Failed Mechanism: Hundreds of Hydros Expose Serious Flaws in the CDM

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(Bali) The Kyoto Protocol’s Clean Development Mechanism (CDM) is set to provide massive subsidies to hydropower developers while increasing greenhouse gas emissions, according to an investigation by International Rivers. As of November 1, 2007, 654 hydro projects had received or applied to receive carbon credits from the CDM. If approved, these credits would provide hydro developers with a windfall of around a billion dollars each year. Hydro is now the most common technology in the CDM, representing a quarter of all projects in the project pipeline.

International Rivers’ report, “Failed Mechanism: How the CDM is subsidizing hydro developers and harming the Kyoto Protocol,” is being released today at the UN climate negotiations in Bali. “The CDM is blindly subsidizing the destruction of rivers, while the dams it supports are helping destroy the environmental integrity of the CDM,” says report author Barbara Haya, a consultant for International Rivers.

The great majority of hydros in the CDM would very likely be built regardless of receiving credits (in CDM-jargon they are “non-additional”), in contravention of the mechanism’s basic principle. The CDM was designed to issue credits to projects that are “additional” – projects which are only being built because they receive revenue from selling carbon credits. Each CDM credit sold from a “non-additional” project means one extra tonne of CO2 is released to the atmosphere. The hydros currently in the CDM pipeline are requesting over 60 million credits per year.

Most of the CDM hydros – 402 projects – are in China, the world’s most prolific dam-builder. The majority of large hydros nearing completion in China are now applying for CDM credits. Yet there is no evidence of a substantial increase in the number of hydros under construction in China compared to recent years when hydro developers did not benefit from carbon credits.

“Money that should be supporting decarbonization in developing countries is flowing into the coffers of hydropower developers with the only effect on carbon emission levels being to increase them,” says Haya. “Hydro developers are repeatedly justifying their applications to the CDM with surreal arguments, such as that projects that are already completed will only be completed if they receive CDM revenue. Even worse is that the companies supposed to audit the developers’ claims and the CDM’s Executive Board seem prepared to endorse such Alice in Wonderland arguments.”

More than a third of the large hydros approved for credits by the CDM’s Executive Board (a UN body) were already completed before CDM approval. The majority of the projects (89 percent) were expected to be completed within a year following approval, and almost all (96 percent) within two years. As a large hydro project typically takes 4-8 years to build (on top of several years of project preparation), few if any of the developers of these projects could have realistically needed CDM credits to build their dams.

Haya’s investigation of hydro projects implies that the same flaws in the CDM’s conceptual basis and project vetting procedures also allow many non-hydro projects which are not additional to receive CDM credits.

Haya notes that many carbon market insiders will privately admit that CDM project applications are rife with deceptions and manipulation. “What will be the impact on the credibility of the CDM, and the Kyoto Protocol in general when word leaks out of the [conference] hallways?” asks Haya. “How wise is it for the main mechanism supporting climate change mitigation in developing countries to be standing on a foundation of lies?”

The CDM is the main global carbon trading vehicle. Its credits are expected to be widely used to help Europe and Japan meet their emission reduction commitments under the Kyoto Protocol. CDM offsets are also being proposed for use in emerging US carbon reduction schemes, including at the federal level and in California.

The large dams now angling for CDM certification also impose significant environmental and social damage. The massive 880 MW Campos Novos Dam in Brazil (completed in 2005, yet applied for credits in 2007) displaced 3,000 people, many without being granted the promised compensation. Local project opponents were subjected to arbitrary arrests and police violence.

Fortunately, three-quarters of the hydros in the CDM pipeline have not yet been approved by the Executive Board, so there is still time for the Board to reject most of these projects. Doing so would send a strong signal that it takes seriously the principle of additionality. International Rivers gives several recommendations for minimizing conflicts of interest, preventing projects under construction or already completed from obtaining CDM funding, and making adherence to World Commission on Dams social and environmental guidelines mandatory. In the longer term, the CDM desperately needs to be completely restructured or replaced. It is particularly important to eliminate the need to prove additionality on a project-by-project basis, which is ultimately impossible with any degree of accuracy.

International Rivers works to protect rivers and human rights, and promote real solutions for meeting water, energy and flood management needs.


Bali: Barbara Haya,
Calif: Patrick McCully, +1 510 848 1155 (o),

Download the full report by Barbara Haya: “Failed Mechanism: How the CDM is subsidizing hydro developers and harming the Kyoto Protocol.”

See also International Rivers’ web pages on the CDM and spreadsheet with data on hydropower projects in the CDM pipeline.

Lambert Schneider, “Is the CDM fulfilling its environmental and sustainable development objectives?” Report by Öko-Institut for WWF, November 2007.