The Next Saga in China’s CDM Drama
Source:Chief Editor, CCEN   Date:2010-03-03   Author:Tom Pellman

Clifford Mahlung may not be a familiar name to those following China’s clean energy scene, but he will be soon. After working as Jamaica’s lead climate negotiator at the Copenhagen Summit, Mahlung took the reins of the UN’s Clean Development Mechanism, or CDM, program on February 8.


The CDM, a feature written into 1997’s Kyoto Protocol, is a system that allows developing countries to build carbon emissions-reducing projects and then sell carbon credits to developed countries with emissions standards to meet. With many renewable energy technologies still struggling to compete with coal and oil on price, CDM approval can make clean energy projects much more viable. The idea is for the CDM to help launch projects that otherwise wouldn’t be financially possible.


The scheme has worked well in China – too well, some argue. By last year at this time, China was responsible for two-thirds of the 1200 CDM projects worldwide, a dominance that set off bouts of international grumbling. Given the country’s low operational costs and favorable investment climate, China was accused of having an unfair advantage over developing countries in Africa, South America and elsewhere.


The tension reached a head late last year when it was announced 10 Chinese wind farms had been rejected for CDM status for failing to meet certain criteria, an unprecedented development. Chinese industry members loudly condemned the rejections as baseless and politically motivated. China’s state-media didn’t mince words, calling the decisions “irrational, non-transparent and unfair.”


Since then, those responsible for CDM approvals have largely put off the China problem, alternately appeasing and aggravating the Chinese. The CDM board reversed two of the 10 rejections earlier this year. Next, it approved 32 more Chinese wind farms, while rejecting six more.


Is China unfairly keeping other developing countries from their chance at selling carbon credits? Should carbon mitigation, regardless of how or where it’s undertaken, be the number one priority?


This is the volatile environment Clifford Mahlung enters. To his credit, he has vowed to tackle head-on the China problem at the CDM’s March 22 meeting.


“The board itself will have to make a decision – they are not at one place,” Mahlung told BusinessWeek. “For me personally, if the projects are achieving the ultimate objective of the convention, which is to reduce greenhouse gas emissions, then that should be paramount in the thinking.”


In other words, enough with the politics. We whole-heartedly agree. Haphazardly approving some Chinese projects for CDM while allowing other identical ones is inexcusable. If Chinese-built projects are the biggest, most cost-effective way to reduce billions of tons of CO2, support them. The CDM is tool to reduce emissions first and a tool for economic development second.


Mahlung’s opponents will argue that many green projects in China are going to be built regardless of CDM approval. That is, they don’t offer “additionality,” an component essential under the CDM scheme. They say China’s devaluated currency and government subsidies already give wind farms an unfair economic advantage over other countries.


But the real picture is far less breezy, and CDM approval can make or break the financials of a project in China. Consider that the return on investment on a China wind farm is about 20 years, and this assumes the country’s grid operators become more willing buy wind power at all. Wind power prices (RMB0.51-0.61) remain extremely low by international standards, and the infrastructure to make wind power profitable like a smart grid is not even on the drawing board.


The bottom line is that while it may not be fair politically that China has claimed such a large piece of the CDM pie than expected, remember that it did so by getting a huge number of emissions-reducing projects off the ground extremely fast while other countries dithered. And that’s the whole point of the CDM.

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