Bad Day in Congress for the CDM

The Clean Development Mechanism got lambasted at yesterday's US Congressional hearing on the "potential role of offsets as a cost-containment mechanism in a U.S. cap-and-trade program." The hearing was held by the Subcommittee on Energy and Environment of the House of Representatives' Energy and Commerce Committee. This committee, chaired by progressive California Democrat Henry Waxman, is expected to play an important role in shaping US climate legislation.

None of the six people who gave testimony had a kind word about the CDM, not even Stuart Eizenstat - the lead negotiator for the US delegation which pushed the idea of a project-based offsetting mechanism into the Kyoto deal in 1997 - nor the strongly pro-offsets shill from Shell Energy. Eizenstat called the CDM "a poor example" for other offsetting schemes (his testimony promoted carbon credits from tropical forests) and Shell's Graeme Martin explained that Shell recognized the CDM's problems and supported its reform.

Three of the witnesses were extremely critical of the CDM. Michael Wara of Stanford University Law School concluded that:

"There has been and will continue to be substantial crediting of business-as-usual behavior within the CDM . . . The US should use its market power in an international carbon offsets system to improve its environmental integrity by forcing administrative reforms and limiting its purchases to offset categories where real reductions can be readily separated from business as usual.”

Emily Figdor, Global Warming Program Director of Environment America, highlighted the often ignored/misunderstood distinction between carbon allowances and carbon offsets (or credits):

“Exchanging offsets for emission allowances within a cap-and-trade program is akin to trading apples for oranges.  An allowance represents a unit of emissions.  If a facility decides to emit carbon dioxide, it must hold an allowance.  An offset, on the other hand, represents a unit of pollution not emitted.  It is of equal value to an allowance only if it can be judged with certainty that the pollution would have been emitted, but was not, and that the emission reduction resulted from the incentive provided through the offset program.

To illustrate the difference, consider two people trying to lose weight.  One person decides to meticulously count the calories of the foods he eats, with the goal of reducing his intake each day.  The second person, however, counts the calories of the foods he thinks he would have eaten that day but did not because he was on a diet.  You can imagine which of the two will be more likely to actually shed a few pounds. “

John Stephenson, Director for Natural Resources and the Environment from the US Government Accountability Office explained that two recent GAO reports on voluntary offsets and the CDM led to the conclusion that:

“the use of offsets for compliance – even in a rigorous [sic], standardized process like the CDM – may compromise the environmental integrity of mandatory programs to limit emissions and should be carefully evaluated . . . GAO suggested that the Congress consider key lessons from the CDM, including the possibility that, (1) due to the tradeoffs involving cost savings and the credibility of offsets, their use in mandatory programs may be, at best, a temporary solution to achieving emissions reductions, and (2) the program’s approval process may not be a cost-effective model for achieving emissions reductions.”

The testimonies can be downloaded from the Energy & Commerce Committee's website.