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HFC special: Eyes on the 55th meeting of the CDM Executive Board

The CDM Executive Board will hold its 55th meeting from 26–30 July 2010 in Bonn. As usual, CDM Watch takes the opportunity to read between the lines of the annotated draft agenda (PDF) to bring some transparency to the decisions of the Executive Board. The annotations to the draft agenda are published ahead of every Board meeting and are supposed to give a clearer overview about the Board’s agenda. However, due to the complexity of the issues, they are kept in a highly technical language and don’t seem to aim at revealing what’s really at stake. As a response, CDM Watch adds some meaning to the language by exposing critical items and providing recommendations.

Above all, this upcoming meeting will be marked by discussions on a request to revise the crediting methodology for HFC-23 projects submitted by CDM Watch earlier this year. The request highlights that the current rules would create perverse incentives for plant operators to artificially increase HCFC-22 production, from which HFC-23 is an unwanted byproduct. In light of the significance of these findings and the potenti-al for considerable over-estimation of emission reductions, CDM Watch believes that the methodology must be put on hold with immediate effect.

Within the context of this revision request, the Board will also address the first request to renew the crediting period of a HFC-23 destruction project. The HFC-23 Decomposition Project in Ulsan, South Korea, operated by the Ineos Group has generated 1,4 Mio credits over the first crediting period and is planning to cash in on another 2,2 Mio credits from 2010 to 2017. CDM Watch calls on the Board to freeze any decision on this project and to request the Meth Panel to urgently conduct the required investigation and to swiftly prepare a revised methodology which addresses the issues with no further delay.

CDM Watch also recognizes that in cases where substantial economic interest is at stake, such as in the upcoming discussions on the HFC-23 revision request, Board members face particular pressure under current CDM rules. Therefore, CDM Watch recommends that all Board members publish “documents related to conflicts of interest” ahead of this next meeting and strongly recommends a number of Board members and alternates to leave the room when the HFC-23 revision request will be on the agenda.

In order to put these discussions into context, this newsletter also includes informa-tion about how incredible profits made by HFC-23 projects result in overproduction of cheap HCFC-22, and undermine global efforts under the Montreal Protocol to phase out HCFCs and move industry toward more environmentally friendly refrigerants.

Board members will also make a landmark decision on whether to reject the 4000-MW super-critical coal plant owned by Costal Gujarat Power that claims to reduce 2,6

Newsletter #4 / July 2010

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Mio tonnes of emissions for the next 10 years by replacing domestic with imported coal.

Another project currently under review is the Metro Clark Landfill Gas Capture pro-ject. A guest comment by “Focus on the Global South” explains that this project is not additional because gas control and recovery system are essentially necessary for it to legally operate in the Philippines and are therefore baseline. Following is a brief comment on including yet another contaminated substance into AM0025 that allows waste incineration and explains why burning sludge as a fuel is a bad idea.

Within the context of the recent DOE rating by WWF, CDM Watch makes several com-ments related to the disrespect that TÜV SÜD brings to civil society and recommends rejecting the Plantar project 2569 in order to set a signal that civil society participati-on in the CDM must be taken seriously. Moreover, it suggests that documents related to spot checks that lead to a suspension be publicly accessible.

Happy reading!

Table of contents

1. Perverse incentives of HFC-23 projects

2. Renewal of Ineos HFC-23 destruction project

3. WhohasaconflictofinterestintheHFC-23case?

4. Digression: Clash of the Conventions

5. The folly of CDM subsidies to replace domestic with imported coal

6.Guestcomment:CDMlandfillprojectunderreviewundermines Philippine solid waste law

7. Revising AM0025: Burning sludge as a fuel is a bad idea

8. TÜV SÜD in the spotlight despite suspension

9. Key safeguards in the CDM appeals procedure

1. Perverse incentives of HFC-23 projects

HFC-23 projects in the CDM have become the focus of media attention over their lack of environmental integrity in the past weeks1. During this upcoming meeting, the Board will finally discuss new evidence showing that the current CDM methodology

1 NYTimes, CDM Critics Demand Investigation of Suspect Offsets, 14 June The Guardian, UN considers review of alleged carbon offset abuses, 16 June Bloomberg, UN May Complete Review of Hydro-Fluorocarbon Emission Credits by August, 22 June Le Monde, Climat: les effets pervers des crédits carbone, 26 June Reuters, Kyoto may push factories to pollute more-UN report, 2 July Fox News, UN report fuels charges of manipulation in $2.7 billion carbon-cutting market, 2 July Financial Times NL, VN onderzoekt verdachte CO2-handel, 3 July

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creates perverse incentives for plant operators to artificially increase HCFC-22 pro-duction, from which HFC-23 is an unwanted byproduct.

