No Gas (sourced from: The U.S. National Archives)

The United Nation’s flexible mechanisms were introduced as a cost-effective and efficient method to help poorer countries develop sustainably, whilst providing developed countries another option to meet commitments under the Kyoto Protocol.

The Clean Development Mechanism (CDM) and the Joint Implementation (JI) have progressed at different rates, with different levels of engagement and varying degrees of scope in the ensuing emission reductions. One project sector has benefited more than others and recently, has come under fire for its environmental credibility. But what is the issue and why is it so politically toxic?

A Failure or Success?

The Montreal Protocol was established to regulate a certain type of gas: ones that are believed to be responsible for ozone depletion. Difluoromonochloromethane, better known as HCFC-22, is one such gas that is still used in refrigeration and air conditioning processes in many developing countries. It is a by-product of HCFC-22 in which we are interested: HFC-23 (another hydrogen-based gas also called fluoroform).

HFC-23 has a 100-year global warming potential of between 11,700 (UN) and 14,800 (Intergovernmental Panel on Climate Change), meaning that over 100 years, one metric tonne of this gas has the equivalent global warming impact of 11,700 tonnes of carbon dioxide. Its use is not currently governed by the Montreal Protocol, but the UN Framework Convention on Climate Change (UNFCCC) realised that the potential impact to the atmosphere was too significant to ignore. As a result, they chose to include the destruction of HFC-23 in the CDM and JI via the Kyoto Protocol.

Because reducing one tonne of CO₂ equivalent by a project generates one Certified Emission Reduction (CER – the currency of the CDM), destroying one tonne of HFC-23 generates 11,700 CERs. Consequently, the emission reductions generated through the CDM by destroying HFC-23 have outstripped all others: out of the 421 million CERs issued to date, HFC-23 contributes 52% from only 18 projects.

To some, CDM projects that destroy HFC-23 have been a great success, by increasing liquidity and bulking up the volume of CERs that are generated. But to others, the vast amounts of CERs which have been generated are windfall profits to polluters, and can perversely incentivise the increased production of HFC-23.

Rocking the Boat

Environmental NGO, CDM-Watch, proposed last month an amendment to the methodology which CDM HFC-23 projects conform. CDM-Watch alleged that some operators of HFC-23 projects could be “gaming” the system in order to gain more CERs (which on the secondary traded market are currently worth approximately €12).

The group questions the adequacy of the ratio of HCFC-22 to HFC-23 that is used by projects to calculate their emission reductions. Currently, the rules set the maximum ratio at 3%, so 0.03 tonnes of HFC-23 to 1 tonne of HCFC-22. But the proposal sees this reduced to a minimum of 0.2%

The CDM’s Methodology Panel, the body charged with overseeing the methodologies of the CDM, chose to ask the higher-profile CDM Executive Board (EB) to decide on the issue. There remains a good chance that the EB fails to reach a verdict and instead passes the issue up to the UNFCCC because of how politically charged this topic has become.

Indeed, CDM-Watch appears more than aware of the politically sensitivity that surrounds the HFC-23 controversy. CDM-Watch warned that EB members from China, India, Netherlands, UK, Japan and Norway should abstain from voting on the proposed methodology revision due to conflicts of interest. These countries either host the projects or have vested interest in the CER generation.

In any case, the proposal has caused a stir in the CDM and participants are looking for certainty. The EU and the US have both made suggestions that offsets generated by the destruction of HFC-23 may be banned from their respective carbon reduction plans after 2012 (if one is ever enacted in the US). So investors in HFC-23 reduction projects are right to be concerned.

If restrictions are approved, it is still unclear when they will take place. Current project contractual agreements indicate that the EB may have to wait until a project requests an extension to their crediting period (usually seven years, with the possibility of two extensions) before amending the methodology. In fact, a request to extend the crediting of a certain HFC-23 in South Korea was postponed last month by the EB until a later date, certainly until something more concrete has been decided.

It seems that the workhorse of the CDM is under threat. Just less than 50% the world’s HFC-23 is included in the CDM (since no HFC-23 projects were eligible after 2004). A proposed amendment to the Montreal Protocol could cover the rest, essentially sealing off HFC from further commercial interest. But how the CDM, JI and their participants react to its current piece-of-the-pie remains to be seen.

