Carbon Market Watch

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The Folly of CDM Credits for Supercritical Coal (Newsletter #5)

01 Dec 2009

On September 17, 2007, the CDM Executive Board adopted ACM0013, “Consolidated baseline and monitoring methodology for new grid connected fossil fuel fired power plants using a less GHG intensive technology.”  The methodology contemplates the award of saleable CDM credits for the construction of new, coal-fired power plants that use “super-critical” technology, which is more efficient than the subcritical plants common in developing countries.

The first supercritical project to request registration by the CDM Executive Board is a proposed 1320 mega watt coal-fired power plant at Mundra, in the State of Gujarat, India. The project proponent is a subsidiary of the Adani Group, the developer of the Mundra Port and Special Economic Zone (SEZ). The proposed coal plant will provide power for the port and associated industrial park that, spanning over 100 square kilometers, is the largest economic development zone in India. The Mundra project is the first of six proposed supercritical coal plants in India to request CDM registration (including the 4000 MW Sasan project in Madhya Pradesh), and one of fifteen such coal plants seeking CDM credits under ACM0013. Almost all of the plants are proposed for either India or China.

However, further to the request of registration, several CDM Executive Board members have requested a review of the Mundra project to be decided upon during this Board meeting. Among their concerns is the lack of any independent or meaningful analysis in the validation report of the numerous environmental impacts that are likely to result from the construction and operation of the plant, or of the concerns of local stakeholders. It is common knowledge that, in addition to carbon dioxide, coal plants emit large amounts of air pollutants including: sulfur dioxide, which contributes to acid rain; nitrous oxide, a precursor to ozone that harms human health and also contributes to global warming; and other toxic air pollutants including mercury and fly ash. Yet the environmental, human health, and social harms are no where discussed in the report. This type of superficial treatment of the impacts of the project on the environment and local stakeholders further risks undermining the legitimacy of CDM projects.

In addition, the report contains numerous inaccuracies and inconsistencies that suggest that the project is non-additional, and that it will attract investors without the additional financial incentives the CDM credits will provide. Many of these errors are a result of the DOE having relied almost exclusively on Adani’s own documentation and analysis, and the apparent lack of an independent, objective assessment of the financial data. Moreover, problems of additionality may not be exclusive to the Mundra coal plant. One of the comments submitted to the project during validation concluded that the methodology itself is flawed because it requires that the electricity grid to which a proposed supercritical coal plant will be connected contain only 50% coal-fired electricity. Thus, it is possible that, rather than replacing new, subcritical plants that would have been built to meet increased energy demand, the supercritical coal plant (although more efficient than a subcritical plant) would instead replace a natural gas-fired plant, storage type hydro plants, or even renewable energy projects that may have been built instead. Given this risk, the methodology shuld be applicable if, and only if, the electricity grid contains 90% or more coal-fired power. This would better ensure that — but for the CDM subsidy — a less-efficient, subcritical coal plant would have been built. Moreover, the methodology incorrectly compare the emissions factor of the super-critical plant to sub-critical coal, or a mix of fossil fuel-based generation only. The super-critical emission factor should be compared to the emission factor in the overall grid, and thereby demonstrate that the super-critical emission factor is lower than the overall mix of energy in the grid (hydro, nuclear, natural gas, renewable, etc.). These very valid concerns appear not to have been addressed when the board ultimately approved use of the methodology.

Ultimately, however, the folly lies not in the inaccuracies in the case of the Mundra project or flaws in the methodology itself, but rather in the very notion of devoting scarce CDM funds to construct new coal plants that will spew greenhouse gases for the next 25 years.

In addition to providing flexibility to developed countries in meeting their emission reduction targets, the goal of the CDM is to encourage the private sector and developing countries to contribute to emission reduction efforts. (According to scientists, in order to stabilize temperature rise, not only must developed countries reduce greenhouse gas emissions by 25-40% but developing countries such as India must also achieve emission reductions that substantially deviate from business-as-usual by 2020.)  Funds available through the CDM are thus intended to provide financing for the deployment, diffusion and transfer of low-carbon technologies to developing countries, and to accelerate the large-scale deployment of such technologies and their movement down the cost curve. When implemented towards this end, the CDM will allow fast-growing economies to leap-frog dirty energy sources like coal that are a primary cause of climate change. Using CDM funds to support the construction of new coal plants — regardless of how efficient they are — will only serve to postpone the day when clean technologies are cost competitive with coal and other fossil fuel-based energy sources.

ACM0013 also violates the spirit and intent of the CDM and the Kyoto Protocol by undermining sustainable development and accelerating global climate change. It is indisputable that coal plants, no matter how efficient, lead to environmental degradation and harm human health. Meanwhile, the anticipated efficiency gains that result from super-critical coal technology are minor (natural gas, by comparison, emits half the GHGs of coal), and therefore, are hardly sufficient to offset coal’s significant GHG emissions and contribution to global warming.

And let’s not forget that coal plants require coal. Coal plants are a primary contributor to global warming not only as a result of greenhouse gases that are emitted during the combustion process, but also due to the substantial indirect emissions of methane – a highly potent greenhouse gas—that occur during coal mining. Methane is also a precursor of ground-level ozone, which is a toxic air pollutant and climate warming pollutant. While methane emissions are highly effective at increasing warming, curbing such emissions has immediate climate benefits due to methane’s shorter atmospheric lifetime, making it a good target for emissions reductions in the near-term that will slow warming and avoid tipping points. Thus, the substantial additional GHG emissions (not to mention the environmental destruction and pollution) that results from coal mining should also be taken into account when considering whether to use CDM funds to subsidize supercritical coal.  This is true regardless of whether the coal mines are located in non-Annex I countries that are not otherwise required to reduce such emissions under the Kyoto Protocol (such as Indonesia which will be the primary source of coal for the Adani coal plant), or in Annex I countries, where domestic efforts to reduce domestic coal consumption will be undermined by continued foreign demand. This is evidenced by the fact that despite domestic supplies, India is now a net importer of foreign coal.  There is little doubt that India and China will continue to rely on coal to meet energy demand in the near-term.  However, even assuming ACM0013 could be revised to guarantee the additionality of supercritical projects, using scarce CDM financial resources to facilitate new coal plants is, at best, short-sighted, and serves only to perpetuate our addiction to dirty fossil fuels and postpone the introduction of clean, renewable forms of energy.  Moreover, in light of evidence that the methodology for crediting such projects is fundamentally flawed, there is no plausible justification for allowing such projects to go forward.

Action to be taken by the Board: The Board should agree to review the Mundra project 2716 “Grid connected energy efficient power generation” with a view to rejecting it for not meeting the criteria of the CDM. Moreover, the Board should seriously consider whether supercritical coal projects in India and China meet the additionality criteria of the CDM. The Board should then take necessary steps for exclusion similar to the case of wind power projects in China.