Climate Change Flexibility Mechanisms

Most of the above was written over a decade ago, around 2001 or earlier when carbon trading was initially being discussed. Around a decade later, it is still quite a topic, in the US in particular. Annie Leonard, known for her web video, The Story of Stuff provides a video summarizing a number of concerns about cap and trade:

The above video was created in the lead up to the Copenhagen climate summit, December 2009. It was a summit that promised a lot (but didn’t deliver much in the end¹⁰). Also during that summit, Democracy Now! interviewed an author on the subject and an economist working in this area. One of the points, amongst many, was that carbon trading may have its place but it should not be seen as the only solution, and as Annie Leonard’s video also suggests, other dimensions, such as massive investment away from fossil fuels (cap and trade appears to prolong it) is missing.

In addition, because it is hard to verify certain aspects, it is not easy to be sure there isn’t corruption in the process. On paper, the scheme seems sensible if it is not gamed. There is also the fear that the big financial giants are interested in this market to speculate on — as they now find it harder to speculate on the tech industry as they did around 2000 or the housing market that helped create the global financial crisis¹¹.

Three years after writing the above, it seems a number of those concerns are becoming reality. CSE, in their publication Down To Earth, reports how a few major companies in India are implementing CDM projects, and using advice from some of the world’s largest consultancy companies, such as Ernest & Young, and PricewaterhouseCoopers.

However, the way in which these projects have been designed, set up, and run is highlighting many problems in the CDM implementation. Summarizing from Down To Earth:

• Private companies have dominated the field in a way that has reduced public participation. For example:
  • Private companies have hired private consultancy firms to create the projects and deals;
  • There is a lot of secrecy in how much the company sells its earned carbon credits;
  • There is very little public accountability, verification, and transparency. An imperative to mitigate climate change using the market as an instrument, has reduced itself to using the worst tools of an unfair market. For instance, it thrives on non-transparency so that future sellers do not know the price of CERs and are forced to sell cheaply in the face of competition. (Emphasis added)
  • Investigations from Down To Earth revealed that some of these big name consultancy companies had copied text from one project document to another, spelling mistakes and all, and was done in such a way as to suggest that some tasks had not actually been done even though it was reported as so;
• Commoditization, as feared, is occurring. As was noted in a side note that accompanied the main article:

  Within the European Union, carbon is traded at US $26.7 per tonne of carbon dioxide equivalent. However, outside Europe CERs are being traded for a pittance. The only advertised price is by the World Bank, which pays about US$ 5. Other deals are being made in the range of US $5-10. It isn’t clear why this price difference exists.… CER are sold in deals where prices are not revealed, so a fair price is difficult to arrive at. This is the old commodities problem again, says Mukul Sanwal, special advisor, UNFCCC, referring to the situation where commodities like coffee are sold at subsistence levels in developing countries, yet earn huge windfalls for companies in the developed world. Clearly, non-transparency makes for an unfair market in the interest of the rich buyer.

• Promises of sustainable development, helping local communities, and consulting with them has not happened.
  • In some cases, local communities have been promised jobs from new factories and chemical cleanup plants being opened up as part of the CDM initiative, but in the end those jobs are never given to them;
  • In other cases, those plants end up damaging nearby ecosystems, pollute waters, destroy forests, or damage crops in nearby fields;
  • Locals are not seeing this as a clean development mechanism;

More generally, CSE charges that the whole process has become convoluted to ensure that

The Clean Development Mechanism is thus far, Down To Earth feels, a Cheap and Corrupt Development Mechanism.

The Bretton Woods Project also reports how UN documents showed rule-breaking and possible fraud from CDM projects, faults with up to 20 per cent of the carbon credits already sold, and gross incompetence from three out of the 17 specialist companies that validate and verify the projects. The Project also criticizes the World Bank, which plays a key role in the CDM process and has promoted it for Africa. Yet one of the Bank’s own report, the Project notes, has not helped Africa:

The Project also notes an Oxfam study finds that the World Bank has grossly underestimated the cost of dealing with climate change for developing countries, because they mostly count macro factors, not more local factors and local costs. (The World Bank’s widely cited figure is between $10 and $40 billion dollars. Oxfam’s study says it is at least $50 billion.)

