China and India have caught on to the link between driving a wind power market and utilising the CDM. Between them they have approved nearly 9000 MW of wind power development as certified emission reduction projects, giving them the means to pull in extra income. China alone accounts for about half of all wind projects approved for CDM status and India accounts for a quarter. Elsewhere, however, with the exception of Mexico and possibly Brazil, the concept of linking the CDM to wind power has yet to catch on in earnest.
That is not necessarily the fault of the CDM, but the way it has been perceived. A commonly held belief in the early days of the Kyoto Protocol was that if a clean energy project was already part of a support program at home, it could not also qualify for CDM status. As a result, the perverse effect of the CDM in some countries was to prevent the implementation of support programs for renewable energies. In fact, the United Nations Environment Program applies a fairly liberal interpretation to the requirement for a project to provide additional emissions reduction than would otherwise have been achieved.
Developing countries must not regard CDM as a substitute for good local policy. Credit revenue is the icing on the cake that can make the difference between a project going ahead, or not. First there has to be a properly structured market for sale of green electricity. With this in mind, the UN has broadened the remit of the CDM so that it comes to have a bearing on broad energy policy and not just individual projects. This "programmatic" CDM has already won support from Steve Sawyer at the Global Wind Energy Council. He and others would like to see the CDM applied to specific industrial sectors, such as power generation, which would make wind power in emerging economies a major beneficiary, he says.
Meantime, the registration of large numbers of projects for CDM status indicates that the dynamic and liquid market for carbon credit trade that its designers had always hoped for might be just around the corner. The first six months of the year saw over EUR 4 billion of credit trade -- and wind is beginning to find its feet in the CDM. No less than 13 of the top CDM credit buyers, including the top five, have done wind deals, albeit most of them in China. Among the key buyers are two European utilities, French EDF and Scottish and Southern Energy (Windpower Monthly, August 2007).
As a result of such deals, CDM is helping to bring millions of yuan into the Chinese economy -- without pushing up its C02 emissions. Not many industries outside the renewables industry can make that claim. The big debate is whether the CDM can be seen as a main building block for a Chinese wind power market that would otherwise never have seen the light of day, or whether it is a cost-adding sideshow that adds no real benefits. One school of thought says that a main reason for the Chinese government's determination to hold wind power purchase prices down is to force developers to register projects in the CDM market, with the result that at least some of China's wind power is being paid for by polluters in the West. That sounds like a fair trade, given past history and the climate change imperative. The whole point of the CDM is to encourage sustainable development in emerging economies. With polluters in the richer developed world paying some of that cost already, it should be a strong hand to play in the negotiations to secure a post-Kyoto climate change accord before 2012.
Creating a global market for trade of carbon emissions is probably the most ambitious policy task the world has ever set itself. The fact that the CDM appears to be working, even if not quite as intended, is an impressive demonstration of intelligence at work. Baseline methodologies for assessing wind projects are now standard and far clearer than even a year ago. The increasingly rapid approval of projects is testament to success: the system is up and running. Project developers have templates they can work from and there are now dozens of CDM experts to advise on credit trade and make the deals. Most importantly, confidence in the CDM is such that credit buyers are flooding onto the market. There is even a glut of potential purchasers.
If the Kyoto Protocol should die a death come 2012, all that expertise, cost and effort would have been for nothing. The CDM might not be perfect, but as China's wind power market is demonstrating, it can be made to work after a fashion. The challenge now is to get others to follow.