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Carbon Market Still Green |
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By Stephen Leahy*
The developing South can help fight climate change through the Clean Development Mechanism. But there is still much to be done before that scheme will be successful, said experts as the Montreal climate change conference drew to a close.
TORONTO - The members of the Kyoto Protocol on climate change, which gathered for a week-long meeting in the Canadian city of Montreal, resolved to support the Clean Development Mechanism (CDM), which allows industrialized countries to obtain credits by investing in clean energy projects in the developing South.
But the success of the scheme is still in question, and only 41 such projects have been approved worldwide.
Western Europe, Japan and Canada together may need as many as 3.5 billion metric tons of carbon credits in the five years through 2012 to meet their commitments under the Kyoto Protocol to curb greenhouse gas emissions, according to the World Bank.
Up to 1.4 billion of these carbon credits will be needed from the CDM, estimates the financial entity.
"Members approved a plan for the executive board (of the CDM) to be self-financing last night," Jane Rigby, policy manager on carbon markets for the governmental agency Environment Canada, told Tierramerica.
The plan involves a 10 to 20 cents on the dollar charge per certified emission reduction unit, but until that kicks in, countries like Canada will have to donate funds to meet the board's estimated 8.5-million-dollar annual budget.
"We think we will have enough contributions from other countries by the end of the meeting," Rigby said.
Under the 1997 Kyoto Protocol, which came into force in February, industrialized countries are required to cut greenhouse gas emissions by an average of 5.2 percent from 1990 levels by 2012.
Canada, whose emissions are up 24 percent since 1990, has decided to allocate at least a billion dollars annually for buying carbon credits starting in 2008.
Carbon credits on the European market are valued at about 20 dollars per ton.
"Canada and other countries desperately need to buy CDM credits," says Matthew Bramley of the Pembina Institute, a Canadian environmental organization.
"Reform is needed in terms of hiring full-time professional staff and providing long term, stable funding," Bramley told Tierramerica.
Uncertainty about the CDM rules, slow response time, lack of staff and worries about the long-term value of such credits has kept countries and companies from investing, according to Bramley.
Several CDM projects were given the go-ahead during the Montreal meet, which included the 11th Conference of Parties to the United Nations Framework Convention on Climate Change and the first Meeting of Parties to the Kyoto Protocol -- shorthanded to COP/MOP.
In Montreal last week, Mexico's first project to win CDM approval was announced: the aim is to capture methane gas -- a greenhouse gas -- from pig manure at 23 farms. The methane will then be used to generate electricity for use by those farms.
The project would mean reductions of the equivalent of 121,689 ton a year of carbon dioxide (the standard measure for greenhouse gases), according to the United Nations CDM website.
A similar project in Chile has also been approved, and is to be co-funded by Canada and Japan.
Hydroelectric schemes, wind, solar and other projects have been approved or are part of the more than 400 projects awaiting approval to date.
"The lack of funding was the Achilles heel of the CDM. At the Montreal meeting the scheme's institutional framework has been reinforced, and now there is an air of optimism," said Jorge Barrigh, coordinator of the Latin American carbon program for the Andean Development Corporation, CAF.
"In Latin America and the Caribbean, the CDM is a very important tool for fomenting renewable energy. We are increasingly seeing wind and biomass projects in the CDM, for example. They are not the majority, but they are on the rise," he said in a Tierramérica interview.
CAF, the inter-governmental agency promoting the CDM in the region, has evaluated some 200 projects in the past two years, which Barrigh says proves there is enthusiasm for this system.
But things may not be as simple as they look. As many as 2,500 projects will be needed annually between 2008 and 2012 to meet the Kyoto goals for emissions abatement, according to World Bank estimates. Furthermore, "many of these projects need to earn a stream of annual credits for 10 or 15 years to be viable," says the Pembina Institute's Bramley.
Experts fear that without a post-Kyoto commitment to reduce emissions from industrialized countries, the financial value of carbon credits may plummet after 2012, when the protocol expires. That prospect is keeping many participants and projects on the sidelines.
In addition, CDM projects must meet a series of requirements, like those evaluated by The Gold Standard, says Roger Peters of the Pembina Institute.
The Gold Standard is an independent CDM assessment organization that audits projects to make sure there are genuine reductions in greenhouse gas emissions as well as benefits to the host country and sustainable development.
Capacity building for smaller countries is also needed, said Peters in an interview. "They can't get design and develop projects that meet the CDM criteria without some help."
It is unlikely that the nations of the South will agree to setting limits on their emissions in the same way as industrialized nations have under the Kyoto Protocol, for fear that it would put the brakes on development. So other approaches are needed to tackle the problem.
In India, home to 1.1 billion people, 56 percent of the households have no electricity supply, and the problem is growing worse as new connections fail to keep pace with population growth. India wants to reverse this phenomenon. As part of an international climate effort, countries should help India meet its policy goals using renewable energy, says Robert Bradley of the World Resources Institute.
"It is better to spend a billion dollars helping India bring renewable electricity to its rural poor than buying credits," he argues.
Carbon markets are important but not nearly enough to address the climate change challenge, Bradley said.
* Stephen Leahy is an IPS correspondent.
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