INVESTIGATION: BBC ON EMISSIONS TRADING

“Additionality” is rapidly becoming a hot, new word and an important concept. A fancy new way to describe second grade math?

Far from it. Additionality describes how payments made to the United Nations Clean Development Mechanism (UN CDM) are supposed to be used: To fund projects that create “additional” greenhouse gas (GhG) emissions reductions.

A business in a developed nation where emissions are capped (or a business in a country like the U.S. that does not have caps but chooses to voluntarily cap its emissions) may find that its production activities require it to generate GhGs beyond its cap. To offset those excess emissions, it pays for Certified Emissions Reductions (CERs) approved by the UN CDM. The payment goes to projects certified to reduce emissions in developing nations. Emissions are then reduced overall while, at a cost, the business sustains its economic activity.

The process works well enough IF money paid for CERs is invested to ADD emissions-reducing projects. If the projects would have been built anyway, there is no addition of emissions reducing capacity, no addition to global climate change mitigation, no ADDITIONALITY.

BBC World Service investigations have indentified a rice hulling plant in India that used money paid for CERs to build a rice husk waste-to-biogas generator. When investigators asked, they were told the generator would have been built anyway. Manoj Saxena, senior manager: "[The] numbers are more favourable for us because of the CDM…"

That makes the CDM process little more than a part of a financing plan.

A second project raised different kinds of questions. An Indian chemical plant installed an incinerator to burn HFC23, a byproduct of refrigerant-manufacturing 12,000 times more potent as a GhG than CO2. The CERs for the project now earn about $50 to $60 million/year and will continue to do so over 10 years, amounting to a far greater return than the cost of building and operating the incinerator. There is some addition, but is the valuation accurate?

The UN CDM’s position is that the incinerator earns CERs according to the value of carbon dioxide equivalents (CO2e) it offsets. Incinerated HFC23 is worth a lot of CO2e reduction.

Yvo De Boer, head, UNFCCC/UN CDM: "I'm happy that a very potent greenhouse gas is being removed…I'm very happy that the Kyoto protocol has created a market mechanism that makes it interesting for companies to do that, because evidence shows us that in the absence of the CDM that greenhouse gas was not being destroyed…There was no incentive to destroy that greenhouse gas apart from the CDM."

According to the BBC investigative reporters, however, the HFC23 incinerator would have been built with or without the CERs.

Mukund Trivedy, spokesman, SRF: "[W]e would have done it anyway…"

Aside: Why would an SRF spokesman admit that?

The BBC reporters found another situation in India, a hydroelectric project, with questionable additionality.

As with many of the systems developed to enact the Kyoto Protocols agreement, like the European Union (EU) Emissions Trading Scheme (ETS), the UN CDM process is a work in progress. It now has more than 1000 projects in the works at a value of some $10 billion. 3000 projects are under evaluation.

It will take some time to figure out how to make these systems work efficiently. Where profit is at stake, there will always be profit takers and bad actors.

Given the exigencies of global climate change, it is imperative to find a way to cut emissions. Investigative reporting that discovers loopholes in systems designed to do so is always a valuable contribution, offering insight into how to make the systems work better.

Sellers. (click to enlarge)

The great carbon bazaar
Mark Gregory, 4 June 2008 (BBC News)

WHO
BBC World Service investigative reporters; United Nations Framework Convention on Climate Change (UNFCCC) and its Clean Development Mechanism (UN CDM) (Yvo De Boer, head, UNFCCC); KRBL; SRF

WHAT
The BBC investigated UN CDM projects in India including a rice husk waste-to-biogas for electricity generator installed by KRBL and an HFC23 incinerator installed by SRF and found issues with additionality in both projects.

Buyers. (click to enlarge)

WHEN
The UN CDM is a work in progress.

WHERE
- The KRBL rice husk project is in the state of Uttar Pradesh in Northern India.
- The other two projects investigated by the BBC reporters are also in India.
- The UN CDM administers projects throughout the developing world. The country with the largest single share of projects is China (51+%). India is second (14+%). Brazil is third (8+%).

WHY
- Properly managed, UN CDM projects supply CERs which are bought by businesses in developed nations to offset their own emissions by funding projects in the developing world that reduce emissions by an equivalent amount.
- Critics claim the UN CDM is failing to assess developing world projects accurately and thereby are failing to significantly impact GhG generation or mitigate global climate change.
- BBC investigators found projects in India that would have been built even without the investment from the UN CDM via CERs, making the process little more than an elaborate financing program.
- KRBL is India's largest exporter of Basmati rice. The waste-to-gas generator cost $% million dollars. It will earn several hundred thousand dollars/year in CERs.
- SRF is an Indian chemical company.
- The BBC also investigated a hydroelectric project.

Types. (click to enlarge)

QUOTES
- Yvo De Boer, head, UNFCCC: "We've got a procedure that works… At the end of the day it's always a matter of judgment… And no, it's not watertight."