Project by which developed countries fund clean energy projects in developing countries faces uncertain future in China


Hepeng Jia/Beijing, China

After enjoying its position as the world’s largest beneficiary of the United Nations Clean Development Mechanism (CDM) programme - through which industrialised countries invest in clean energy projects in developing countries in return for carbon credits - China now faces serious challenges in the sector.

After 12 wind power projects were rejected late last year by the CDM executive board, by early March a further 74 CDM projects from China - ranging from wind power and small hydropower to residual-heat utilisation - had also been denied by the board. 

Between the start of the year and mid-March, 84 CDM projects were successfully registered. According to the executive board, most of the projects that were rejected or required additional material were from China. 

"Some question whether China has intentionally lowered the price of electricity produced by sustainable energy to make them less profitable and therefore qualify under CDM rules"

A key condition for a CDM project to be approved is that the project and subsequent emission reductions would not have occurred without input from the CDM system, a concept known as ’additionality’. It has been widely reported in domestic Chinese media that the executive board rejected the Chinese CDM projects because they did not fulfil this additionality criteria. 

’Behind the rejections lies the fact that China has become a major target of criticism due to its extraordinarily quick development of CDM projects,’ says Yu Jie, head of policy and research at the China division of Climate Group, a think tank co-launched by former UK prime minister Tony Blair. 

CDM rush 

China has become the world’s number one country in terms of both registered CDM projects and the reduction of carbon emissions since the programme’s launch in 2005 when the Kyoto Protocol came into force.  

According to the CDM executive board, by mid-March 2010, 770 CDM projects from China had been successfully registered, accounting for just under 37 per cent of all such projects worldwide. The projects will help reduce an average of 207.8 million tonnes of carbon emissions per year, making up 59.5 per cent of the total annual emissions saved by registered CDM projects globally. 

Fast industrial development in China - particularly in the power and fluorochemical sectors - has resulted in many sizeable industrial facilities that can accommodate large-scale CDM projects and realise significant carbon emission reductions.  

Uncertainties for UN clean energy programme in China

Until now, china has had the lion’s share of UN Clean Development Mechanism investment

For example, China is the world’s largest producer of the refrigerant HCFC-22 (chlorodifluoromethane), which also creates the by-product HFC-23 (trifluoromethane), a greenhouse gas 11,700 times more potent than carbon dioxide. Projects absorbing HFC-23 therefore become the easiest and most profitable CDM projects.  

’The low costs [in China] also contribute to the fast growth of CDM,’ Yu told Chemistry World. 

However, the huge benefits China obtains in its industrial sector have been widely criticised as abusing the CDM scheme, which was intended to promote development in poor nations.  

Some executive board members also question whether China has intentionally lowered the price of electricity produced by wind power and other sustainable energies to make them less profitable, so as to qualify under CDM rules, says Yu, though she dismisses the allegations as baseless.  

Uncertain future 

But even if the rejected Chinese CDM projects were not questioned in this way, Yu thinks the future of the CDM programme is highly unclear.  

’The first phase of the Kyoto Protocol will end in 2012, and with the failure in Copenhagen to reach a new obligatory rule, no one knows what will happen to CDM after 2012, making the buyers more reluctant to pour in their money,’ Yu says. 

In addition, the low carbon price - roughly Euro12 per tonne of carbon dioxide in the European market - reduced the incentives for companies to invest in CDM.

’The capacity of the European carbon market for CDM becomes narrower, and so far it is still uncertain whether the United States will join a global obligatory emission reduction agreement. Without the US, there are not too many new buyers,’ Yu says. 

She adds that the ’easier’ and more profitable CDM projects - such as those absorbing HFC-23 - have been used up, further reducing incentives in the field. 

New chances ahead 

But Tang Luna, senior analyst at carbon trading firm Icecap, thinks the current unfavourable CDM situation in China is mainly because of questions over industrial projects, and agricultural and forestry projects will be more welcomed because they bring more benefits to local communities. 

’Some investors expect that after 2012, there will be a new set of CDM rules, prompting stronger demand for CDM projects,’ Tang tells Chemistry World. 

The lower efficiency and profitability of agriculture and forestry CDM projects can be offset by increasing their scale through combining many smaller individual projects, she adds. 

In one such CDM project, thousands of farmers in Ningxia Hui Autonomous Region of western China have been given solar ovens to reduce their consumption of firewood, reducing both carbon emissions and destruction of the environment.  

According to Tang, more CDM players are searching for or operating such projects, which could become mainstream CDM projects in the near future. 

To Yu, although the future of the CDM market is full of uncertainties, the mechanism has brought great benefits to China’s development of clean technologies.  

The energy sector has high threshold to entry, and without CDM, many players cannot access to the field, she says. 

Yu suggests that the current CDM players transform themselves into energy service firms, strongly needed in China, which could be good news for the chemical sector. 

Aside from fluorochemicals, the conventional chemicals sector sees fewer benefits from CDM than other industries. The processes to reduce carbon emissions in the sector are much more complicated and more difficult to evaluate than projects like wind power and hydropower,  so few players would try to develop CDM projects based on new chemical processes. More straightforward CDM projects, for example those in large blast furnaces making use of residual heat, have already been widely established. 

But when the existing CDM players transform themselves to energy service firms, they will try more diverse approaches, including chemical processes, to help clients increase energy efficiency. This will eventually benefit the chemical sector, improving the field’s energy efficiency and reducing its carbon emissions, Yu explains.