In another report by Down To Earth, CDMs are criticized for thriving on non-transparency, conflict of interests and is beyond regulation²³:

The low-hanging fruit, the easy things are usually done by CDMs they argue:

The previous link, as well as an earlier Down To Earth article quoted further above note that because CDM projects are only considered if they are additional to business-as-usual projects, many projects lack the funding they need. Inter Press Service reported an example of this when noting that, a hugely successful solar energy project in India that helps poor people get electricity has not seen any benefits from the CDM²⁶.

The poor should be able to get more benefits from things like CDM if used in projects such as sustainable development, to preserve or improve forests, etc. However, as Inter Press Service notes, the rural poor are often likely to miss²⁷ out because of various problems such as the complexity and cost of participating in CDM, weak or non-existent land rights, the aggressive push for mechanisms that favor market mechanism benefactors such as the larger, more influential companies, etc.

The other complexity with forestation projects is their ability to not only soak up carbon, but also emit it when forests burn or are cleared for agricultural purposes. That’s why the UN has not always counted Land Use, Land Use Change and Forestation (LULUCF) into some of its measures and targets.

The UNFCC fears that LULUCF emission reductions are not reliable²⁸ or a good indicator because the main drawback of LULUCF activities is their potential reversibility and non-permanence of carbon stocks as a result of human activities, (with the release of GHG into the atmosphere), disturbances (e.g. forest fires or disease), or environmental change, including climate change.

In a recent UN climate change conference, African nations pushed to get the Clean Development Mechanism to include afforestation, reforestation, agro-forestry, re-vegetation of degraded lands, reduced soil tillage and sustainable agricultural practices²⁹. This was opposed by environmental groups and others for reasons similar to that above.

However, an African representative argued that if you have standing forests and people make a commitment that they are not going to cut these trees: why don’t you reward them? Why do you only want to reward them for planting trees? If you reward them for [conserving existing forest] in the trading mechanisms, then they are able to generate incomes to have alternative energy sources. The representative was also aware of concerns that reforestation would mean commercialization of forests and indigenous people being marginalized, but he wanted to stress that their initiative would put them at the center.

Traditionally it has been difficult to truly measure reductions from the broad range of activities being considered, and whether it can empower or marginalize the rural poor is hard to tell. If sustainable development and empowerment of local communities really is central, then this proposal could empower them while conserving forests, but it is hard to know for sure. This time round African nations were unsuccessful in getting this considered, but they and some other developing countries may push for this in future meetings.

Kevin Smith, from the Transnational Institute, echoes arguments from earlier above, that CDM is fundamentally flawed³⁰, allowing companies from rich countries to benefit at the expense of the poor, and also at times resulting in projects where local communities have not been consulted, and sometimes faced with the loss of their lands and livelihoods.

So should CDMs be scrapped or reformed?

Lambert Schneider, an expert with Germany’s Institute for Applied Ecology, was interviewed by IPS (Inter Press Service) and answered that CDM’s ability to make money for participants isn’t the problem ³² (by making money the carbon market tells decision-makers: reducing emissions in this way saves costs Schneider notes).

Instead, it is that the CDM is a zero sum game: For each tonne of gas eliminated in a developing country, one more tonne can be emitted in an industrialized country.

So reform may involve the following, according to Schneider:

1. Go beyond mere compensation. For example, for two tonnes of reductions of emissions in one developing country, an industrialised country should only be allowed to increase emissions by one tonne. That way there would be a clear atmospheric benefit;
2. Improve rules to evaluate which projects should be approved;
3. Strengthen incentives so that the certifiers evaluate the projects in detail. That can be obtained, Schneider suggests, if the UN pays evaluators’ salaries, rather than the entities that receive the carbon credits.

In the long term, however, Schneider feels the CDM should be replaced by emissions trading schemes that function in the most advanced developing countries.