See Watch This! #3, October 2012

By Anja Kollmuss, Carbon Market Expert, CDM Watch

When the Clean Development Mechanism (CDM) Executive Board held its 69th meeting in September in Bangkok more than 4,500 CDM projects had been registered and more than 1 billion CDM offset credits or Certified Emission Reduction (CER) units issued. At the same time, CER prices had fallen to less than 1.5 EUR. Point Carbon, an independent industry analyst, projected that prices for CERs would fall to 0.5 EUR by 2020. Too many credits and not enough demand are causing this price collapse. It is doubly unfortunate that the Board made several decisions that will increase the number of credits issued that come from projects with very questionable environmental integrity.

Key decisions of the 69th CDM Executive Board meeting:

• Refusing to consider alternative approaches to test project additionality
• Letting coal power projects back into the CDM;
• Insisting on weak voluntary rules for sustainable development and removing the ‘No harm’ clause from the draft report;
• Not agreeing on how to improve stakeholder involvement.

Still no improved additionality testing

The CDM supports too many large infrastructure projects (such as large power and industrial projects) that are clearly not additional. Using these credits to achieve emissions reduction targets increases global emissions. To address the damage caused by offset credits from non-additional CDM projects, Parties at the last UNFCCC in Durban asked the CDM Executive Board to improve the rules that determine whether a project is considered “additional” (whether it wouldn’t have happened without the CDM). Despite this clear mandate, the Board keeps declining to adopt effective ways to address the fundamental flaws in how additionality is demonstrated. Several options put forth could have addressed some fundamental problems, e.g. requiring a project to show that CDM offset revenues will cover a significant portion of the operational budget of a project. This decision yet again shows that environmental integrity is not a priority of the CDM Executive Board.

Coal power plants are back in the CDM!

In November 2011, the crediting rules for CDM coal power projects were suspended over concerns about environmental integrity. However, against all odds and protest by civil society organisations, at the last meeting of the CDM Executive Board reinstated revised rules despite the fact that they did not address the identified shortcomings. New, heavily polluting coal power plants can again receive carbon credits under the CDM for claiming to build a more efficient plant because of the CDM incentives. . In an unprecedented move, the Board decided to remove several safeguards that had been recommended by its technical body, the Methodologies Panel.

Now, hundreds of millions of Euros could potentially flow to more than 40 coal power plants in India and China currently seeking approval. CDM financing for non-additional and ‘dirty’ carbon credits only serves to support emissions-intensive coal power at the expense of the climate. We will keep fighting to kick coal out of the CDM! (for more information see story ‘No Climate Finance for Coal! Join our Fight!)

Weak voluntary rules for sustainable development

The CDM is clearly not delivering on its second goal: enhancing sustainable development. Currently these requirements are defined by host countries themselves. In many cases they are too weak and very vague. To improve the situation, the CDM Executive Board proposed a voluntary tool be used for sustainable development co-benefits.

CDM Watch welcomes the tool as a step in the right direction, as it facilitates reporting. However, the absence of any monitoring and verification requirements and the voluntary nature of the tool undermine its legitimacy and greatly limit its utility. The already weak tool has also been further weakened by the Board’s decision to remove a clause on ‘no-harm’ safeguards that would have spelled out obligations and reflected the full scope of human rights obligations.

Experience shows the lack of monitoring, reporting, and verification of claimed sustainability benefits has led to the registration of CDM projects without any sustainable development benefits. Some projects have had severely negative impacts.

You can download the draft SD tool here: https://www.research.net/s/SD_tool_vers6

Still no decision on improved stakeholder involvement

CDM stakeholder consultations are often carried out insufficiently. (See articles in Watch This#2) There is a lack of clear rules on how to conduct local consultations and guidelines to enable an independent entity to effectively assess the consultations are unclear. Yet, many improvements can be accomplished within the existing mandate, as an elaboration or interpretation of the existing rules.

At its last meeting, the Board discussed recommendations for improving the local and global stakeholder consultation processes but has not yet adopted any improvements. Instead, many Board members have argued against the much needed clarifications and additional requirements.

Rules should clearly define the consequences for a project proponent who carries out faulty consultations. If a project proponent remains non-compliant, projects should not receive a positive validation and should not be registered. If valid concerns are raised after project registration (e.g. human rights abuses) such projects should be suspended and not be issued any further CERs.

We must keep pushing for strong rules to improve the current situation. Reform is long overdue and should happen at the Board’s next meeting, prior to the UNFCCC COP18 in Doha.

Download our detailed comments to all these issues here: http://cdm.unfccc.int/public_inputs/2012/eb69_10/index.html