This evidence was first presented to the Board in a letter by Noe21 in December 2007. Due to the lack of action by the CDM Executive Board to address these flaws, CDM Watch has now submitted a formal proposal to revise the crediting methodology in line with UN procedures. The suggested revision removes the strong economic incentives to increase HCFC-22 production and HFC-23 generation by introducing an emission benchmark more in line with the actual costs of HFC-23 destruction. The new benchmark would cut the inordinately high and excessive number of credits currently issued for the destruction of HFC-23 by more than 90%. The plant operators would still have sufficient economic incentives to destroy HFC-23 but the revenues from selling credits would not exceed the HCFC-22 production costs as is currently the case.

The Methodologies Panel discussed this revision request for the first time in end June 2010. Although not providing a clear recommendation to the Board it did prepare a note (PDF) on the issue, agreeing that many of the claims in the revision request could cause perverse incentives, i.e. that plants are producing dramatically more HFC-23 per tonne of HCFC-22 than technically feasible, that some factories are only producing HCFC-22 if they are receiving CDM credits, and that the existence of the CDM credits may be causing an increased production of HCFC-22. The Panel said that further investigation is required to “identify situations” resulting in excessive issuan-ce of carbon credits and how “to improve the methodology”. Based on the note that was developed at that occasion, the Board is expected to provide further guidance on possible action with respect to the methodology during this upcoming Board meeting.

Action to be taken by the Board: In light of the significance of these findings and the potential for considerable over-estimation of emission reductions, CDM Watch believes that the methodology AM0001 must be put on hold with immediate effect. The Board should request the Meth Panel to urgently conduct the required investiga-tion and to swiftly prepare a revised methodology which addresses the issues with no further delay. In this context, CDM Watch reminds that the Board put four methodo-logies on hold in the past (ACM0005, AM0001, AM0006 and AM0016) in situations where the environmental integrity of the CDM was at risk and where a revision of the methodology required more time.

In addition, all issuance of CERs shall be ceased until a fully corrected, revised me-thodology is adopted. The continued validity of this version of the methodology and the continued issuance of CERs before the investigation is completed would seriously undermine the credibility of the whole CDM and violate the overarching principle established in the Kyoto Protocol that emission reductions from CDM projects shall be real, measurable and additional.

For more information about the revision request, including press releases and back-ground papers see http://www.cdm-watch.org/?cat=4

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2. Renewal of Ineos HFC-23 destruction project

Within the context of the HFC-23 methodology revision request, it is important to note that the Board will also address the first request to renew the crediting period by a HFC-23 destruction project. The HFC-23 Decomposition Project in Ulsan, South Korea, operated by the Ineos Group (Project 003) has generated 1,4 Mio credits of at least 10€/credit over the first crediting period (2003-2010) and is planning to cash in on another 2,2 Mio credits from 2010 to 2017.

However, the analysis of monitoring data shows that also the Ulsan project has artificially increased HCFC-22 produc-tion. The figure on the left illustrates that from 2001 to 2005 the project produced HCFC-22 in the range from about 1000

– 4000 kt/year. When submitting the project for CDM regist-ration, the plant operators declared that they would produce about 4111 kt/yr. However, after the registration of the CDM project in 2005, the annual HCFC-22 production increased to about 7000 kt/year.

Action to be taken by the Board: In light of the serious concerns highlighted in the HFC-23 revision request as well as in the note by the Meth Panel, CDM Watch belie-ves that a decision about the renewal of the crediting period can only be taken once the Board has considered the significant concerns in the current methodology. The Board must put the request for renewal of the crediting period of this project on hold until a full investigation has been carried out and a revised methodology adopted.

