Why the CDM should matter to the United States
A hot-blooded Spanish creature like me can get into an argument relatively easily, and I’m not afraid to argue strongly about what I know and/or believe. Can you picture Penelope Cruz in Vicky Cristina Barcelona when she argues with Javier Bardem? Yep, that’s me!
In the last four months here in the United States, I have attended quite a few conferences, gatherings, meetings, cocktails, you name it. At all of them I have found myself discussing carbon offsets, specifically the contribution of the Clean Development Mechanism (CDM) — the project-based market mechanism under the Kyoto Protocol that channels foreign investment to clean projects in the developing world in return for carbon credits — to confronting climate change.
The lack of understanding of the CDM in the United States is rather shocking. I have heard eye-rolling comments like, “It is a joke that closing a coal power plant can generate CDM credits” (well, indeed it would be, if it were true).
The good thing is that my debating skills are getting better, so irrational critics of the CDM beware!
The United States is finally committed to tackling climate change, and even though there is some discussion about the shape of climate legislation (carbon tax vs. cap-and-trade), it seems the most likely outcome is that the U.S. will end up with a cap-and-trade program. There is major debate about whether offsets should be allowed into the scheme, but it’s really the only rational outcome since offsets are an effective price-control mechanism.
So, why does the CDM matter to the United States? Because if the U.S. does not want to create false expectations in industry with regards to its real capacity to use offsets, there is no time to reinvent the wheel. Building an offset-accreditation system takes time. A long time. American industry will suffer if the supply of offsets is not sufficient to help with price control, especially in the short-term while companies roll out their internal strategies and infrastructure changes.
The truth is that the CDM has already generated a high-quality pipeline of international projects that can provide a good source of offsets to U.S. companies covered by regulation. In my six years with a project-offset development company, I have been a fiery (remember, I’m Spanish) critic of the CDM. But these criticisms are aimed at improving an emerging system, not dismantling it.
Too many critics in the United States simply want to throw the baby out with the bath water. The real opportunity is to learn from the experience and use the fantastic negotiating power of the U.S. government and economy to improve the system. I’m still wondering if criticisms here have to do with the perception that the CDM was not “made in America.” In fact, the CDM was actually born in the USA.
What are the positives and the negatives of the CDM? The negatives are that successful early projects are extraordinarily concentrated — fewer than 30 projects have generated approximately 70 percent of total credits to date. The system also is overly complicated, making it difficult for small projects to gain access, and the comparatively short period since Kyoto means the CDM has had too little time to incentivize en masse new technologies or really bring high-end technology to key developing markets.
On the positive side, a highly complex system is already up and running (this is very important), and more than 1,350 projects have already been approved by the UN to generate credits (with over 3,000 more in the pipeline). The gross current projection is 1.3 billion tons of carbon reductions through 2012, which is worth tens of billions of dollars of investment and trade flows to the developed world.
“Learning by doing” has created significant expertise and an entrepreneurial culture around emissions trading — a whole new industry and lots of jobs (my company alone has gone from 25 to 300 employees in the six years since I joined). The CDM has accelerated existing technology uptake in new markets, and one can clearly argue that the CDM has provided solid proof that markets can indeed achieve social objectives. Finally, some of the failures that my colleagues and I have railed about can be attributed to “over-success” and regulatory stress rather than fundamental flaws in the CDM.
On a project-scouting trip to Vietnam, my colleagues and I visited with officials to discuss a landfill in a city located near the Vietnamese capital. When you fly to countries like Vietnam and encounter officials from a small and poor area excited about being able to resolve the problems posed by their city’s landfill because the sale of carbon credits will provide an extra boost in revenues that will make the installation of biogas collection and flaring systems economically viable … well, it is a difficult-to-describe feeling, but pride is certainly in there. It is even more impressive to see this knowledge cross cultures and languages.
The Vietnam example shows that the CDM is working and is worth keeping; promoting these kinds of projects and entrepreneurs throughout the world is the only way we will truly address climate change. Keeping and improving the CDM should matter to the United States, not only because it makes sense for American companies to have a good pipeline of offsets available, but also because if the U.S. is serious about its international reengagement and developing a global clean energy infrastructure, this is a mechanism worth using.