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Clean development mechanism: zombie projects, zero emissions reductions and almost worthless carbon credits

Last week, the clean development mechanism registered its 7,000th project. At a first glance, the statistics look impressive. Over a 10 year period, the CDM has issued 1.3 billion carbon credits, added 110,000 Mega Watts of renewable energy and seen US$215 billion invested in low carbon projects in the Global South.

But the CDM has not reduced greenhouse emissions at all, because every carbon credit produced through the CDM results in an increase in emissions somewhere else. The Chair of the CDM Executive Board, Peer Stiansen, either does not understand this simple fact, or he is attempting to mislead the public. In a press release about the 7,000th CDM project, Stiansen explains that,

“Despite unfavourable market conditions, the CDM continues to provide a mechanism for real emission reductions and real sustainable development for those who wish to use it. The Board will continue its efforts to make the CDM the best tool it can be to reduce emissions and spur development, but Parties must do their part and set ambitious emission reduction targets to incentivize climate action and these types of green growth projects.”

The CDM is not a tool to reduce emissions. Writing seven years ago in The Guardian, George Monbiot pointed out that no matter how successful on its own terms the CDM is, it cannot address climate change:

Even if, through carbon offset schemes carried out in developing countries, every poor nation on the planet became carbon-free, we would still have to cut most of the carbon we produce at home. Buying and selling carbon offsets is like pushing the food around on your plate to create the impression that you have eaten it.

The “unfavourable market conditions” that Stiansen refers to, are to a large extent the result of the economic crisis, especially in Europe, which is where the biggest market for CDM credits is. With manufacturing down, emissions are down and the demand for carbon credits is down. Combined with a massive over-supply of credits, this has resulted in very cheap CDM carbon credits: currently selling for around 50 euro cents ($0.64). In its press release, the CDM notes that over the past 12 months, the price fell by 90%. In fact, it’s been falling since 2008, as this graph from a recent World Bank report illustrates:


Michael Szabo, a journalist with Reuters Point Carbon, points out that the figure 7,000 CDM projects is “increasingly irrelevant”, because of “warnings of ‘zombie projects’ and more companies pulling out of the struggling scheme”. The phrase “zombie projects” comes from Stefan Winter, deputy head of certification at CDM auditors TÜV NORD. The price of CDM carbon credits (certified emissions reductions, or CERs) is so low, that some project owners have stopped participating in the CDM despite being registered under the scheme.

Szabo quotes Alexandre Kossoy, senior financial specialist at the World Bank’s Carbon Finance Unit, as acknowledging the problem. But despite the Bank’s vast resources and 200 staff working on carbon trading, it would be too much effort for the Bank to find out the scale of the problem. Kossoy says that,

“It’s not surprising. We knew about it but … we haven’t measured how many because it would take months to go project by project.”

The CDM’s Peer Stiansen also acknowledges the problem, but also appears reluctant to do anything about it:

“We don’t deny that this is happening to a number of projects but this is an issue related to demand, and that is out of our hands.”

Szabo notes that these zombie projects challenge the principle of “additionality” in the CDM. Of the 7,000 projects registered under the CDM only 2,400 have applied for carbon credits. Of those projects, 25% have not been issued with any carbon credits in the past year.

Szabo’s article ends with a surprising admission from the World Bank’s Alexandre Kossoy. In effect, Kossoy admits that many CDM projects are not additional:

[Kossoy] said that many CO2-cutting projects registered under the CDM “will survive without it” as they have other sources of revenue, for example from selling power.
But this appeared to contradict one of the guiding principles of the CDM – that projects should not be approved if they are not “additional”, or in other words they are viable without the proceeds from selling carbon credits.
“For most, getting (credits) is the cherry on top of the cake,” Kossoy added.


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  1. In principle, CDM can actually reduce some emissions (not only modify the geographic repartition of emissions): (i) if emissions reductions are lasting beyond the CDM project crediting life of 10 to 21 years, (ii) if conservative estimates has been adopted during the assessment (this happens!). Admittedly, this potential of actual reductions cannot compare with the huge potential of “hot air” generation through an “inappropriate” baseline setting, and I totally agree with the demonstration on additionality. One more word: compare to a “genuine” (if any) cap-and-trade system were the amount of credits is rationed (ceiling) from the beginning, CDM projects can create emission permits ex nihilo and in unlimited quantities (the more you set up CDM projects, the more emission permits you can emit), which fatally tend to undermines carbon price within the cap-and-trade sphere. This rise, ultimately, the issue of unlimited economic growth and its compatibility with carbon emission (actual) reductions…

  2. This article would be worth selling if the phrase “the CDM has issued 1.3 billion carbon credits” also mentions how many were needed to reach a 2 degree increase and how many of these were actualized. Also what is the hope that the target for 2 degrees would ever be reached through CDM. Without these figures it is difficult to convince those who matter indeed

  3. The Bank is so stupid it can’t even lie consistently! And yet it is being being entrusted with the Green Climate Fund??

    The comments from Alexandre Kossoy, who is the ‘Senior Financial Specialist’ at the World Bank’s Carbon Finance Unit, ought to eliminate the Bank from applying to become the GCF’s permanent manager, as clearly there is something very wrong with an institution that can appoint someone to such a position that clearly either doesn’t understand the very principles of climate change mitigation, or is prepared to lie through his teeth about it.

