How the Clean Development Mechanism wastes billions and actually increases greenhouse gas emissions

The Clean Development Mechanism (CDM) is the ‘flexible mechanism’ set up under the Kyoto Protocol to, in effect, subsidise the reduction of greenhouse gas (GHG) emissions in developing countries. If a party in a developing country which planned an investment which normally would produce emissions alters the investment to incorporate emissions reduction technology, Certified Emissions Reductions (CER) are issued in respect of the reduction obtained. These CERs may be sold to a party in a developed country which can use them as an ‘offset’ permission to emit GHGs in excess of any cap which may apply to that party. The developed country party’s purchase of the CERs funds the use of emissions reduction technology.

It was initially envisaged that the CDM would induce developing countries to make major infrastructural investments, such as in power generation, in a way which would result in very substantial emissions reductions. But Michael Wara and his colleagues at the Stanford Program on Energy and Sustainable Development have shown that during the initial operation of the CDM, the great majority of CERs, of a value estimated to reach US$5 billions by the end of 2012, were issued, not in relationship to power generation or the like, but in relationship to HFC23, a by-product of the production of HFC22, a valuable refrigerant gas. This curious concentration of CDM activity, not on a central activity such as power generation, but on a miniscule part of the Chinese economy, is readily explicable by reference to the way the CDM works.

CO2 is the most significant anthropogenic GHG because of the vast volumes of it that are emitted, but it is by no means the most potent GHG. The Kyoto Protocol identified a ‘basket’ of six anthropogenic GHGs: in addition to CO2, methane, nitrous oxide, sulphur hexafluoride, the hydroflourocarbons (HFCs) and the perfluorocarbons. The last two are groups of gases which are rare in nature and largely are industrial products. HFCs are widely used in the electronics industry and as flame retardants, propellants and refrigerants, their use having significantly increased since the Montreal Protocol, for they are substitutes for ozone depleting gases identified under that Protocol. HFC23 was given a Global Warming Potential (GWP) rating of 11,700, which is to say HFC23 is stated to be 11,700 times more potent a global warming gas than CO2. This means that, for every tonne of HFC23 that is not emitted in a developing country, CERs allowing 11,700 tonnes of emission of CO2 in a developed country will be issued.

As it happens, the scrubbing of HFC23 from refrigerant gas production plants is technologically simple and cheap, and is now perfectly routine in refrigerant gas production in developed countries. The consequence both of this fact and the enormous GWP rating of HFC23 has been a huge growth in refrigerant gas production in the PRC, unarguably in pursuit of the CERs, which are a far greater source of profit than actual refrigerant gas production. Wara tells us that ‘refrigerant manufacturers were transformed overnight by the CDM into ventures that generated large volumes of CERs, with a sideline in the manufacture of industrial gasses’. The great growth of this industry as a whole has more than nullified any reductions obtained by use of the scrubbing technology. The overall result has been a great absolute growth of emissions.

The main impact of the CDM so far has, then, been to completely waste billions of dollars supporting an actual increase in the amount of global emissions. In a future blog post, I will show how the switch of CDM activity to support hydroelectric power generation in developing countries will inevitably have the same effect.