Carbon Credit Watch

UN has second thoughts about giving carbon credits to China’s wind farms

Brady Yauch
Probe International
December 11, 2009

Recent reports say that a United Nations committee has stopped giving carbon credits to developers of wind energy projects in China, citing concerns that the projects qualified for the credits unfairly. The UN is concerned that the Chinese government lowered its subsidies to wind farms so they would qualify for carbon credits through the UN’s Clean Development Mechanism (CDM).

The UN’s CDM program is designed to let rich countries meet their CO2 commitments under Kyoto by financing renewable energy and other clean projects that mitigate emissions in the developing world. The key is that those projects can only qualify for “carbon credits” if they would not have been built anyway—a condition known as “additionality.” The program is meant to kick-start investments that wouldn’t otherwise happen without the aid.

But according to various reports, China is suspected of cutting subsidies to wind power projects to make them appear more needy and therefore eligible for UN funds.

“There’s suspicions in the UN about whether some projects need carbon credits,” Liam Salter, business development director at carbon consultancy RESET told Bloomberg [PDF].

“Projects have to prove they need to have carbon credits to make them viable, and this is where they run into problems because there are already such favorable policies towards wind power in China.”

According to the Financial Times, the controversy over Chinese wind farms and other CDM projects will intensify calls for the system to be overhauled at the UN’s Copenhagen conference which opened this week and carries on until December 18. World leaders will be deciding in Copenhagen whether to replace or extend the 1997 Kyoto Protocol and its toolkit to fight climate change.

The UN CDM program is the world’s largest generator of carbon credits and, according to Probe International’s carbon credit database, China is the biggest beneficiary—receiving almost 50 percent of all carbon credits issued through the CDM. The total value of the carbon credits is around $3.2 billion at current prices. China has received nearly 8 million credits for wind projects alone—worth $153 million at current prices.

Chen Hongbo, of the Chinese Academy of Social Sciences, admits that the system needs reform, but hopes that the CDM program doesn’t stop immediately.

That hope could well be dashed says Patricia Adams, Executive Director of Probe International, as the public in the developed countries grows more impatient about abuses in carbon markets, the “Alice in Wonderland nature of these markets”  and the counter intuitive notion that the West should send more cash to China to finance anything, let alone uneconomic projects.

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