The UK Government has claimed to become the ‘Greenest Ever Government’ since the previous Labour and Conservative leadership.

Following the announcement of the Energy Security and Green Economy Bill during the Queen’s Speech on 25 May 2010, David Cameron (Prime Minister) promised the country that he would lead the UK to become a low carbon economy through enhanced energy efficiency and low-carbon energy production, both of which remains to be seen.

The previous labour government had committed a total of £405 million towards promoting a green economy, of which the Sustainable Development Commission (SDC) was a large arm of this delivery.  The SDC has made £70m savings every year through implementing a number of Green Initiatives.  The SDC also claims that additional savings of £350m per year through improvements in energy, water, waste, recycling and transport will also be met, regardless of funding, over the next five years.

However, recent announcements of funding cuts have led to the SDC to be axed.  The Secretary of State for the Department of Environment, Food and Rural Affairs (DEFRA) Caroline Spelman has led the cuts, whilst at the same time calling for the Government to ‘step up’ its green ambitions and drive further energy savings.  This contradictory view was not shared by the Chair of the SDC, who is simply disappointed at the announcement.

Many more cuts are on the way.  The budget led by George Osborne on 22 June had created a sense of hope and expectation that concrete energy policies were on the way, but these hopes were simply not met.  Instead, Osborne made slight references to climate change policies, but the lack of detail on policies, financial plans and commitments were heavily noted.

The government’s commitment to renewables has also come under question, with the Micropower Council saying that it is stalling on the introduction of the Renewable Heat incentive (RHI), which would pay householders for generating low carbon heat.

Price Waterhouse Coopers (PWC) issued a report yesterday suggesting that a commitment of £10 billion is needed, for investments in pre-construction off-shore wind farm technology if the UK is to meet its renewables electricity target of 30% by 2020. Capital funding for projects is critical to ensure that the UK invests in renewable projects.  The budget announcement was Osborne’s golden opportunity to make the Energy savings the government has promised to deliver.

To add to the frustration, the delay of implementing existing energy policies are being felt in most areas of the UK, particularly in terms of cost and uncertainty for business.

The six month delays to the October introduction date for the Part L changes, which are designed to make homes 25% more energy efficient, are causing losses in both carbon and heating bill savings.  It has emerged that the programme is still subject to approval by the government.

Perhaps more pressing are the delays to the most radical policy which involves defining a replacement for the electricity component of the Climate Change Levy (CCL) by adding a ‘top up carbon tax’ on power generators. This would be a way to establish a carbon ‘floor price’ which is needed to support carbon trading in the EU ETS scheme, which is a major part of the Energy Security and Green Economy Bill commitment.

MP Caroline Lucas has published a statement today arguing that ‘now is the time to invest’, but lack of government financial commitment and delays to current programmes is painting a gloomy outlook at the moment.  Is the UK really committed to becoming the ‘greenest ever government’ as promised at the start of the Coalition?

France, Germany, and the United Kingdom have simultaneously launched a call for the European Union (EU) to commit to a larger reduction of greenhouse gas emissions by 2020. In recent months, the EU has weathered economic troubles. But the current plan for increased energy cuts is being billed as a bid to help economic recovery and to shore up energy security.

Currently, the agreed EU target is to reduce energy use by 20% from 1990 levels by 2020. In scientific terms, the current 20% reduction target is not likely to restrict global temperature rise to the 2°C – the key climate danger threshold identified by the IPCC.

The main line of argument being repeated across the three major EU powers is that Europe’s current focus on recovery from recession must not distract from the type of economy that is appropriate in the medium and long-term. Thus, Jean-Louis Borloo, France’s Energy and Climate Change Secretary, states that “without a path to a sustainable low-carbon future, we will face continued uncertainty and significant costs from energy price volatility and a destabilizing climate.” His counterparts, in the UK and Germany respectively, Chris Huhne and Norbert Roettegen, agree. “We’re determined to make the economic case for the EU to cut its emissions by 30% by 2020 as quickly as possible,” Huhne said.

The current argument is that the recession itself has cut emissions in the EU’s traded sector by 11% from pre-crisis levels. Thus, the current carbon price is too low to stimulate significant investment in “green jobs” and “green technology.” Thus, Borloo, Huhne and Roettegen contest that if the EU sticks to 20% reduction targets, Europe is likely to lose the race to compete in the low-carbon world to countries such as China or the USA—which, following from the Copenhagen COP, they are looking to create attractive environments for low-carbon investments.

