Chapter 9 : Conclusion

Chapter 9

Conclusion

By Patrick Bond

 

The conclusion reached by the research team spanning Durban’s Centre for Civil Society and Dartmouth’s Climate Justice Research Project, is that the CDM experience in Africa is a failure in a double sense. It has not actually contributed to slowing down climate change. And it has caused negative side effects. CDM cannot deliver the money required for either ensuring African emissions mitigation, a transformative energy/transport/ production system for Africa, or the North’s payment of its climate debt to Africa. This is especially true when CDMs are hostage to the whimsies of world financial markets, which continue to crash, especially the European Union’s Emissions Trading Scheme. This report shows, in sum, that the emissions markets were the wrong idea (a neoliberal strategy) in the wrong place (financial markets) at the wrong time (the 2000s era of repeated bubbles and bursts).

As this study was being finalized, three additional reports emerged that back up the message that Africa should not rely on CDMs or carbon markets more generally. First, Alain Bellassen and Valentin Cornier of CDC Climate embarked on a lengthy study of CDM successes and failures, concluding that although accredited CDM status has been given to over 7000 projects, of the 1.8 billion in expected CERs that were expected to mature by April 2011, only 576 million – about 30 percent – were actually issued.[1]

Second, there were in early 2012 reports of a potential European Commission intervention to save the EU ETS. According to Alexander Jung in Der Spiegel,

 

Emissions trading, the European Union hoped, would limit the release of harmful greenhouse gases. But it isn’t working. The price for emissions certificates has plunged, a development that is actually making coal more attractive than renewable energy… The European Parliament’s Industry Committee plans to vote later this month on whether Brussels should reduce the number of carbon certificates it provides. A vote in favor would see the EU auctioning off 1.4 billion fewer credits than planned during the next trading period from 2013 to 2020. The cut of roughly 8 percent, it is hoped, will push prices back up. Yet this type of market intervention reveals the system’s central design flaw: politicians determine the total amount of CO2 that industry in the EU may emit, a limit that applies years into the future, without any way to know how the economy — and thus the demand for trading certificates — will develop during that period… Bit by bit, the business of emissions certificates is losing its purpose and incentive. In hindsight, it’s clear that introducing a CO2 tax — another alternative discussed initially — would have been more feasible and more effective. Another option would have been to establish limits and then tighten them every year. A battle raging between the EU and the rest of the world over the decision to require airlines flying to or from Europe to purchase carbon certificates is not exactly generating extra support for emissions trading. For the EU, at this point, it’s become purely a matter of saving its prestigious project.[2]

 

The big question, however, is whether this sort of emergency financial-system bailout would be any more successful than all the other post-2008 bailouts, which transferred sums from taxpayers to bankers with negligible changes in either financial institution behaviors or performance, resulting in increasing rather than decreasing systemic risk and ongoing moral hazard. The Financial Times addressed this in an article, ‘Emissions trading: Cheap and dirty’, which included some scathing quotes about how far the ETS has degenerated both in policy and market terms:

 

Johannes Teyssen, chief executive of Eon, the German energy group that is one of Europe’s largest, stunned an audience in Brussels last week when he pronounced the market broken. ‘Let’s talk real,’ he said. ‘The ETS is bust, it’s dead… I don’t know a single person in the world that would invest a dime based on ETS signals.’…

The market has suffered other indignities in its brief history, from value added tax frauds worth billions of euros to the cyber-theft of millions of permits from companies’ electronic accounts. But, because it calls into question the fundamental workings of the market itself, the price slide may be its most serious affliction. ‘The carbon price is far lower than we estimated it to be when we adopted the whole system,’ says Martin Lidegaard, climate and energy minister for Denmark, current holder of the EU’s rotating presidency. ‘I think it’s fair to say that the situation is not sustainable in the long term.’…

‘The ETS is a joke,” says Per Lekander, a UBS analyst who estimates that the market is saturated with 35-48 per cent more permits than are needed to meet this year’s compliance requirements. It will remain awash in excess permits at least until 2025, he predicts. [3]

 

In short, potential reforms in Europe appear incapable of stopping the rot in the ETS, the core financing source for African CDMs.

