Compilation of Evidence That The Majority of Projects in The CDM Are Non-Additional

Compilation of evidence that the majority of projects in the CDM are non-
additional
Barbara Haya, Consultant for International Rivers and PhD candidate in the Energy and
Resources Group at the University of California at Berkeley
September 11, 2008
This memo compiles evidence published to date that the majority of projects registered
under the CDM are projects that do not actually reduce emissions, or “non-additional”,
and therefore generate “fake” carbon credits. At the end, references to reports and media
stories on other problems with the CDM are provided.
The viability of the CDM rests on the ability to accurately test project “additionality”.
The rationale for the CDM is that the revenues generated by the sale of carbon credits
should enable low-emissions projects to go forward that otherwise would not have,
causing emissions to be reduced. But if a project is allowed to register that would have
gone ahead anyway, without the CDM, the credits generated enable an industrialized
country to emit more than their targets, without emissions being reduced in a developing
country. The viability of the CDM rests on the ability for an external auditor to test the
validity of the additionality claims of individual projects to a reasonable degree of
accuracy.
There are two main reasons why the majority of projects in the CDM are non-additional.
First, the subjectivity involved in project development, investment and lending decisions
makes it nearly impossible for an external auditor to judge if a project really did need the
CDM to go forward. A believable story why a project needed the CDM to go forward can
be told for just about any project, and validators have been reluctant to reject a project
unless the additionality story told in the PDD is blatantly false. As a result, non-additional
projects are being allowed to register under the CDM. Second, uncertainties associated
with CDM registration and credit generation, and the long CDM application process and
transaction costs, in large part a result of the need to defend the additionality of the
project, make the CDM not very effective at supporting projects in real need of support.
Many projects that need additional support to go forward often choose the voluntary
market rather than the CDM to avoid the CDM paperwork and the uncertainties and
complexities associated with the CDM process.
Below is the best evidence written so far that the majority of projects registered under the
CDM are non-additional.
1) Published reports
 McCully, Patrick, 2008, Bad Deal for the Planet: Why Carbon Offsets Aren't
Working...and How to Create a Fair Global Climate Accord, International Rivers,
Berkeley
://www.internationalrivers.org/node/2826
1
 Haya, Barbara, 2007, Failed Mechanism: How the CDM is Subsidizing Hydro
Developers and Harming the Kyoto Protocol, International Rivers, Berkeley
://www.internationalrivers.org/files/Failed_Mechanism_3.pdf
 Schneider, Lambert, 2007, Is the CDM fulfilling its environmental and sustainable
development objectives? An evaluation of the CDM and options for improvement,
WWF, Berlin
://www.panda.org/about_wwf/what_we_do/climate_change/index.cfm?uNewsID=11
8000
 Wara MW, Victor DG. 2008. A realistic policy on international carbon offsets. Rep.
PESD Working Paper #74, Program on Energy and Sustainable Development,
Stanford University, Stanford, CA
://pesd.stanford.edu/publications/a_realistic_policy_on_international_carbon_offsets/
Mentions that bona fide reductions constitute only “a fraction” of the offsets market.
2) Media stories on additionality

 BBC—The Great Carbon Bazaar
Aired on BBC radio business news on Wednesday, 4 June 2008
://news.bbc.co.uk/2/hi/business/7436263.stm
This full-length BBC radio documentary covers three registered CDM projects in
India. Representatives from the companies developing two of the three projects admit
that they would have built their projects anyway, without the CDM. And the
additionality of the third project is also suspect—the World Bank first makes a
statement that implies that they would have approved the loan to the project even
without the CDM, and then retracts the statement, replacing it with a statement that is
much more vague.
 New Scientist—Carbon trading: dirty, sexy money

