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China and the Clean Development Mechanism
Figure 1: China’s Clean Development Mechanism Pipeline, 2004–2009
issuances to date shows that CER revenue is equivalent to an
additional subsidy of RMB0.08/kWh on average, or an increase of
Associated emissions reductions (MtCO
40200
16% on the lowest wind power price of RMB0.51/kWh.
30150
An Ill Wind from the Executive Board
The EB has made wind tariffs the focus of its latest investigation into
the additionality of wind CDM projects in China. Originally, the issue100
20
seemed to be whether the tariff a Chinese wind project received was
Projects per quarter
higher or lower than the tariff noted in the PDD (and how this affected
50 10
additionality arguments). However, the issue has now evolved into an
2
e/yr)
EB examination of Chinese wind tariff history and ‘E-negative’ policy,
0
0
which refers to a host government policy that gives positive
comparative advantages to technologies that reduce GHG emissions.
Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q4 2008 Q1 2009 Q3 2009 Q4 2009
Q4 2004 Q2 2005 Q4 2005 Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008 Q2 2009
The EB is concerned that the Chinese government lowered wind tariffs
to ensure additionality of CDM projects. Project participants, long
Projects Reductions (MtCO e/yr)
2
frustrated with the fact that such a bureaucratic body administers this
MtCO e/yr = million tonnes of carbon dioxide emissions per year.
2
private sector mechanism, point out that previous official guidance
Source: New Energy Finance, UNEP Risoe Centre. Note: Emissions reductions are based on the project design
document estimate.
states that E-negative policies are not to be considered when
determining either the baseline scenario or additionality of a project or
energy efficiency and fossil fuel switching, including steel and programme. They are playing by the rules as they are on paper and
cement plants that install waste gas/heat recovery equipment or believe that the EB is simply having a crisis of confidence on the design
coal power plants that switch to natural gas (18% of projects); and of the CDM and the definition of additionality. The mechanism should
methane destruction, including landfill gas, coalmine methane and be left as is, they say, and any changes should be phased in slowly over
biogas (8% of projects). time so project developers and carbon market players can prepare
accordingly. More transparency on the wind tariff issue is expected
The remainder of the projects (3%) are mostly industrial gas when the EB holds its 52nd meeting.
destruction, with a few other miscellaneous projects in transport or
household efficiency. The associated emissions reductions (and CER Sectoral Mechanisms – More Additional,
sales) from that small number of industrial gas projects were so high as More Bureaucratic
to cause the spikes in the fourth quarter of 2005 and the fourth quarter The official stance of the EU is to switch from a project-based
of 2006 (see Figure 1), when those projects entered the pipeline. mechanism (CDM) to a sectoral-based mechanism, which could
inherently remove the question of additionality but create a whole new
The Clean Development Mechanism Provides a Basket of slew of bureaucratic issues. Instead of setting baselines project by
Extra Funding for Renewable Energy Growth in China project (which vary tremendously throughout the CDM), a host country
Project inflow reached a peak in 2007, when nearly 200 projects would look at an entire sector, say the cement sector. A business as
entered the pipeline in the third quarter. This peak was largely due to usual (BAU) trajectory for the sector’s declining carbon intensity would
the number of hydropower and wind projects in China, accounting be decided by an international committee, then a ‘no lose’ target
for two-thirds of all projects. In a country that takes renewable would be set (see Figure 3). If the sector’s carbon intensity does not
energy development so seriously, it is hard to tell with certainty which reduce to the target level, there is no penalty. If the intensity hits and
projects would have happened without the CDM. The government goes beyond the target, credits can be issued. The credits will be
has ambitious renewables build-out targets for 2020 (see Figure 2). In purchased by certain government or industry buyers (even the US has
2008, renewables generation accounted for 24% of capacity and shown some interest in sectoral-based credits in proposed legislation),
17% of generation. According to Bloomberg New Energy Finance and the money will go to the host government, which will distribute
estimates, renewables will account for 32% of capacity and 22% of the funds to each facility based on its individual performance.
generation by 2020 as total grid capacity nearly doubles. China has
feed-in tariffs for solar, wind, biomass and waste-to-energy, whereby While the new mechanism will increase the additionality of offsets
those projects receive extra subsidies above the coal-fired power produced, project developers and intermediaries are not thrilled
price. Subsidy allocation payments are made every half-year. The about the practicality of such a new scheme and the lack of carbon
latest release handed out CNY3 billion (€230 million), subsidising 281 price signal. First, it will take a long time to transition to such a
projects for the first half of 2009. Wind projects accounted for 80% mechanism due to the capacity-building required in the host
of the subsidy allocation, or €256 million. Compare this with the countries. Even China, the most advanced developing country,
wind projects in China’s CDM pipeline. If they reduce emissions as currently has no infrastructure for carbon emissions reporting, let
estimated in their project design documents (PDDs), they will produce alone less advanced developing countries. The process of setting
53 million CERs or €530 million in revenue every year.
1
However, only BAU trends and targets will indeed require much back-and-forth
77 projects have received any CERs to date (due to the slow nature between intergovernmental bodies, industry associations and host
of the CDM bureaucracy and emissions reduction verification) for a governments. When the mechanism is in place, individual plants
total of roughly €85 million in total revenue. Nonetheless, the (such as a cement plant) will lack the direct carbon price signal to
revenue from CDM is significant: a simple calculation based on CER decrease the emissions intensity of its facility. If it made a large
MODERN ENERGY REVIEW VOLUME 2 ISSUE 1
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