Though, reduced emissions during the recession has brought projected annual costs in 2020 of meeting the existing 20% target down a projected third from €70bn ($89bn, £59bn) to €48bn. A move up to 30% is now estimated to cost only €11bn more than the original cost of achieving a 20% reduction. To put this into perspective, according to the International Energy Agency, every year of delayed investment on low-carbon energy sources costs €300bn to €400bn at the global level into the future.

But it remains to be seen what the tangible motivation will be for increasing thresholds on carbon reductions to 30%. In the past, feed-in tariffs have been successful; but with a declared reduction target, perhaps even written into law formally, there will be issue with anxiety related to the current recession. Also, competition is key to motivate changes and the USA Congress just dropped the proposed comprehensive climate change package.

The Environment Ministers in the UK, Germany, and France have addressed general public in their call for increased reduction targets. In recent months there has been a surge in popular press discussion of extreme temperatures. The first six months of 2010 brought a string of warmest-ever global temperatures. Connecting these extreme weather months to long-term climate change patterns remains difficult, according to experts. “When we are looking at the scale of a season or a few months, we can’t talk about trends related to climate change,” Herve Le Treut, head of France’s Laboratory of Dynamical Meteorology. But, for the general public these extreme temperatures reflect the concept of climate change.

Between the extreme temperatures recently and potential business-case outlines, 30% reduction targets seem to have some potential. But only time and changing circumstances will tell…

As of July 22^nd , the second effort to enact a Climate Change bill in this congress failed. Democratic Senate Majority leader Harry Reid announced that the ‘We know that we don’t have the votes’ for a comprehensive reform. Instead, the focus will be on a slimmer package focusing on household efficiency and the gulf oil spill.

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On 21 July, Ministry of Economy, Trade and Industry (METI) announced a summary of Japanese Feed in Tariffs (FITs), in which electric power companies are required to buy the electricity generated by all types of renewable sources of energy by households and businesses. FITs seek to promote the adoption of renewable energy sources by offering long-term contracts for the ‘green’ electricity produced by them at fixed purchase prices.

Purchase prices are to be 48 yen/kWh for solar power, which will be gradually decreased, and 15 to 20 yen/kWh for the other types of the ‘green’ electricity. The contract periods are to be 10 years for solar power and 15 to 20 years for the others. In FITs, electricity users  have to bear costs of purchasing the ‘green’ electricity and, according to the summary, the maximum monthly burdens for standard households and for large-scale factories in ten years after Japanese Feed in Tariff (FIT) is to be introduced will be approximately 150 to 200 yen and 1.2 million to 1.63 million yen, respectively.

METI expects that FITs would contribute to CO2 emission reduction by 2% (approximately 24 million to 29 million tons) in ten years after its introduction because FITs would accelerate technological development and promotion of renewable energy. Masayuki Naoshima, Minister for Economy, Trade and Industry, emphasized ‘total national benefits from FITs will be greater than total national burdens’ because they would expand the environment-related market. METI sought to start FIT in 2012 after working out its details within this year.

METI’s summary for FITs is unpopular not only for businesses but citizens. Regarding businesses, as mentioned above, as FITs would increase the electricity prices, they are basically against FITs. For instance, the Japan Iron and Steal Federation suggested in a hearing held by METI that FITs would put Japanese iron and steal industries in a disadvantageous position in a global competition with China.

Finally and most seriously, citizens are seemingly not for FITs suggested by METI. For an article on this news released by Jiji Tsushin, 84 visitors (Yahoo!Japan News) left 113 comments. Then, among the top 100 comments sorted by the number of  ’agrees’,  there were only 3 comments that clearly supported FITs though the most agreed comment among them was ranked 38th.  According to a brief discourse analysis of mine, citizens (or the visitors) are against FITs mainly because (1) FITs would worsen the income difference between the rich and the poor, (2) households would have to suffer more burdens while businesses would be able to reduce their burdens, and (3) METI’s FIT plan had flaws. Further, many of them did not support FITs because they were unsatisfied with climate change policies of Democratic Party of Japan (DPJ), a ruling party, especially on the ’25%’ target and a large amount of money spent to buy credits from China, one of the world largest emitters.

