Status Note on Hydro and the CDM. Prepared for COP 9, Milan

Large Hydro Still a Large Problem for the CDM 

As the CDM approval process nears the point at which the first projects may soon be registered, large hydro projects continue to be a concern. In addition to the millions of credits already being claimed by CDM large hydro projects, many more have signalled an interest in using the CDM. At the same time, concerns about the non-additionality of large hydro projects has been borne out by the validation opinions for the Dutch CERUPT projects and the baseline methodology review of other large hydros, underlining the need to exclude them altogether.

Also disturbing is the backdown by the European Union from its previously progressive positions on large hydro in the CDM. The EU once sought to exclude all hydro projects larger than 10 MW from the CDM1, yet they are now the most active of all Annex I Parties in using the mechanism to develop large hydro projects, through the Dutch CERUPT program and through their investment in the World Bank’s Prototype Carbon Fund (PCF). Moreover, the EU is proposing to give large hydro projects access to the European Emission Trading Scheme (ETS) without even a requirement for World Commission on Dams criteria to be met.

By allowing large hydros to sell credits into the ETS, the world’s largest carbon market, the EU will make big dams a much more attractive target for carbon finance. It will also signal that the EU accepts large hydro projects - without any quality controls on their social and environmental impacts - as a sustainable and renewable energy source, and a part of their climate strategy. Previously the most progressive player regarding large hydro projects in the CDM, the European Union has now become the biggest problem.