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Chinese Dams Accused Of Carbon Credit Scams

Environmental lobby group International Rivers has condemned the emergence of trade in fake carbon credits and says the biggest source is hydroelectric power projects on the mainland.

Under what is known as the Clean Development Mechanism (CDM) of the Kyoto Protocol, industrialised countries can support projects that decrease emissions in developing countries and then use the resulting emission reduction credits towards their own reduction targets.

But International Rivers says the CDM is “failing miserably and is undermining the effectiveness of the Kyoto Protocol” because most of the emission reduction credits are fake and come from projects that do not reduce emissions.

It says hydropower projects constitute a quarter of all projects in the CDM pipeline, and 67 per cent of these, or about 700 projects, are on the mainland.

However, International Rivers says there has been no substantial jump in hydropower development to match the large number of supposedly new projects applying to generate CDM credits.

The CDM recently withheld approval of carbon credits from numerous mainland dams and wind farms.

Controversy over the Chinese dams recently led the European Climate Exchange (ECX), the world’s leading market for trading carbon credits, to renew its ban on large hydropower Certified Emission Reductions (CERs), which are carbon credits issued by the CDM executive board.

The European Union is the biggest buyer of CERs, while China sells 70 per cent of the world’s CERs.

Dams built before applications are made for carbon credits are deemed not to contribute to reducing carbon emissions and thus should not qualify to sell carbon credits. Such dams are called “business-as-usual” in the industry jargon.

“There are blatant cases of hydro plants being business-as- usual, whereas other hydro projects seem to really require CDM credits,” Axel Michaelowa, a founding partner of the CDM consultancy Perspectives and a researcher at the University of Zurich, Switzerland, said.

The accuracy of assessments of the eligibility of mainland dams for carbon credits is distorted by questionable data, Michaelowa said.

“Many hydro plants in China use an artificially low utilisation rate for the calculation of their profitability. The regulators have also discovered some hydro projects reported a very low electricity tariff, lower than coal power plants and other hydro projects in the same province.

“Such projects are now increasingly being rejected.”

At a meeting of the CDM executive board in February, 38 mainland dams failed to get carbon credits. The board also decided to review 36 wind projects in China, Katy Yan, a campaign assistant with International Rivers, wrote in her blog.

“These 74 projects hope to produce almost 38 million carbon credits by 2013,” worth about US$600 million, she said.

“The problem is very serious,” Patrick McCully, executive director of International Rivers, said. “Dams are the largest single project type in the CDM. Almost all are likely projects that would have been built anyway regardless of receiving credits, meaning that any credits they generate are fake.”

A World Commission on Dams report has set guidelines that determine whether a dam qualifies to sell carbon credits.

By March 6, 16.32 million CERs had been issued for 132 dams, and China accounted for 71.52 per cent of the 653 large hydropower projects in the world that have been registered or are seeking registration under the CDM to sell CERs, according to International Rivers. A large hydropower project is defined as one with a capacity of more than 15 megawatts.

On March 24, ECX announced it would renew its ban, imposed in 2008, on contracts with large hydro CERs, ECX market development director Sara Stahl said. “We have always excluded large hydro because it’s a grey area,” she said.

Two types of carbon credits are traded on the exchange: CERs and EU allowances, which are carbon credits issued under the EU Emissions Tra ding Scheme. Since trading at ECX began in 2005, trading of carbon credits and related instruments has soared.

Last year, the value of ECX’s trades surged 82 per cent year on year to 68 billion (HK$708.4 billion). […]

South China Morning Post, 7 April 2010

see also: Mainland dams accused of carbon credit scams