  4. If the EU (primary purchaser of CDM credits) has essentially already met its Kyoto commitments without the use of CDM credits, and FAR exceded it when taking CDM off sets into account, I would be interested in finding out how you justify the comment that it leads to no real emission reductions.

  5. @Alain Karsenty – Thanks for this. I agree with your first point, that CDM projects can result in emissions reductions if the project remains after the end of the CDM project. In other words, the emissions reductions take place when the carbon trading stops. Of course, in terms of addressing climate change, emission reductions today are worth a lot more than emission reductions in ten or 21 years’ time.

    And I agree with your second point. As you point out conservative baseline estimates are more than cancelled out by what you call “inappropriate” baseline settings. By the time we bring in projects such as HFC-23 industrial gas substitution projects CDM has actually led to increased emissions because companies were building coolant gas factories in India and China in order to profit from the carbon credits.

    Rationing carbon credits is an interesting idea, because it would reduce the scale of the problem (and because it highlights a serious problem with the way the CDM is set up). But why not get rid of the carbon trading problem completely and look at ways of addressing climate change that involve emissions reductions today?

  6. @Naser – Good question! There is no direct link between the number of carbon credits produced under the CDM and the impact on climate change. In fact, the more carbon credits that are created, the cheaper they are likely to be. This tends to drive down the price of carbon, and therefore makes continued pollution cheaper. See the comment from Alain Karsenty.

  7. @al perkins – The fact that the EU has met its Kyoto targets is largely a result of the on-going economic crisis (as I point out in the post above).

    The EU ETS has practically collapsed in recent months. If carbon trading was really responsible for the reduction in emissions in Europe, the falling carbon price should have led to increased emissions. Has this happened? Do you agree that the current price of carbon is too low (and has been too low for several years) to give any incentive to companies in Europe to reduce emissions?

  8. “The EU ETS has practically collapsed in recent months. If carbon trading was really responsible for the reduction in emissions in Europe, the falling carbon price should have led to increased emissions.”

    This would be wrong way to look reduction because during economic recession emissions will be naturally lower because lower activities that generate carbon emissions. You have to compare with same amount of similar business activities.

    The main idea behind carbon credits is to support green industry in the private sector. Tesla Motors initially supported themselves by selling carbon credits.

  9. @AAI – My comment was in response to al perkins who seems to think that the CDM had caused the emissions reductions in Europe. I was trying to illustrate the fact that the economic crisis is largely responsible for reducing emissions in Europe. I think we agree on that.

    Perhaps you should tell Peer Stiansen, the chair of the CDM board that carbon credits are supposed to support green industry. Then he might stop making misleading claims such as this one: “the CDM continues to provide a mechanism for real emission reductions”.

    Last year, Tesla Motors made US$40.5 million selling carbon credits. Guess who’s buying them? Other car manufacturers, so that they can continue selling polluting cars.

  10. Hi guys,

    Some interesting comments above. There have been many unadditional projects registered under the CDM. Often additonality was proven with some creative usage of financing discount rates and low feed in tarrifs to justify the registration of projects. For example, in hindsight it is difficult to imagine that many of the large Chinese wind farms implemented by SOEs would not have taken place without the addition of CDM revenues.

    However I would like to make one point concerning additionality and the concept of sunk costs. It is possible that some of the projects that Kossoy mentioned may continue in operation without necessary violating the notion of additionality. Taking the example of methane capture and energy production from Animal waste projects. In these cases the projects will continue in operation because they have very little variable/operational costs today and revenue from electricity production (or savings from the host plant using their own electricity) will more than cover costs on an ongoing basis. As an investment the project will be loss making but as most of investment has already taken place it will continue in operation. Originally the project would have been profitable and additional because the projected CER sales revenue made the investment viable.

  11. @Annie – Thanks for this! It’s an interesting point – some CDM projects are in breach of human rights, like this palm oil project in Honduras. Others, like Wonderbags, look like a good idea.

    It’s interesting that Wonderbags acknowledged to you that their project is not additional (it went ahead anyway, without carbon financing):

    As you are probably aware, the Carbon Markets have collapsed so at this stage we are not selling carbon and the relationship with CDM is stagnant until further developments for the better in terms of global carbon policies. The wonderbags are in no way subsidized by Carbon Funding.

    Here’s how Charlotte Streck of Climate Focus defines additionality (in a 2010 report):

    Today, additionality most commonly refers to the causality between international financial support for an activity and the extent to which the activity would have happened in the absence of such support. Where a GHG reducing activity would have been implemented in the absence of carbon finance, the project or program disqualifies as non-additional, regardless of the number of emission reductions it yields.

  12. Ladies & Gentlemen, in particular the UNFCC! The whole mechanics of CDM will fail to achieve the goal of global warming mitigation. Just think of this simplest analogy which seemed that all of our geniuses overlooked. From the start of the Kyoto Protocol, we promoted mitigation projects, like renewable energy and the like, etc. and we provided incentives, the carbon credits. The irony, we allowed the top polluters of this planet to buy these credits and allow them to go on with their pollution. So how can the CDM reduce carbon emission? Even a simple child will call this CDM a stupid idea. Calling the attention of UNFCC, what our world needs is an abrupt action to check the abrupt deterioration brought by global warming, action for abrupt reduction of fossil use, not an inutile CDM. Look at the price of the carbon credits, it is plummetting. Did our geniuses foreseen this?