3.WhohasaconflictofinterestintheHFC-23case?

In cases where substantial economist interest is at stake, such as in the upcoming discussions on the HFC-23 revision request, Board members face pressure under the current CDM rules. The 19 registered HFC-23 destruction projects are expected to ge-nerate about 478 million CERs by 2012 and more than one billion CERs by 2020. These projects generate more than 80 million CERs annually, worth an estimated €800 million. The proposed revision request would cut the inordinately high and excessive number of credits – as well as the revenue – currently issued for the destruction of HFC-23 by more than 90%.

Decision 3/CMP.1 paragraph 8 (f) requests that “members, including alternate members, of the Executive Board shall have no pecuniary or financial interest in any aspect of a CDM project activity or any designated operational entity.” However, Board members often play multiple roles at the same time, including UNFCCC ne-gotiators, representing their countries’ DNA or managers of large government CDM purchasing programs. Although members should act in their personal capacity, there are severe concerns about conflicts of interests of Board members. Last year, the New York Times reported that some Board members abuse their role and aggressively promote projects that benefit their home countries2 .

2 NYTimes, Secretive U.N. board awards lucrative credits with few rules barring conflicts, 7 April 2009

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In an attempt to address these serious problems with conflicts of interests, the Board adopted a code of conduct (pdf) last year. Unfortunately this code of conduct hardly provides the language needed to change the current situation and fails to include a definition of what a conflict of interest is. It merely suggests that each Board member will „exercise personal discretion in deciding whether s/he has a real or perceived conflict“. Based on this, several EB members started to document this perception in so-called “documents related to conflicts of interest” since earlier this year. These documents are uploaded on the first day of Board meetings and look like this (PDF).

Despite the weakness of this code of conduct, Board members must ensure that decisions are taken in the most independent manner to ensure the credibility of the CDM. Unfortunately, the transparency of Board decisions is facing an additional chal-lenge: Board members do not have diplomatic immunity and therefore risk prosecu-tion or lawsuits on the basis of their decisions. Therefore, the majority of discussions on contentious issues are exclusively held behind closed doors.

CDM Watch believes that it is time to put an end to this practice. Discussions shall be held in open sessions and the matter of lack of diplomatic immunity shall be for-warded and dealt with by COP MOP.

Action to be taken by the Board: CDM Watch recommends that all Board members publish “documents related to conflicts of interest” ahead of this next meeting and strongly recommends that following Board members and alternates will complete such a form and leave the room when the HFC-23 revision request will be on the agenda: interest3 vier4 fünf5

MeMber/AlternAte Country reAson for ConfliCt of interest 3

MAosheng DuAn China China hosts 11 of 19 registered HFC-23 projects and is hence the largest supplier of HFC-23 destruction-based credits; China also imposes a 65% levy4 on all HFC-23 CERs. With 11 CDM projects generating apx 65 million CERs per year, this makes about € 650 million per year from HFC-23 projects for the Chinese government.

rAjesh KuMAr sethi India India hosts 7 HFC-23 projects that generate about 11 million credits per year. At about 10 € per credit, this makes 110 million € per year. In 2007, Gujarat Fluorochemicals alone made € 66 million from sel-ling 6.5 million CERs, possibly exceeding the income from HCFC-22 production by far.

lex De jonge The Netherlands The Netherlands has signed LoAs with 7 HFC-23 destruction projects. At least 2 companies and the Ministry itself are directly involved in financing HFC-23 projects. But a recent article in the Financial Times states that the Dutch government does not want to disclose information about exact involvement in HFC-23 credits5.

3 Data derived from UNFCCC and UNEP Risoe CDM pipeline4 http://www.carbon-financeonline.com/index.cfm?section=features&action=view&id=104205 Financial Times NL, „Vrom weigert inzage te geven in omstreden klimaatprojecten“, 12 July

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MArtin hession United Kingdom The UK government has signed LoAs with 15 HFC-23 projects and at least 14 UK companies are involved in financing HFC-23 projects.

AKihiro KuroKi Japan Japan has signed 8 LoAs and 17 Japanese companies are actively involved in financing HFC-23 projects. Japan (together with Switzerland) has also signed LoAs with the Ineos project currently requesting renewal.

