Terry Slavin

In the light of the recent Stern report, can carbon offsetting really work?

IT IS being called "the green goldrush." Billions of dollars of investment money is piling into the booming European Union carbon trading market, which is expected to more than double to 22 billion euros this year.

And London, where 80 per cent of the European trade is being conducted, is the new El Dorado. But is all this frenetic activity a business fix to save the planet or the destructive new face of international capitalism?

On the fringes of the talks on the future of the Kyoto Protocol in Nairobi, indigenous people and non-governmental groups have been telling delegates how the investments in developing countries' "clean energy" projects which are now fuelling world carbon markets are exacting a terrible price, with communities being robbed of their land, and livelihoods damaged by projects such as hydro-electric dams and fast-growing tree plantations.

The projects, which are supposed to reduce greenhouse gases and contribute to sustainable development, are awarded certified emissions reductions (CERs), which can be used either by governments buying them to help meet Kyoto targets, or by companies surrendering them to help meet their allocations under the EU emissions trading scheme.

It is a new international market that is developing rapidly, but critics say it is encouraging destructive development and lining the pockets of the rich.

"We are not only victims of climate change, we are now victims of the carbon market," says Jocelyn Therese, a spokesperson for Coica, the coordinating body of indigenous organisations of the Amazon basin.

Moreover, the projects are doing little to help encourage sustainable development in poor countries, say critics as authoritative as the British Government's climate economist, Sir Nicholas Stern, whose report last week changed many people's understanding of the need to address climate change.

Required incentives

Deep within the Stern report on the economics of climate change is a stinging criticism of the United Nations' Kyoto Protocol Clean Development Mechanism (CDM), which allows countries and businesses in the rich north to trade in carbon "credits" with the south. "The CDM in its current form is making only a small difference to investment in long-lived energy and transport infrastructure," he said. "While a substantial international flow of funds is being generated through CDM, it falls significantly short of the scale and nature of incentives required to reduce future emissions in developing countries."

One has only to look at where the money has gone up to now to see why. CDM projects are expected to secure 1.4 billion tonnes of CO2 emission reductions by the end of 2012, with 400 projects approved by the CDM's executive board and 900 more in the pipeline.

But according to the World Bank, only 10 per cent of CDM projects by volume in the 15 months to March this year involved energy efficiency, fuel switch, biomass or other renewables projects areas that Sir Nicholas says are critical to the long-term reduction of greenhouse gas emissions.

Almost 60 per cent involved destroying the industrial gas HFC 23, a greenhouse gas nearly 12,000 times more destructive than CO2 but which costs as little as 75 U.S. cents per tonne of carbon dioxide equivalent to deliver and can be traded for as much as 10 times that.

In their pursuit of cheap HFC credits in countries such as China and India, African countries have been almost entirely bypassed, despite the fact they have the most to lose through climate change. Ricardo Nogueira, investment adviser at Trading Emissions, says his company would like to invest in Africa, and is looking at a couple of prospective projects, mainly to siphon off methane from large landfill sites.

But there are huge barriers, including a shortage of large enough projects to justify the hefty transaction fees, and a critical lack of information to get projects through the CDM's strict verification process. Patrick McCully of International Rivers Network, which has been monitoring the impact of CDM on global dam projects, says additionality is largely a joke: "We thought carbon credits would allow destructive projects to go forward that wouldn't otherwise have been built. But we found the opposite. The carbon credits were going to projects that would have gone ahead anyway they were the icing on the cake for developers."

He says a fund run by the World Bank is seeking carbon credits to finish constructing a dam in Sierra Leone that had been 85 per cent complete before it was abandoned during the civil war. How can that possibly be considered additional, asks Mr. McCully.

He is also concerned that criticisms of CDM made by IRN have been ignored. "In every case they've been ignored. The comments go to the validators, who have a vested interest in the projects going forward," he says.

For Larry Lohmann, author of Carbon Trading, carbon credits are just a new instrument for northern energy companies to exploit the developing world. "Added to classic local conflicts over extraction, pollution, and labour abuse are now, increasingly, local conflicts over `carbon offsets' the projects that license and excuse the extraction, the pollution and the abuse," he says.

Michael Grubb, visiting professor of climate change at Imperial College London and chief economist with the Carbon Trust, says it is ironic that CDM, which was established as the most cost-effective way to reduce global emissions, was being criticised for doing just that.

Long-term investments

"CDM is funny hybrid between a market and a political construct," he says. "It's not a pure market by any stretch and there's a lot of discretion being taken about where people want to spend money [in the developing world]. But it's better than nothing and it's something that can be improved."

But critics say the CDM's premise that carbon can be commodified is false, and that time, money and expertise are being wasted trying to perpetuate that fiction instead of making the structural changes and long-term investments that Sir Nicholas says are needed to save the planet.

"There's a fundamental contradiction in the CDM," says Mr. Lohmann. "You either have cheap, meaningless, unverifiable projects or those that are verifiable and plausible where you need to invest too much money and take too much political risk. I don't believe renewables will ever be supported by this carbon market."

Guardian Newspapers Limited 2006