October 16, 2009
CDM Halts China Wind Projects
The United Nations body in charge of managing carbon trading has suspended approvals for dozens of Chinese wind farms amid questions over the country's use of industrial policy to obtain money under the scheme.
China has been by far the biggest beneficiary of the so-called Clean Development Mechanism, a carbon trading system designed to direct funds from wealthy countries to developing nations to cut greenhouse gases.
China has earned 153m carbon credits, worth more than $1bn and making up almost half of the total issued under the UN-run programme in the past five years, according to a Financial Times analysis. The credits are currently trading at about $10-$15 each.
Industrial countries can meet part of their commitments under the 1997 Kyoto protocol to battle global warming by financing projects that mitigate emissions in developing nations. Projects only qualify for credits if the applicants prove they would not have been built anyway, a condition known as "additionality".
The controversy over Chinese wind farms and other CDM projects will intensify calls for the system to be overhauled at the UN's Copenhagen conference, which opens on Monday.
China-based consultants said the CDM's board in Bonn began refusing approval for Chinese wind power projects in the middle of 2009, over concerns Beijing had deliberately lowered subsidies to make them eligible for funding.
"The board now suddenly says the projects are not additional, whereas in the past they found no fault with additionality," said Yang Zhiliang, general manager of Accord Global Environment Technology, one of China's leading CDM consultants. "They are blaming the Chinese government and its decision to lower subsidies."
Ms Yang said Beijing had other aims, such as limiting overcapacity in the wind turbine sector, in setting subsidies. "The Chinese government wouldn't adjust subsidies just to bag CDM money," she said.
Industry officials said the CDM board had refused approval for about 50 wind power projects. Doubts over whether CDM funding will be available in the future has also prompted power companies to stall new wind power investments.
Lex de Jonge, head of the UN board, confirmed that "a handful of [Chinese] projects" had been suspended but declined to give reasons. Michael Wara, of Stanford University, said there were considerable problems in China with the CDM's rules.
With the emphasis that Beijing is now placing on both smaller hydro-electric projects and wind power, the government would have supported at least some of the projects receiving money under the CDM scheme anyway.
"It is hard to believe that there is additionality in many of the energy projects in China right now," he said.
What does this mean? If Michael Wara's assertion is taken as in fact the case then the EU has sent to China $1 billion in support of actions that would have occurred anyway. This means that the EU is able to claim credit for reducing emissions by about the equivalent of 2 years worth of Portugal's emissions (EEA data), but from a global perspective nothing has actually happened differently than it would have otherwise. Except of course for that transfer of $1 billion from the EU to China.
It may very well be that the CDM (and other offsetting schemes) tell us little about the costs of emissions abatement, but instead provide us with a window to the price of credit claiming.