Peer stiAnsen Norway Norway has signed LoAs with 1 HFC-project and at least 1 company is actively involved.

4. Digression: Clash of the Conventions6

The incredible profits made by HFC-23 projects are resulting in overproduction of cheap HCFC-22, and undermine global efforts under the Montreal Protocol to phase out HCFCs and move industry toward more environmentally friendly refrigerants.

The Montreal Protocol agreed in 2007 to accelerate the phase-out of HCFCs not just because of their ozone-destroying properties but also because they are potent green-house gases. In April 2010, the Montreal Protocol’s Multilateral Fund (MLF) agreed to guidelines on eligibility and criteria for funding the phase-out in developing coun-tries.7 As national phase-out plans are implemented, some developing countries will be in the position of receiving funding from the Montreal Protocol to reduce produc-tion of HCFC-22, while the CDM subsidises and promotes that same production.

The MLF has already identified that the facilities likely to be targeted for early phase-out are those registered under the CDM for HFC-23 destruction. The current CDM rules state that in order to be eligible for HFC-23 projects, HCFC-22 factories must have an operating history of at least three years between January 2000 and end of December 2004. As a result, older HCFC-22 factories tend to be those covered by the CDM, with newer ones not being eligible. This is likely to conflict with the accelerated HCFC phase-out, as older factories tend to be prioritised for closure.8 Moreover, it is possible that CDM-financed older factories will displace newer factories with lower HFC-23/HCFC-22 ratios, and thus negate the potential to reduce the production of HFC-23 through technological improvements.9

6 Chapter of the HFC-23 policy briefing paper by the Environmental Investigation Agency (EIA) http://www.eia-international.org/ and CDM Watch

7 http://www.multilateralfund.org/news/1271429352850.htm8 Executive Committee of the Multilateral Fund for the Implementation of the Montreal Protocol. Further

Elaboration and analysis of issues pertaining to the phase-out of HCFC production sector. UNEP/OzL.Pro/ExCom/57/61 27 February 2009

9 Report of the 44th Meeting of the Methodologies Panel. 21-25 June 2010 http://cdm.unfccc.int/Panels/meth/index.html The note on the revision request by the Methodoloy Panel can be found at http://cdm.unfccc.int/Panels/meth/meeting/10/044/mp44_an02.pdf

The Environmental Investi-gation Agency & CDM Watch have presented a policy brie-fing paper on HFC-23 offsets in the context of the EU Emissi-ons Trading Scheme at a recent policy event in Brussels on 14 July 2010. You can download the policy briefing here (PDF)

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There are also legitimate concerns that the CDM will exacerbate the potential for developing a black market trade in HCFC-22. The second largest HFC-23 facility under the CDM, Shandong Dongyue Chemical Company Ltd, which generates more than 10 million CERs each year, has previously been implicated in the illegal trade in ozone-depleting substances (ODS).10

Global HFC-23 emissions still rising11

The production of HCFC-22 is growing in developing countries by about 25% per year, and while the Montreal Protocol plans to phase out emissive (non-feedstock) uses by 2030, use for feedstock production is not controlled and is likely to continue to grow in developing countries.12 As a result, global HFC-23 emissions have significantly increased over the last two decades, and although recent studies reveal a decline in emissions since 2006 associated with CDM destruction projects, over half of the developing world’s HFC-23 production is still emitted.

A 2009 study in Geophysical Research Letters examining atmospheric concentrations of HFC-23 estimated average global HFC-23 emissions for 2006-2008 at about 200 million tonnes CO2-eq per year, around 50% higher than levels derived for the 1990s.13 The increase is attributed to developing country HCFC-22 production, with emissions in 2007 were estimated to be 160 million tonnes CO2-eq. The study noted that subs-tantial amounts of HCFC-22 were produced but not covered by existing CDM projects (around 57% in 2007).14

5. The folly of CDM subsidies to replace domestic with imported coal

During this week’s Board meeting, members will discuss 24 projects under review.15 Amongst them is the 4000-MW super-critical coal plant owned by Costal Gujarat Power (Project Ref Number 3020) that claims to reduce 2,6 Mio tonnes of emissions for the next 10 years. But CDM Watch believes that this project does not generate any real emission reductions and must therefore be rejected16.

