For future projects not to give rise to similar problems, operation of the CDM must prevent the perverse incentive that gave rise to the HFC23 episode arising again. But attempts to do this have failed, with the result that the problem has been reproduced. Chinese HFC23 mitigation has been replaced by hydroelectric power generation as the preponderant CDM activity. A typical CDM proposal will compare a hydroelectric power investment in China with coal-fired generation producing the same amount of power, and claim CERs for a reduction of emissions assessed as the difference between the emissions produced by the former and those which would have been produced by the latter. On its face this seems a move in the right direction, for we are no longer dealing with an obscure gas previously more or less unheard of outside of the refrigeration industry, but with the core activity of power generation at which the CDM was initially aimed. And hydroelectricity is a lower carbon intensity method of power generation than coal. But issuance of CERs for hydroelectric power generation in China has actually increased the absolute level of emissions which would have occurred without that issuance.
Hydroelectric power installation could represent an emissions reduction only if it replaced projected growth in higher carbon intensity generation, which in China really means coal. But such is the immensity of China’s growth plans that to maintain that this is happening is completely implausible, and it is most disturbing that this has not prevented the issuance of CERs for China’s extremely ambitious hydroelectric power generation plans. Despite being by far the largest coal producer in the world (more than double the USA), China is now a major net coal importer, with imports growing at astronomical rates (170% in 2009). It is impossible that, under these circumstances, China would not seek to diversify power generation away from coal, and develop hydroelectric and coal-fired generation simultaneously.
And this is what has happened. China is pushing the development of hydroelectricity as hard as is practicable at the same time as it is pushing the development of coal-fired generation as hard as is practicable. The effect of the issuance of CERs for hydroelectric plant is to increase the capital available for investment in it, as is the aim of the CDM. But, in the circumstances actually prevailing in China, this is merely to add to the total capital available for investment in overall power generation, for, to its fully employed domestic capital, China is able to add the capital derived from sales of CERs to the developed countries.
In these circumstances, it is almost certain that none whatsoever of the CERs issued for Chinese hydroelectric power generation represent actual emissions reductions, and, as all power generation produces emissions, it will be the case that the CDM has actually expanded Chinese greenhouse gas emissions through power generation overall.