| Sourced From |
The Clean Development Mechanism (CDM) was dubbed “the Kyoto surprise” when it was adopted just more than 11 years ago because of the unexpected support it received from developing countries.
In a form originally conceived by Brazil, it would have been an adaptation fund for countries vulnerable to climate change, paid for by penalties on countries that did not comply with limits on emissions of greenhouse gases.
But the developed nations balked at the prospect of fines (no surprise there). The US was pushing for a market mechanism that would include developing countries.
So the CDM, a hybrid of the two approaches, was created as one flexible mechanism to achieve emissions reductions.
Under the CDM, industrialised countries with emissions reduction targets can, if their goals will not be met, purchase certified carbon reduction credits generated in developing countries. In other words, the developed world pays developing countries to cut emissions if it judges this to be cheaper than reducing its own emissions.
In the decade since its introduction, the CDM has struggled to lay to rest a host of concerns, many of them related to its real environmental benefits. A key criticism is that the mechanism allows industrialised countries to continue spewing the gases that blanket our warming planet.
Some argue that many CDM emission reduction projects would have gone ahead anyway. CDM rules on additionality stipulate that certified projects would not have been constructed were it not for for the financial incentives of CDM carbon credits.
Enter Sasol, South Africa’s leading carbon actor in the private sector.
This week the CDM methodologies panel recommended that the mechanism’s executive board reject Sasol’s application to register a project piping gas to South Africa from Mozambique’s offshore gas fields for conversion to fuel and chemicals.
Methodologies must be approved by the CDM board for project-specific applications. Sasol’s unique coal and gas conversion process requires a new baseline methodology to calculate the potential for emissions reductions as a result of switching feedstock from coal to natural gas. It assumes that burning gas produces much less carbon dioxide than converting coal.
Previous reports have put the value of Sasol’s potential carbon credits from the gas pipeline project at an estimated R1.1 billion a year. Going straight to the bottom line, this would have added 5 percent to the group’s attributable profit of R22.4 billion in the year to June 2008.
Sasol, despite misgivings about the additionality of the project, clearly thought a potential R1 billion payoff was worth gambling an estimated R1 million to prepare its case. As it turns out, the panel didn’t think much of the methodology, which failed to address “fundamental issues” or show why the project should be viewed as a feedstock switch rather than a capacity expansion.
But the panel was quiet on one aspect of additionality: Sasol was planning the project before the protocol’s cut-off date at the start of 2000. Its 1999 annual report states that it planned to build the pipeline, and that importing methane gas from Mozambique was a “viable alternative feedstock”.
Sasol has not yet decided whether it will lodge another application for approval.
For now, the decision on Sasol has saved the CDM from the absurd prospect of paying one of Africa’s biggest carbon emitters vast sums that would more than likely land up funding the new 80 000 barrel-a-day coal-to-liquids facility Sasol is punting.
Were that to materialise, it would be one of Kyoto’s nastier surprises.
Related posts: