Carbon Market Watch

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CDM Investors Snub Coal Power (Newsletter #4)

30 Sep 2013

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Interest in CDM coal power projects is shrinking rapidly. Following the announcement of the British government to stop endorsing investments in CDM coal projects from September 2013, EDF Trading also announced that it is no longer involved in Adani’s CDM coal power project in India. Eyes are now set on the upcoming climate change conference in Warsaw to see whether the UNFCCC will follow this trend and kick coal power out of the CDM.

Coal burning iAdani_pics one of the main causes of climate change. Many studies have shown that if the world continues to build new coal power plants, we will not be able prevent catastrophic climate change. Even major banks and donor countries have started to accept this reality.  Major investment banks, including the World Bank, have started to eliminate or limit funding of new coal power plants.

However, under the CDM, developers who plan to build new coal power plants can still apply to receive offset credits by claiming that they would build a less efficient new coal plant if they did not receive CDM offset revenue. The claim that such plants would indeed be built less efficiently has been discredited by several studies.  For example, a study by the Stockholm Environment Institute found that the additionality of this project type is highly unlikely and that the flaws that lead to the over-crediting are inherent to the project type. Despite these problems and the fact that coal power projects inflict toxic burdens on local populations and ecosystems, six projects located in India and China have already been registered by the CDM Executive Board. More than 40 projects are at validation stage.

But political support for providing climate finance through the CDM is shrinking. In August, the British government announced that starting in September 2013, it will stop endorsing investments in CDM coal projects, a decision that was applauded by environmentalists around the world. Support for CDM coal power projects was also dropped by the French energy giant EDF Trading, who is listed as the buyer of offset credits from Adani’s infamous coal power project in Mundra, India (see box our press release here).

The Mundra CDM coal project

The Mundra CDM project is a new 1320 MW super-critical coal fired power plant. Despite heavy criticism, the project was registered as a CDM project in 2009. It has received over 600.000 offset credits so far and is the only one of the 6 registered CDM coal projects that has received carbon credits so far. However, given that EDF Trading distanced itself from the project it is unclear whether Adani Power Ltd found a buyer for its credits.

Meanwhile, the Adani Power has come under scrutiny for concerns about environmental impacts of its activities in Mundra, Gujarat. The Economic Times India reported on 5 September 2013 that the Indian Ministry of Environment and Forests (MoEF) fined Adani Group’s Mundra Port and Special Economic Zone (components of the project area of which also the thermal power plant is part of) for damaging mangroves, creeks and the environment at the project site.

However, the project remains registered as a CDM project until the Indian national authority withdraws their approval letter. The letter of approval (LoA), a fundamental requirement of the CDM, is issued by the host government and attests that the CDM project contributes to sustainable development. Carbon Market Watch as well as Indian NGOs have called on the Indian government to withdraw their approval because of the violations with national regulations and the lack of sustainable development benefits of this project. Conditions under which a host government can withdraw letters of approval are currently under discussion at the CDM Executive Board.

Coal is inherently climate damaging and causes numerous other environmental and human health impacts. NGOs have long been calling for the elimination of financial support and subsidies for coal in general and the exclusion of coal power projects from the CDM in particular.

At the upcoming international climate change conference in Warsaw (COP19), Parties will have chance to ban coal projects from the CDM and implement a host of much needed CDM reforms to address some of the most glaring shortcomings of the largest offsetting mechanism in the world.

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Image: Adani Power Station, Gujarat.  Courtesy www.kractivist.org

 

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