Carbon Market Watch

For fair and effective climate protection.

The folly of CDM subsidies to replace domestic with imported coal (Newsletter #9)

16 Jul 2010

During this week’s Board meeting, members will discuss 24 projects under review[1]. Amongst them is the 4000-MW super-critical coal plant owned by Costal Gujarat Power (Project Ref Number 3020) that claims to reduce 2,6 Mio tonnes of emissions for the next 10 years. But CDM Watch believes that this project does not generate any real emission reductions and must therefore be rejected[2].

During the 53rd Board meeting in March, the Board replaced the methodology for this project type – ACM0013 Ver.2 – with a newer version to close a loophole through which project participants could claim emission reductions by “substituting” fuels within the same category (domestic coal for imported coal). The revised ACM0013 Vers.3 now clarifies that it only applies to reductions achieved by installing more efficient power generation technologies than business as usual. As the Chair of the Meth Panel observed during the 53rd Board meeting, this revision will protect the CDM by preventing the issuance of “artificial” CERs.

However, project 3020 that claims emission reductions resulting from substituting domestic coal for imported coal had requested registration on 23 February before the revision took effect on 25 March. Although the Board clearly revised the methodology to avoid “the issuance of artificial CERs” the project is still allowed to use the flawed methodology according to current CDM rules[3].

If registered, this project would be the third largest non-HFC-23 project ever registered under the CDM. But an analysis by Stanford Environmental Law Clinic[4] on the application of the revised ACM0013 reveals that Project 3020 is not additional.

While Project 3020 is proposed as a supercritical coal project with a subcritical coal baseline, the additionality of the project rests solely on whether project participants can take credit for emission reductions achieved by “switching” domestic for imported coal. When these fuel source differences are neutralized, the supercritical project option (i.e., the project itself) is the most financially attractive baseline scenario. Accordingly, under the revised ACM0013, Project 3020 should not generate CERs because the registration of the project would cause 2.65 million CERs annually to flood the CDM market and undermine the Kyoto Protocol.

While the project is clearly non-additional if calculated according to the new ACM0013 Version 3, the project also causes serious concerns in relation to Version 2. These concerns were shared by the Board who put the project under review[5] at its last Board meeting. The scope of the review pertains to the project’s additionality and to the application of the methodology.

But this project would not only generate non-additional credits that replace essential emission reduction efforts in industrialised countries. According to an own estimate by the World Bank Group’s International Finance Corporation (IFC)[6], the revenue of about 260 Mio € from the CDM would subsidize the emissions of additional 25.7 million tons of CO2 per year for the next 25 years, adding another 643 million tons to an atmospheric carbon load.

Action to be taken by the Board: CDM Watch urges the Board to reject Project 3020.


[3] EB35 Anx13, para19