Brady Yauch
August 7, 2009

The Carbon Development Mechanism (CDM), a market-based tool developed by the UN to cut green house gas emissions, may be heralding a boon in hydro development projects in China and the developing world—and doing so at the cost of the environment and local landowners. As policy makers and environmentalists across the globe prepare for the Climate Change Conference in Copenhagen this winter, criticisms of carbon credit schemes like the CDM are beginning to surface.

The CDM allows industrialized companies to invest in projects in the developing world that aim to cut greenhouse gas emissions. The CDM seeks to provide an inexpensive way for companies in the industrialized world to cut greenhouse gas emissions. As part of the program, emission-reduction, or emission removal, projects in developing countries earn certified emission reduction (CER) credits; these CERs can then be traded and sold, and used by industrialized countries to a meet a part of their emission reduction targets under the Kyoto Protocol.

But many of the projects being funded by the CDM are being criticized for their environmental record, or for the fact that many of them were going to be constructed without the credits anyway—making them a cash cow for companies in the developing world.

According to a recent report by the AP, hydroelectric projects—which have the most dubious environmental track record—are now the most popular participants in the CDM schemes. And China, in particular, has been keen to exploit the credits.

The AP says that China now has at least 763 hydro projects in the CDM approval pipeline—and they hope to add to the approval pipeline, or an average of 25 a month. By 2012, the report says, these projects will generate more than 300 million certified emission reductions (CER). These credits are currently worth as much as $4-billion.

What’s turning out to be a cash-cow for Chinese power companies is a nightmare for local citizens. The AP has reported that many of the residents forcibly evicted to make way for the Xiaoxi dam, which received carbon credits for its construction, say they never received fair compensation.

“What I got certainly was not enough to buy a new place. We had to borrow more,” one man told the AP. “I refused their offer, but they forced us out and demolished it.”

The dam at Xiaoxi highlights the other problem with CDM scheme, as it began construction in 2004, two years before the developers applied for CDM credits. This suggests that the dam would have been constructed regardless, making the claim for carbon reduction highly dubious. Meanwhile, other dams that were, according to the UN’s CDM rules, not going to be built because they weren’t economic, now will be built thanks to certified emission reduction credits.

China’s not alone in taking part in the program. The AP says that utility companies from “Italy’s Edison to Tokyo Electric are making similar deals for hydro-project credits in a dozen other countries, from Peru to India to Vietnam.”

Many of these projects won’t actually reduce emissions, they’ll simply transfer the carbon output from industrialized countries to developing countries. Many policy makers and environmentalists in the developed nations will not notice a difference in the operation of their utility companies or the amount of carbon they pour into the atmosphere.

As carbon credit schemes take root in developed countries across the globe—most notably the United States—environmentally damaging projects in the Third World will be given the breath of life. The biggest losers, according to Patricia Adams, Executive Director at Probe International, will be Third World citizens and their environment.

“We’ve seen massive government programs like this in the past and they always ended up harming the ‘little people’ most,” she said. “Massive government subsidies to hydroelectric projects are going to result in major resettlement programs and environmental problems. The carbon credit juggernaut will cause untold harm and suffering.”

Use our Carbon Credit Database to learn more about what projects are receiving carbon credits.

Further reading:

Carbon credit fraud in the UK