Friday, August 07, 2020

Climate Change: The CDM problem

Back in the Kyoto era, the international climate change regime included a Clean Development Mechanism to fund emissions reduction projects in developing nations. Essentially someone would certify that a project - e.g. building a windfarm, or installing energy-efficient lightbulbs - would reduce emissions over and above "business-as-usual". The project would then get internationally recognised carbon credits, which could be sold on the international market, making it more profitable.

The CDM saw all sorts of fraud - factories built solely to produce hugely damaging hydroflurocarbons, so they could get credits for destroying their product - but there's a story on Inside Climate News today about the CDM working properly, and how that has turned into a disaster as well. The short version: there are a bunch of chemical factories in China, which make adipic acid, a chemical feedstock. A byproduct of the manufacture of adipic acid is nitrous oxide, a long-lived, hugely-damaging greenhouse gas 300 times as strong as carbon dioxide (in NZ we mostly see this from cow-piss and fertiliser). But there was a cheap way of destroying those emissions and turning them into harmless nitrogen and oxygen. The equipment was installed, the emissions were destroyed, the factories got credits, the CDM works!

Except that there were side-effects. These factories earned so much money from CDM credits that it effectively distorted the global adipic acid market. Clean factories which were built not to produce nitrous oxide from the beginning were driven out of business. Then, when Russian and Ukranian fraud crashed the price of carbon credits, the Chinese factories turned off their removal technology and went back to polluting. The world got five years abatement, and then a clean(ish) industry where emissions were the exception became a dirty one where they were the norm. These factories are still polluting today, producing the emissions of one and a half New Zealands. And there's no regulatory or price mechanism to stop them.

The lesson here is that while the CDM and equivalents can fund a transition to cleaner tech, it needs to be backed up with regulation or permanent price mechanisms to ensure that that tech continues to be used. China didn't do that, and we are all victims of their poor policy.