20 - 30 per cent and the EU's new Roadmap for moving to a low-carbon economy by 2050, have been met by heavy opposition from industry lobbies. Here's a new report (co-authored with Corporate Europe Observatory) which shows how BusinessEurope, the European Chemical Industry Council and Eurofer (Confederation of Iron and Steel Industries) have bullied the European Commission, exploiting tension between DG Energy and DG Clima to weaken the EU's climate targets: Caught in the cross-hairs: how industry lobbyists are gunning for EU climate targets