UN suspends largest CDM auditor — Copenhagen needs to clean up the Clean Development Mechanism, Senate should keep House’s tough offset language

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"UN suspends largest CDM auditor — Copenhagen needs to clean up the Clean Development Mechanism, Senate should keep House’s tough offset language"

Several months ago I met with the lead climate negotiator for a major European country.  I spelled out some of my oft-repeated concerns about international offsets aka the Clean Development Mechanism.  He kept nodding his head and said, “Work with us to fix it.”

Here are the key points about the CDM:

  1. It’s certainly not as bad as many people think (see excellent overview from Point Carbon here — “The CDM: Rip-offsets or real reductions?“)
  2. The Europeans are going to insist on keeping it.  It remains a principal mechanism for having polluters pay for clean energy in developing countries.  We certainly need some such mechanism.
  3. Under the House climate bill, we don’t have to participate in any international offset market that does not meet high standards for quality assurance.
  4. For all the lame and/or insufficiently audited CDM projects that became certified emissions reduction (CER) credits for the Europeans to buy instead of actual emissions reductions, they only bought about 80 million in 2008 and the average price was about $25/ton (see “Do the 2 billion offsets allowed in Waxman-Markey gut the emissions targets?“).
  5. Many of the cheapest tons — the dubious Chinese HFC projects — are largely gone and the standards for CDM are certain to be tightened in whatever deal comes out of Copenhagen deal in the wake of ongoing news about questionable CDM oversight.
  6. The central conclusions of my recent analyses and discussions with leading experts this year remains true.  Large-scale, inexpensive international offsets don’t exist nor will they.  Were the U.S. to enter the CDM market in a big way, prices would go up.  The overwhelming majority of emissions reductions in the climate bill as currently written will be met with domestic clean energy strategies (see “Game changer, Part 2: Unconventional gas makes the 2020 Waxman-Markey target so damn easy and cheap to meet).

That said, some in this country are trying to weaken in the Senate bill the international offsets oversight provisions found in the House clean air, clean water, clean energy jobs bill.  The latest story from the UK’s Sunday Times, “Carbon-trading market hit by UN suspension of clean-energy auditor,” should undercut the rationale for those efforts:

The legitimacy of the $100 billion (£60 billion) carbon-trading market has been called into question after the world’s largest auditor of clean-energy projects was suspended by United Nations inspectors.

SGS UK had its accreditation suspended last week after it was unable to prove its staff had properly vetted projects that were then approved for the carbon-trading scheme, or even that they were qualified to do so.

The episode will be embarrassing for European lawmakers in the run-up to the global climate summit in Copenhagen, where they will attempt to lure big polluters such as America and China into a binding agreement to replace the Kyoto protocol. SGS is the second such company to be suspended – Norway’s DNV was penalised last November for similar infractions.

The EU’s carbon-trading system, which puts a price on pollution through carbon permits that can be bought and sold, is the key element in Europe’s fight against climate change.

About a fifth of the $100 billion of credits traded annually come from projects funded under the Clean Development Mechanism (CDM). The heavily criticised programme allows industrialised countries to offset their pollution by buying “certified emission reductions credits” generated by low-car-bon schemes in the developing world. China and India are the biggest generators of the credits: more than 900 projects are now running, producing billions of credits, with thousands more in the pipeline.

Critics say the system is not sufficiently policed and allows western polluters to buy their way out of more costly carbon-cutting measures.

All such schemes must first be approved by organisations such as SGS. DNV was the single biggest auditor until it was suspended last year, when much of its workload was shifted to SGS, which was simply unable to cope.

Simon Shaw, chairman of EEA Fund Management, a backer of emission-reduction projects and an investor in Climate Exchange, the carbon-trading platform, said: “There was obviously a lack of resources. We knew this was coming.”

UN inspectors said they found six irregularities in a recent spot check. The firm has now rectified these, but remains suspended until the UN verifies sufficient changes have been made. SGS could not be reached for comment.

Lawmakers are expected to reform the CDM in Copenhagen in December.

More vetting and oversight of projects are required — and tougher standards for auditors.  And that should improve quality and raise costs, both very good things.

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9 Responses to UN suspends largest CDM auditor — Copenhagen needs to clean up the Clean Development Mechanism, Senate should keep House’s tough offset language

  1. David B. Benson says:

    The equipment doesn’t appear to be ready for air capture of CO2 yet, but nonethless it is possible to roughly estimate costs. I figure $27 per tonne of CO2 sequestered in the Oman peridotite. Well, probably should up that to $30 per tonne. The Oman peridotite. according to Kelemen & Matter, ought to be able to take about 10% of current yearly emissions for many years to come. There are similar exposures in northwest Australia, Papua New Guinea (very large) and New Caledonia.