During the 53rd Board meeting in March, the Board replaced the methodology for this project type – ACM0013 Ver.2 – with a newer version to close a loophole through

10 EIA Briefing 2006. An Unwelcome Encore: The Illegal Trade in HCFCs, available from www.eia-interna-tional.org

11 Chapter of the HFC-23 policy briefing paper by the Environmental Investigation Agency (EIA) http://www.eia-international.org/ and CDM Watch

12 Executive Committee of the Multilateral Fund for the Implementation of the Montreal Protocol. Further Elaboration and analysis of issues pertaining to the phase-out of HCFC production sector. UNEP/OzL.Pro/ExCom/57/61 27 February 2009.

13 1Gg HFC-23 = 1000 tonnes HFC-23 = 11,700,000 CO2-eq tonnes14 Montzka et al., ibid15 http://cdm.unfccc.int/Projects/review.html16 See also recent Guardian article, Rich countries to pay energy giants to build new coal-fired power

plants, 14 July

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which project participants could claim emission reductions by “substituting” fuels within the same category (domestic coal for imported coal). The revised ACM0013 Vers.3 now clarifies that it only applies to reductions achieved by installing more efficient power generation technologies than business as usual. As the Chair of the Meth Panel observed during the 53rd Board meeting, this revision will protect the CDM by preventing the issuance of “artificial” CERs.

However, project 3020 that claims emission reductions resulting from substituting domestic coal for imported coal had requested registration on 23 February before the revision took effect on 25 March. Although the Board clearly revised the methodology to avoid “the issuance of artificial CERs” the project is still allowed to use the flawed methodology according to current CDM rules17.

If registered, this project would be the third largest non-HFC-23 project ever regis-tered under the CDM. But an analysis by Stanford Environmental Law Clinic18 on the application of the revised ACM0013 reveals that Project 3020 is not additional.

While Project 3020 is proposed as a supercritical coal project with a subcritical coal baseline, the additionality of the project rests solely on whether project participants can take credit for emission reductions achieved by “switching” domestic for impor-ted coal. When these fuel source differences are neutralized, the supercritical project option (i.e., the project itself) is the most financially attractive baseline scenario. Accordingly, under the revised ACM0013, Project 3020 should not generate CERs be-cause the registration of the project would cause 2.65 million CERs annually to flood the CDM market and undermine the Kyoto Protocol.

While the project is clearly non-additional if calculated according to the new ACM0013 Version 3, the project also causes serious concerns in relation to Version 2. These concerns were shared by the Board who put the project under review19 at its last Board meeting. The scope of the review pertains to the project’s additionality and to the application of the methodology.

But this project would not only generate non-additional credits that replace essential emission reduction efforts in industrialised countries. According to an own estimate by the World Bank Group’s International Finance Corporation (IFC)20, the revenue of about 260 Mio € from the CDM would subsidize the emissions of additio-nal 25.7 million tons of CO2 per year for the next 25 years, adding another 643 million tons to an atmospheric carbon load.

Action to be taken by the Board: CDM Watch urges the Board to reject Project 3020.

17 EB35 Anx13, para1918 http://www.cdm-watch.org/?p=89319 http://cdm.unfccc.int/Projects/DB/DNV-CUK1254830678.73/UnderReviewScope/518ORCGP7AUXTNSK

QD092JYVBZWIHF20 http://blogs.cgdev.org/globaldevelopment/2008/03/tata-ultra-mega-mistake-the-if.php

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6.CDMlandfillprojectunderreviewclaimscreditsfor undermining Philippine solid waste law – Guest commentary by Focus on the Global South

Landfills have become more controversial in the Philippines ever since a “trash-slide” buried and killed over 200 waste-pickers in a mountain of garbage at an open dump in Manila in July 2000. Since then, after long years of campaigning, environmentalists and sustainability campaigners have succeeded in passing a landmark Solid Waste Management law.

This law mandates the closure of existing open dumps and controlled landfills and

requires the national government and local government units to enforce recycling, composting, and segregation at the village level. With a view to gradually phasing out the practice of landfilling in the country, the law allows for the transitional operation of sanitary landfills—but only if they comply with stringent sanitary and environmen-tal requirements. Otherwise, they will not be allowed to operate.

