Friday, June 5, 2009

My Doubts about CDM

Update: There is a new Reuters report on a major problem with the carbon market.

At the Entech exhibition I mentioned in a previous post I did notice a number of exhibitors talking about CDM (clean development mechanism) services.

CDM is a mechanism under the Kyoto protocol which allows companies to develop project which will reduce emissions below the current level. Only projects in non-industrial countries can be eligible for the CDM. These project then earn emission credits (called certified emission reductions (CER)) which can then be traded.

My observations makes me wonder if the CDM will help reduce carbon dioxide emissions. My concerns raise from the fact that there have been a quite large number of companies which have either been started to provide "CDM Services" or have created a new section for the services. These companies almost all emphasize the financial aspects of CDM and most of the employees appear to come from the financial side of things.

The problem that I fear is with this emphasis on markets that the main idea - reducing carbon emissions - will be diluted at best and ignored at worst. We can look no further than the financial markets in general with their so-called innovative finance - such as derivatives, short selling, etc. (See my take on the financial crisis here.) For example, pension funds are supposed to be about providing an after-retirement income - instead many are now broke.

As I was writing this I noticed a news story about speculating being done in the carbon trading causing wild fluctuations in the price of carbon. An emission trader was even quoted as saying that people should become used to these fluctuations.

The main problem with speculating here is two fold. The purpose of the CDM is to give an incentive for non-industrialized countries to reduce emissions, fluctuating prices reduce that incentive by putting uncertainity into their minds. Secondly, speculating is simply a way for traders (ah...speculators) to make money and has nothing to do with sustainable development.

It should be noted there have been other problems that have come up in relationship to CDM. Especially notable is that fact that some CER's have been given to pre-existing projects -- instead of new projects as is supposed to happen. Also, there is some question as to whether reforestation projects (a part of CDM) can compete with palm oil plantations for money.

Let us get back to concentrating on reducing the amount of greenhouse gases.

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