Third, in spite of the African media’s near-blackout on the carbon trading crisis and the failure of the CDM mechanism, there is growing awareness of the problem at the climate activist base and amongst serious researchers. In late 2011, the Pan African Climate Justice Alliance (PACJA) in Nairobi and Institute for Security Studies (ISS) in Cape Town issued an extensive report on African CDMs. One of the contributors, Yacob Mulugetta of Surrey University, expressed the problem succinctly:

 

The argument that carbon trading offers real benefits to the poor in Africa is simply not credible. What is puzzling is the persistence of the proponents of carbon markets, who continue to cling onto these ideas in the face of mounting evidence that carbon trading does not deliver results commensurate to the effort invested in it… Fundamental inequality is behind the climate problem, and the search for solutions must involve industrialised societies making fundamental structural changes to their lifestyles, energy practices, and their production and consumption systems.[4]

 

The PACJA/ISS report was scathing of using subsidies meant for supporting Africans, to instead prop up the world carbon market, especially via the African Development Bank’s African Carbon Facility:

 

It promises to buy post-2012 credits in order to ‘maintain private sector confidence’ in the ailing carbon market, as well as providing debt financing for the development of new projects. The AfDB is also offering an African Carbon Support Programme, which was launched in November 2010. This is supported by the Fund for African Private Sector Assistance, a joint initiative of Japan, Austria and the AfDB to promote private sector development. The aim is to support potential project developers throughout the whole CDM process, from formulating the original project idea through to advice on credit sales. The running of the programme has been outsourced to Carbon Limits, the Norwegian consultancy which developed the Pan Ocean Gas Utilization Project.[5]

 

In addition, PACJA/ISS expressed concern about the African Carbon Asset Development Facility (a joint venture of the United Nations Environment Programme, Standard Bank of South Africa, and the German Federal Environment Ministry), which provides technical support and small grants for project developers to establish 15 CDM projects. As PACJA/ISS argue this strategy ‘diverts scarce public resources away from directly addressing climate change.’ Another result, as shown in many of the case studies in the pages above, is that projects with highly adverse social, environmental and economic outcomes are being promoted. A ‘Resource Curse’ exists insofar as inappropriate, highly undemocratic and underdevelopmental activities are being carried out through financing that ostensibly should address the climate crisis.

An appropriate alternative, instead, is to finance African adaptation, mitigation and climate debt repayments from North to South through a genuine Green Climate Fund. The proceeds of such funding should include a Basic Income Grant mechanism that ensures ordinary African who are victims of climate change benefit, not the kinds of often malevolent, corporate-subsidised projects we have considered above.

Only then would a genuine step be taken towards making a Clean Development Mechanism for Africa worthy of the name, instead of a nickname that mightl become more popular in coming months and years: Cannot Deliver the Money. As argued by the PanAfrican Climate Justice Alliance and Institute for Security Studies, the CDM is diverting scarce public resources away from directly addressing climate change, and towards projects that are often highly polluting and socially harmful. The main purpose of carbon offsets is to help industrialised countries to delay making emissions reductions at source. The CDM is an avoided responsibility mechanism, which counts claimed reductions in developing countries as equivalent to actual cuts in industrialised countries.  Instead the rich countries should face up to their ecological debts because of disproportionate emissions of carbon dioxide over many years. Although the continent may see an increase in the overall number of projects, its share of the overall market is not likely to alter significantly, and Africa will remain on the margins of the global carbon market. By 2020, the largest number of CDM credits produced across the content will be related to extractive industries, most notably the oil sector (avoided gas flaring) in Nigeria. Such projects tend to lock in fossil fuel dependence rather than facilitating a transition to more sustainable development paths.

 

Other projects are big dams or eucalyptus or pine plantations (or the novel “climate smart” agriculture), announcing more instance of dispossession with negative effects on humans and nature, as we have seen in previous chapters.

 

The price of carbon credits is falling. Instead of pushing for Africa’s inclusion in this failing market, policy makers and institutions should be looking to more effective and just forms of financing. To address mitigation needs, meanwhile, the first step remains the adoption of higher, binding emissions targets by industrialised countries.

 


[1]. Alain Bellassen and Valentin Cornier, ‘The risks of CDM projects: How did only 30% of expected credits come through’, Working Paper Jan., CDC Climat < http://www.cdcclimat.com/The-risks-of-CDM-projects-how-did-only-30-of-expected-credits-come-through.html?lang=en> Non-delivered or unrealized CERs were primarily due to negative validation or withdrawn projects (29 percent), delays experienced during the approval process (12 percent), delays at issuance (27 percent), and underperformance (1 percent). Risk factors that create uncertainty included primarily technologies used, followed by location and size of project. Minor risk factors included auditors and consultants. Delays at issuance, comprising the second largest risk category, largely correlated with location.

[2]. Jung, A., ‘Hot air: The EU’s Emissions Trading System isn’t working’, Der Spiegel, 15 February 2012, http://www.spiegel.de/international/business/0,1518,815225,00.html

[3]. Chaffin, J. ‘Emissions trading: Cheap and dirty,’ Financial Times, 13 February 2012, http://www.ft.com/cms/s/0/135e1172-5636-11e1-8dfa-00144feabdc0.html#axzz1mSynDDzc

[4]. Mulugetta,Y., Climate change and carbon trading in Africa, in T.Reddy (ed), Carbon trading in Africa: A critical review, Cape Town, Institute for Security Studies, 2011.

[5]. Reddy, T. (ed), Carbon trading in Africa: A critical review, Cape Town, Institute for Security Studies, 2011.

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