Climate 411

Aruba’s Vader Piet Wind Park. Credit: Miles Grant

By Kristin Qui, Environmental Defense Fund Tom Graff Fellow, International Carbon Markets

Last month, the 36 countries that make up the Council of the UN’s International Civil Aviation Organization (ICAO) adopted the set of rules that will guide the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Known as the Standards and Recommended Practices (SARPs), these rules constitute a significant step to get CORSIA up and running, and contribute to ICAO’s goal of capping net emissions from international aviation at 2020 levels.

However, much work remains to be done at ICAO between now and the end of 2018. The Council has not yet adopted some key elements, including details on CORSIA eligible emissions units, sustainable aviation fuels and criteria for both. Furthermore, the Council has yet to establish the Technical Advisory Body (TAB) that will make recommendations to the Council on which emissions units airlines can use. A transparent TAB, with broad stakeholder participation, is necessary to provide recommendations on high-quality units that represent real emissions reductions in CORSIA.

One mechanism under consideration to satisfy CORSIA demand for emissions units is the Clean Development Mechanism (CDM) established by the Kyoto Protocol 20 years ago. The purpose of the CDM, as specified by Article 12 of the Kyoto Protocol, is to assist rich countries in complying with their Kyoto emission reduction commitments by using emissions reductions credits from projects in developing countries, and to help the latter achieve sustainable development and contribute to the ultimate objective of the Convention, i.e., averting dangerous interference with the climate system. However, the CDM has run into a number of obstacles. In fact, several studies, including a new EDF analysis, finds that in many cases, the CDM’s methodologies and design don’t address additionality, don’t provide real and credible baselines and don’t avoid double counting. Below are some of the biggest issues with the CDM:

1. Lack of additionality: Some CDM projects have been found to be non-additional, meaning that those projects would have happened in the absence of the CDM and its finance from the sale of CERs. Thus, under the CDM’s current design, countries can earn credits from projects for which they did not require CDM financing. This is quite alarming in a landscape where many smaller developing countries have trouble accessing the necessary climate finance to cope with the harsh impacts of climate change.
2. Crowding out small countries: The majority of CDM projects originate in large developing countries, e.g. 85% of issued Certified Emissions Reductions (CERs) occurs in China, India and Brazil, effectively crowding out smaller countries in need of finance for low carbon development. Even further, EDF’s analysis shows that one large developing country has a potential supply of about 10 times the demand of CORSIA, when projecting the maximum potential CDM supply out to 2030.
3. Accounting issues: Other projects like HFC-23 destruction projects have been flagged for baseline inflation, meaning that project proponents overstated the number of reductions resulting from a given project. The atmosphere therefore sees less emissions reductions than the CDM project promises, setting back mitigation progress. Using such credits to offset an increase in emissions under CORSIA means that airlines would not be meeting their goals of carbon neutral growth from 2020.
4. Lack of Transparency: Lack of transparency in the CDM Executive Board decision-making, communication and publishing of CDM data makes it challenging to understand the CDM project cycle. Shockingly, there is no way to tell when CERs have been used by an entity to offset an emissions increase.
5. Lack of legal basis for using CERs in CORSIA: The future of the CDM is legally uncertain. The Kyoto Protocol establishes the CDM only for the twin purposes of helping non-Annex I Parties (developing countries) with sustainable development and Annex I Parties (developed countries) to meet their Kyoto emissions reduction commitments. The Protocol does not establish the use of CDM CERs for CORSIA or the Paris Agreement. Thus, the CDM Executive board has no legal authority to issue CERs after 2020, and may not have authority to issue CERs now. To use CERs in CORSIA, ICAO and the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol must take the necessary legal decisions.
6. Fraud: Recent analyses have demonstrated that a significant number of CERs may be fraudulent. In particular, large dams in Brazil were registered as CDM projects based on assertions that the projects depended on carbon finance for their future construction and operation. However, investors have successfully prosecuted lawsuits demonstrating that their funds disappeared in the Lava Jato corruption scandal, and the dams were built anyway. Airlines face big reputational risks if the units they use to meet CORSIA requirements are fraudulent in any way.

Some CDM projects could deliver environmental benefits

A recent analysis by EDF shows that CDM activities in small island developing states (SIDS), least developed countries (LDCs) and other African countries are more vulnerable to discontinuation without support from market mechanisms, meaning that such activities are more likely to be additional. Because of these reasons, and to improve access to market mechanisms for smaller developing countries that were effectively denied access by larger countries, rules for post-2020 use of CERs should focus on a particular subset of CDM activities. EDF’s analysis concludes that the highest likelihood of delivering environmental benefits from CDM activities, would arise from limiting use of CERs to those originating from activities in SIDS and LDCs, provided that they satisfy quality and accounting standards, including the need to avoid double counting.