April 19, 2008
://environment.newscientist.com/channel/earth/mg19826521.600-carbon-trading-
struggles-to-cut-our-emissions.html
Key excerpts on additionality:
Yet the critical question remains: does this frenetic activity actually keep
greenhouse gases out of the atmosphere? There are widespread fears that it does not.
One flaw in the CDM in particular is that credits are being claimed for investments
that would have happened anyway, without the added stimulus of earning carbon
credits. These projects should not qualify for the CDM because they do not create
additional emissions reductions. In fact, they actually make matters worse by
allowing companies in the rich world to exceed their limits without genuinely
offsetting it elsewhere…
Perhaps surprisingly, there is a widespread view among investors and politicians
alike that this is perfectly acceptable. Almost any project that cuts emissions is
entitled to carbon credits, they argue - even if those investments would have
happened anyway. In Monaco, green technologists were keen to show how adept they
were at earning CERs, but many also claimed their schemes would be profitable
anyway, without the windfall of carbon credits.
2
 Wall Street Journal—U.N. Effort To Curtail Emissions In Turmoil
April 12, 2008
://online.wsj.com/article/SB120796372237309757.html?mod=hps_us_inside_today
Key excepts:
A multibillion-dollar experiment designed to curb global warming is stumbling as
regulators question whether the program is doing enough environmental good…
U.N. regulators are also concerned that some independent auditors of these
projects, who are responsible for vetting their environmental legitimacy, have been
letting project developers push through ventures of questionable environmental
value…
Evaluating whether a project would have been built without carbon-credit
revenue is a complex judgment call, says the U.N.'s Mr. Schmidt. It represents "one of
the biggest challenges" of the current system…
The U.N. regulators are questioning the actions of two main players in the carbon
market: Project developers, who put together projects in order to sell the credits to
Western industrial buyers; and the auditing firms that inspect and certify to the U.N.
that the projects are environmentally legitimate...
"There is a high incentive" for companies to put together environmentally
questionable carbon-credit projects, "because there is a lot of money that can be
earned," [Tüv Süd executive, Werner Betzenbichler] said. "People are getting more
inventive, so it's getting harder to detect the black sheep."
 Guardian—Abuse and incompetence in fight against global warming

June 2, 2007
://www.guardian.co.uk/environment/2007/jun/02/energy.business
3) Additional evidence and resources

 75% of all projects registered under the CDM worldwide as of August 1, 2008 were
already completed and up and running at the time that they applied for registration
under the CDM. That is, before it was known if the projects would be successfully
registered under the CDM, these projects had already started and completed
construction.
 International Rivers has submitted comments on several blatantly non-additional and

harmful hydro projects when they were applying for registration under the CDM. The
comments here can provide a sense of the types of claims being made by hydropower
project developers justifying the additionality of their projects. Also, several of these
projects have had devastating impacts on local communities:
://www.internationalrivers.org/cdm_comments/date
 Wara MW, Victor DG. 2008. A realistic policy on international carbon offsets. Rep.
PESD Working Paper #74, Program on Energy and Sustainable Development,
Stanford University, Stanford, CA
://pesd.stanford.edu/publications/a_realistic_policy_on_international_carbon_offsets/
CDM as a safety valve: One purpose of the CDM is as a safety valve, providing
options for meeting emissions reduction targets if meeting those targets domestically
3
turns out to be more expensive than expected. This article argues that the CDM is not
an effective safety valve. Uncertainties related to the supply of credits, as well as
inelasticity of supply due to the long registration and credit generation processes,
limits the CDM’s effectiveness as a way to reduce uncertainties regarding the cost of
meeting emissions reduction targets.
HFC issue: The paper also presents a very good analysis of the inefficient use of
CDM funds to support HFC destruction equipment in factories producing the
refrigerant, HCFC-22. The value of the emissions permits generated by the CDM for
HFC destruction equipment at these plants is fifty times the cost of the equipment
implemented, often exceeding the revenues from the sale of HCFC itself. Direct
payment for the equipment would be a much more efficient use of funds.
 Climate Action Network Position paper on the CDM:

://www.climatenetwork.org/climate-change-basics/by-meeting/cop-13-bali-
december-2007/071207CANDCDMPositionPaperFinal.pdf
Below are the excerpts on additionality:

There has been a surge of criticism about the lack of additionality of many CDM
projects. It also has become increasingly clear that the current CDM structure fails to
deliver local sustainable development benefits to host countries. In terms of emission
reductions, the CDM at its best only off-sets Annex I emissions, and without effective
additionality testing and rigorous baselines, allows global emission to increase in
absolute terms.
Institutional reform is required to remedy the situation. For future commitment
periods, the CDM should be restructured to eliminate the necessity of proving
additionality on a project-by-project basis, which is simply impossible to do to any
degree of accuracy. In addition, it is imperative to ensure that the CDM in the future
moves beyond offsetting and in fact yields a proper net reduction in global emissions
and does not permit developed countries to evade emission reduction responsibilities
and obligations.

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Compilation of evidence that the majority of projects in the CDM are non-

September 11, 2008

2) Media stories on additionality

 New Scientist—Carbon trading: dirty, sexy money

 Guardian—Abuse and incompetence in fight against global warming

3) Additional evidence and resources

 International Rivers has submitted comments on several blatantly non-additional and

 Climate Action Network Position paper on the CDM:

Below are the excerpts on additionality:

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