    No field trials yet, no pilot projects. NETL/DoE does not appear to be working on it.

  2. NFJM says:

    Quote:

    “Critics say the system is not sufficiently policed and allows western polluters to buy their way out of more costly carbon-cutting measures.”

    => This is exactly what the CDM has been created for: as we share the same atmospheric system, one tonne CO2 in the world is equal to one tonne CO2 in industrialized countries. In turn, it does not matter where emission reduction happen as long as they are real and verifiable and can be clearly attributed to the CDM.
    It makes sense to harvest all low hanging fruits and implement all cheap abatement measures. Why would anybody want to implement more costly carbon-cutting measures first? Remember that we are under cost pressure and should demonstrate that large emission reductions can be achieved at a very reasonable cost. And the point of offset is precisely to be a cost-containement measure.

    Sure many aspects of the CDM can be improved and have to be improved.

    Many ideas exist to reform GHG emission markets.

  3. NFJM says:

    Quote:

    “Critics say the system is not sufficiently policed and allows western polluters to buy their way out of more costly carbon-cutting measures.”

    => This is exactly what the CDM has been created for: as we share the same atmospheric system, one tonne CO2 in the world is equal to one tonne CO2 in industrialized countries. In turn, it does not matter where emission reduction happen as long as they are real and verifiable and can be clearly attributed to the CDM.
    It makes sense to harvest all low hanging fruits and implement all cheap abatement measures. Why would anybody want to implement more costly carbon-cutting measures first? Remember that we are under cost pressure and should demonstrate that large emission reductions can be achieved at a very reasonable cost. And the point of offset is precisely to be a cost-containement measure.

    Sure many aspects of the CDM can be improved and have to be improved.

    Many ideas exist to reform GHG emission markets.
    Sorry, forgot to add great post! Can’t wait to see your next post!

  4. John Kazer says:

    Why will “raised costs” be a good thing?! We want to encourage the process not use it to raise tax-replacing cash!

    As NFJM states, the point of the CDM is to provide a least-cost way of cutting world-wide emissions.

  5. Nick Fraser says:

    Just found this very interesting comment by someone who worked on the baseline-and-credit part of the Scheme for the UK government. His article is called

    “Who will point out that the CDM emperor has no clothes?”

    To be found here http://bit.ly/2PEG02+

  6. Ken Johnson says:

    NFJM: Re “Why would anybody want to implement more costly carbon-cutting measures first?” Because procrastination is not, in the long term, a least-cost strategy for climate stabilization. According to your logic, why should any limit be placed on offsets? Why not let the W-M cap be met entirely with international offsets?

    A fundamental problem with offsets is that it will be hard to convince other countries to take responsibility for their own emissions and accept binding targets if we have bought up and monopolized all of the cheap reduction options. If other counties can, in the future, appropriate those allowance credits for their own compliance obligations, then we may no longer be able to meet our own compliance obligations if other countries accept binding targets. Our dependence on international offsets would give us a perverse economic incentive in deterring other countries from regulating their own GHG emissions.

  7. Jeff R. says:

    “Large-scale, inexpensive international offsets don’t exist nor will they. Were the U.S. to enter the CDM market in a big way, prices would go up. The overwhelming majority of emissions reductions in the climate bill as currently written will be met with domestic clean energy strategies”

    Yes, instead of inexpensive international offsets, we will have inexpensive domestic (rip) offsets because agriculture is not a regulated sector under the House bill.

  8. Jeff R. says:

    “As NFJM states, the point of the CDM is to provide a least-cost way of cutting world-wide emissions.”

    Actually, not really. That makes sense in theory, but we do not have institutions capable of enforcing a global emissions cap, and without an enforceable global emissions cap, it is pure fantasy to expect “reductions” in the developing world to compensate for continued profligacy in the developed world. The purpose of CDM is to engage the developing world and try to set them on a sustainable development path — it cannot be more and should not be mistaken as having the potential to do more.

  9. Ken Johnson says:

    Jeff – That doesn’t make sense either, because CDM offsets would only set the developing world on a sustainable development path to the extent that it also keeps the developed world on an unsustainable path. I think the reality is that the developing world will not get onto a sustainable path without a very fundamental and pervasive change in civilization’s energy technology base, which only the technologically advanced societies are capable of bringing to fruition. CDM diverts our attention from decarbonizing our own economy, which must happen before developing countries can do the same. (The HR2454 provisions for tropical forest conservation, which are outside of the trading/offset system, are a good example of the right way to do Cooperative Development.)