Kyoto's (not so) Clean Development Mechanism

December 6, 2006

A year after the ratification of the Kyoto Protocol, which involves 166 countries and commits 36 industrialised nations to binding CO2 emission cuts of 5.2% by 2012, global emissions are rising faster than ever. This is because Kyoto promotes carbon trading as the key mechanism to reduce CO2 emissions. Today the global carbon market worth US$22 billion is being called a "green goldrush".

The Stockholm-based Dag Hammerskjold Foundation's 360-page study, Carbon trading: a critical conversation on privatisation power and climate change, exposes Kyoto's ineffectiveness in curbing emissions and explains how the carbon market is fuelling new forms of First World exploitation of the Third World.

The better-known carbon trading regime is between corporations in industrialised countries but this is only a small proportion of the carbon market. Carbon trading outlines how First World corporations are increasingly investing in emission "offset" schemes in the Third World as a way of minimising these corporations' requirements to reduce their own emissions.

These schemes, mandated under Kyoto's Clean Development Mechanism (CDM), are supposed to transfer "clean" technology to Third World countries. But, as Carbon trading explains, CDMs have become a vehicle for corporations to profit from cheap carbon credits regardless of whether emissions are reduced or their longer-term social impact. It also outlines how international financial institutions such as the World Bank assist this new form of First World plunder while underwriting and creating new incentives for polluting industries.

Big business

Carbon trading and CDMs have spawned new investment opportunities. The biggest provider of carbon-trading finance is the World Bank's "carbon fund" that manages US$180 million. Private banks are also getting in on the act: Climate Change Capital bank based in London founded in 2003 already manages $1 billion; and the US Morgan Stanley investment bank invested $3 billion into the carbon market in October.

As these banks' decisions are guided by the same principles as all investment finance — seeking low-cost investments with high returns — the result is that finance is being channelled into "easy" carbon credits rather than pricier slow-return projects such as renewable energy and efficiency projects.

"Carbon sinks" or tree plantations is an offset scheme. The quantity of CO2 absorbed by new forests is converted into a carbon credit which can then be sold or traded to offset the investing company's emissions. But as the July 2006 New Internationalist noted: "Scientists concluded that the Kyoto Protocol's and voluntary offset companies' promotion of tree-planting projects will enable them 'to claim carbon credits for the new planting while in reality releasing huge amounts of CO2 into the air' since most tree-planting involves clearing of vegetation such as grasses which absorb carbon and exposing the soil."

The November 15 British Guardian quoted World Bank figures showing that almost 60% of all CDM projects involved destroying hydrofluorocarbons). Because HFCs are 12,000 times more powerful greenhouse gases than CO2, destroying even small amounts is economically valuable. India has attracted the highest number of CDM projects of any Third World country, where nearly 85% of all carbon credits are generated by two projects, both of which destroy HFCs.

Acording to the World Bank, just 10% of all CDM projects involved renewable energy and energy efficiency projects.

Carbon trading argues that "end of pipe" projects which capture CO2 before it enters the atmosphere "don't help society become less dependent on fossil fuels" and "don't advance renewable energy sources". Rather as the market for carbon credits is dominated by big business the drive to maximise corporate profits further entrenches these companies' polluting practices.

British writer George Monbiot describes these schemes as "bogus accounting", arguing that they wrongly perpetrate the idea that CO2 emissions can continue because we can reduce their harmful effects.


The CDM is also vulnerable to corruption as corporations seek to reduce costs, through receiving carbon finance) while adding another revenue stream to their business, by selling carbon credits). The lack of transparent regulations and government enforcement means that CDMs are also readily manipulated by corporations to garner carbon funding for business as usual.

An October 2005 study by Graham Erion, Low Hanging Fruit Always Rots First: observations from South Africa's crony carbon market, cited a South African firm Sasol that wanted carbon finance for a new natural gas pipeline to power its operations. As natural gas is less CO2 producing than the coal the company was using it claimed this would reduce South Africa's overall emissions and that the project would not go ahead without carbon finance. However a company spokesperson later admitted that the project would have gone ahead anyway and that the reason Sasol was seeking CDM status was financial gain.

Carbon trading reported that the Indian government has approved almost every project presented as a CDM because it encourages "investment" and "economic growth". This has included some of India's most polluting enterprises.

The CDMs give First World corporations a way of buying out of their emission reduction commitments without challenging their reliance on fossil fuels, the root cause of the greenhouse problem.

According to a study by the Global Carbon Project (GCP), published in the November 10 New Scientist, greenhouse gas emissions grew by 0.8% between 1990 and 1999 and by 3.2% between 2000 and 2005. The study cites as major contributing factors to this rise the US government's refusal to implement a national emission reduction plan, the failure of the European Union's Emission Trading Scheme and increased emissions from countries such as China India and Brazil.

For GCP executive director Josep Canadell continuing with business as usual will make it "extremely difficult to rein in carbon emissions enough to stabilise the atmospheric CO2 concentration at 450 parts per million and even 550 parts per million will be a challenge".

The November 9 Guardian quoted Sir David King, the British government's chief scientific adviser, as saying that carbon concentrations of 450-550 ppm would result in average global temperature increases of between 2.2-3.5oC. Scientists agree that anything beyond a 2oC increase will result in catastrophic climate change.

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