Disputed land (Source: Achmad Rabin Taim)

Clean Development Mechanism (CDM) credits have been receiving plenty of bad press, with the latest being reports of human rights abuses committed in Honduras over the ownership of credit-producing land. This is particularly serious as the CDM has been set up to feed into the EU ETS, which means that CDM credits find their way into the EU emissions market. Trading in credits whose origin is both legally questionable and ethically suspect does not bode well for the environmental integrity of the EU ETS.

The CDM

EU ETS regulated installations are allowed to use a set proportion of emissions reduction credits generated from CDM projects in developing countries. This is permitted as a way of linking the Kyoto Protocol mechanisms to the EU ETS. In exchange for one CDM credit a Member State has to issue and surrender one emissions allowance and then cancel the credit, which cannot itself be traded within the EU ETS. There are legislative limits on the levels of CDM credits that can be swapped for allowances.

Earning credits in this manner has proved a popular way of fulfilling EU ETS obligations due to the proliferation of CDM projects across the developing world. There are currently over 3,000 CDM projects registered with the UN.

Who owns the land?

CDM projects involve land which is owned by UN approved entities that are in charge of generating the credits. This is the case in Honduras, where the projects under fire have entailed the production of palm oil. Local farmers are protesting against the palm oil plantations and claim that they have been wrongfully evicted from their land so that the CDM projects can go ahead. There are widespread reports of worrying levels of violence against those who are trying to recover their land.

This dire situation highlights one of the key problems with the CDM. How can the ownership of the CDM credits be secure when the ownership of the credit-generating land itself has been thrown into doubt? Many of the developing countries which host these types of projects lack an adequate land registration system whereby ownership can be adequately recorded and subsequently protected. This leads to situations like the present one in Honduras, where land disputes between parties with competing claims can degenerate into something much more sinister.

Banning the “bad” CDM credits?

The CDM has brought the inadequacy of land ownership protection present in these developing legal systems into the EU’s own back yard. Not only does this render the ownership of the credits themselves disputed, but it also brings with it the allegation that the system is being built on unethical practices. While the EU is in no way responsible for these unfortunate events, the controversy is stretching to the EU ETS due to the reliance of regulated installations on CDM credits to earn emissions allowances.

There are demands from within the EU to ban those CDM credits which have been tainted by human rights abuse allegations. It is rightly perceived that the EU ETS cannot be associated with grave breaches of this nature. This kind of ban on suspect credits has happened before with Chinese CDM projects which were said to lack any environmental integrity. The projects in question involved producing a noxious gas (HCFC-22) simply to burn its equally noxious output (HFC-23) and thereby earn credits.

Increased vigilance is needed

The controversy that surrounds the CDM is not fading away very easily. This is because the UN’s monitoring powers in respect of projects which are spread worldwide are not sufficiently strong to prevent the system from being abused. The EU ETS is suffering the consequences, which may well add to the volatility of the emissions market. The EU needs to be especially vigilant. Having to ban a new type of offending credit on a regular basis is cumbersome, but the more sweeping alternative of seriously questioning the CDM has not been seriously put on the table so far.

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