The summary of Japanese FITs proposed by METI might be a great first step for Japanese renewable policies. However, it is not sufficiently supported by businesses, environmental groups and citizens. Thus, though it might be difficult to create FITs in which everybody agrees, it is necessary to improve the current ‘everybody is unhappy’ situation.  Especially, it is very much problematic that FITs lacks citizens’ support as they have been recently frustrated with climate change policies of DPJ and DPJ itself. Details of FITs should be carefully examined so that renewable energy can be widely promoted, contributing to the energy security and CO2 emission reduction in Japan. However, successes of FITs or renewable energy policies and climate change policies in Japan depend more on whether public support for them can be increased.

In anticipation to the 16th Conference of the Parties of the UNFCCC, the Mexican Presidency anticipates to demonstrate the potential for innovative policies to address climate change. The Mexican Government has already presented an ambitious plan to mitigate carbon emissions (50 million tonnes by 2012); recent legislation suggests an adaptation framework.

Mexico is highly vulnerable to hurricanes and floods—both of which are expected to intensify under climate change scenarios, making adaptation to climate extremes a priority for the country. Further, economic analyses suggest that the costs of inaction will be very high—lowering economic output by an average of 6% annually over the next few years.

The Government has recently presented the General Law on Climate Change which aims to restructure the political system that deals with climate change in Mexico, suggesting the creation of a Commission on Climate Change to be accompanied by a Council on Climate Change. The former organisation will be an implementing agency while the latter will be a monitoring and evaluation institution. As such, their roles will be mutually enforcing.

Additionally, the recent legislation emphasises the importance of two key issues: the need for adaptation and financing.

On the adaptation front, the strategies emphasise the need for robust climate analysis that highlight the shocks on livelihoods as well as the need to protect the most vulnerable communities. To this end, the initial stages of the adaptation strategy will be technical, mapping out the main risks associated with climate change in Mexico, whereas the later stages will involve concrete strategies to target vulnerable populations through microinsurance and safety nets.

In regards to financing, the Mexican Government is very keen on advancing the dialogue during the COP process. The Green Fund is proposed as the main mechanism to channel and centralise financial resources to fund climate change policy as the Kyoto Protocol phases out. The Adaptation Fund is also a focal institution to finance large-scale projects to reduce the adverse impacts of climate change on vulnerable livelihoods. Important progress is expected on this respect.

The Mexican Presidency is very hopeful for important advancements during the 16th Conference of the Parties.

As the Coalition Government attempts to reform the UK’s finances, fatal spending cuts have continued to penetrate the environmental sector. Despite boasting plentiful resources in marine, offshore wind, solar and other forms of renewable energy, significant cuts announced by the Government this week risk the UK loosing out to countries with poorer natural resources, but an increased willingness to invest in renewable energy.

Plans to cut the energy R&D budget by £34m, announced last week, delivered a massive blow to the low carbon technologies sector, particularly for technologies including offshore wind, geothermal energy, wood fuels and building insulation. Ironically, the announcement came just days before the Government’s independent Committee on Climate Change publically stressed the continued need for public support to develop emerging renewable energy technologies – suggesting a minimum of £50m of public money each year.

Chris Goodall highlights that these cuts to the R&D budget represent a reduction of total public expenditure on low carbon technologies by almost 20%. He adds that “this figure is on top of the cancellation of the £80m loan to Sheffield Forgemasters that would have paid for much of the installation of a new press to make the huge parts necessary for new nuclear power stations.”

Goodall suggests that the Government’s plans will diminish Britain’s ability to compete in the global energy race. The cuts also bring the UK’s spending on emerging technologies to an internationally low 0.01% of GDP – 3 times less than the US and 9 times less than Japan (as a %age of GDP).

Furthermore, there is increased speculation about plans to axe the Government’s independent sustainability watchdog, the Sustainable Development Commission. Whilst no official decision has been made, an announcement is expected to be made – ironically – on the day the agency plans to unveil its annual report detailing green improvements to government operations, which would deliver savings of tens of millions of pounds.

Whitehall has announced some significant spending cuts over the last few weeks, and the cuts to low carbon and renewable technologies are likey to have particularly riled environmental stakeholders. Prime Minister David Cameron is going to have a big task on his hand if he wants to prove to UK taxpayers that his Government will be the “greenest government ever.”