Chinese Dams In Hot Water

Hydro developers and auditors in hot water. (Photo: Gregg McNeill, http://www.flickr.com/photos/gbmcinephoto/)

The Clean Development Mechanism's Executive Board (EB), which approves and rejects projects applying for emissions reductions credits, just ended their latest board meeting in Germany with a decision that has stunned carbon market investors – and given some hope to dam-fighters and CDM reform activists.

38 Chinese CDM hydropower projects failed to get immediate registration, which is an unprecedented number. If they had been immediately registered, these hydropower developers would have received additional financing in the form of emissions reductions credits – even though many Chinese hydro projects are not additional, as reports have found.

Registration also means that polluters in rich countries would have been allowed to continue polluting through the purchase of these credits or offsets – a major loophole in how they meet their emissions reductions obligations.

In addition to the hydropower projects, the EB also decided to review or conditionally register (i.e. approve only if certain problems with the projects' applications are fixed) 36 wind projects located in China. These 74 total CDM projects hope to produce almost 38 million carbon credits by 2013, which approximately amounts to US$600 million.

According to the industry journal Point Carbon (subscription required), the EB rejected several wind projects in 2009 because of concerns that China had lowered subsidies for the schemes in hopes of receiving CDM credits to fill the funding gap. This recent crackdown on Chinese wind and hydro projects could mean that the EB is turning a stern eye on applying the same restrictions on wind to the hydro projects.

CDM Executive Board could increase scrutiny of Chinese hydropower projects in the CDM pipeline (Photo: http://oregon.gov/transparency/expenditures.page)

This shift in the wind could mean that the 364 Chinese hydro projects that are already registered, and which likely have the same problems as the current batch, could come under EB scrutiny-in particular those validated by auditors that were suspended by the EB. (CDM projects must first be validated by an accredited auditor, or Designated Operational Entity, before it can apply for registration by the EB.) According to Point Carbon,

"Chinese hydro plants that only just passed the EB's checks previously will now likely be viewed by the board as capable of existing without the help of carbon finance."

While this blow to carbon investors and project developers means uncertainty for their pocketbooks, environmental and social justice groups applaud the EB for stepping up its oversight of the CDM, where "conning the climate" has become a popular (and seriously problematic) pastime.