The CDM’s executive board has strengthened its review process to improve the tests for additionality and to reduce perverse incentives. For instance, the board no longer accepts new projects for burning off HFC-23, a greenhouse gas produced during the manufacture of refrigerant, because the windfall credits it generated had created an incentive to set up chemical factories for the sole purpose of burning HFC-23. (Because of HFC-23’s heat-trapping potency, one ton of it fetches 12,000 CO2 credits.)
Some observers think the CDM is too far gone to salvage. No amount of tinkering will repair such a “fundamental design flaw” as additionality, Wara contends. Last November the U.S. Government Accountability Office warned that carbon offsets “may not be a reliable long-term approach to climate change mitigation.” In January the European Commission determined that the CDM should be phased out for at least the more advanced developing countries, which would instead be pressured to accept binding commitments to limit emissions. Another proposal would replace the CDM with a fund for developing countries to build green projects without generating credits—thereby eliminating the entire concept of additionality.
Doing away with the CDM and other offsets could be hard, though, because they are the easiest way for industrial nations to meet their emissions targets. The U.S. is considering a bill to reduce emissions by an ambitious 20 percent by 2020, but its provisions are so generous that apparently the country could meet its goal just by buying offsets. The fate of the CDM will be decided in climate talks to be held in December in Copenhagen.
Paying the Polluters
The World Bank is supposed to encourage sustainability, but much of its financing for carbon offsets ironically goes to polluters. For instance, the bank’s private-sector lending arm is financing a coal-fired power plant in Gujarat, India, that will generate 25.7 million tons of carbon dioxide a year. The bank also hopes to garner brokerage fees from the sale of offsets worth three million tons of carbon a year, earned by energy-efficient processes at the same plant. Janet Redman of the Institute for Policy Studies in Washington, D.C., charges that four fifths of the bank’s carbon finance portfolio is invested in offsets from polluting industries such as coal, chemicals, iron and steel.
Note: This article was originally published with the title, "A Mechanism of Hot Air".