Among these requirements is the installation of “gas control and recovery systems”

for capturing gas emitted when organic wastes are not segregated from other kinds of waste and stored and compacted in landfills.

And yet, the Metro Clark Landfill Gas Capture project (Project 2524) – one of the

projects to be reviewed by the CDM board this July21 – Is claiming CERs for simply installing this required gas control and recovery system. In other words, it wants car-bon credits for simply meeting the minimum requirements for it to function under the law. The project is therefore not additional because it already has to install the gas control and recovery system anyway for it to be allowed to legally operate. Without this gas control and recovery system, the landfill would be illegal under Philippine laws.

In its project design document, Metro Clark’s developer argues that the Solid

Waste Management law should be ignored in setting the baseline since it is not being enforced anyway. Indeed, to the dismay of its advocates, the law has so far not been effectively enforced primarily because the national government has failed to provide the necessary funding to make the agencies tasked to implement it work. Moreover, the law has run into stiff opposition from local government officials and companies that earn revenues from the lucrative waste disposal industry (from garbage collec-tion fees to landfill rental).

The project developers, however, fail to provide supporting argument to back their

assumption that this non-enforcement will remain unchanged. There are many factors that cast doubt on this assumption: First, after nine years under an embattled and weak administration, a new, relatively more reform-oriented government has just been elected—one that may finally allocate required resources for the law’s enforcement. A no-nonsense interior minister, noted for his untainted record and managerial skills has just been appointed, thereby making increased national govern-

21 http://cdm.unfccc.int/Projects/under_review.html

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ment control over recalcitrant local government units more likely. Second, sustaina-ble solid waste management advocates are succeeding in their efforts to promote recycling, composting and segregation at the grassroots level, thereby expanding the civil society constituency supporting the law’s implementation. Whether or not these factors will combine successfully to result in the effective enforcement of the law cannot just be dismissed outright by the project developers nor the CDM board.

If enforced, the law may lead to greater emissions reductions than could ever be

achieved by landfill projects receiving CERs because—in requiring recycling, com-posting, and segregation—the result may be less demand for manufactured pro-ducts (and thus for raw materials) and less methane emissions since segregated and composted organic trash not compacted and stored in landfills does not generate methane.

Ironically, if the Clark project is approved, the CDM itself may be responsible for

setting back the enforcement of the law. As it is, two other similar landfill gas projects in the Philippines have been approved. To date, they remain the largest and second largest CDM projects in the country in terms of claimed reductions: the Montalban landfill project and the Quezon City landfill project. All these projects demand great volumes of organic trash to be thrown and compacted in landfills in order to be viable. This requirement can only be met, however if garbage were not recycled, if organic trash were not segregated from nonorganic trash and composted—in other words, if the law remains unenforced.

With the very government agencies and local units that are mandated to enforce

the law receiving a share in the proceeds of the landfill rental and the landfill gas pro-jects, the CDM—by approving more projects like Metro Clark—may end up expan-ding the perverse incentives that prevent the law from achieving its objectives.

A new report detailing problems with CDM projects in the Philippines has just been released by Focus on the Global South. The report claims that most of the CERs being generated will go to projects that further exacerbate climate change and compromise sustainable development, enriching large conglomerates that are expanding extrac-tive and fossil fuel-intensive activities, in pursuit of objectives that could otherwise be achieved through more effective government regulation and community action. Rather than allowing governments and communities to embark on a just transition towards a more sustainable path, the report claims, the CDM is rewarding govern-ment ineptitude and supporting the very agents that contribute to climate change. A PDF copy of the report can be downloaded from: http://www.focusweb.org/books/cdmphilippinesreport

By Herbert Docena, Focus on the Global South

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7. Revising AM0025: Burning sludge as a fuel is a bad idea

The Board may approve a recommendation (PDF) by the Methodology Panel to revise AM0025 “Avoided emissions from organic waste through alternative waste treatment processes”. The draft revision shall clarify that project activities that process and upgrade biogas from anaerobic digestion to the quality of natural gas and then dis-tribute it as energy via natural gas distribution grid can use the approved methodo-logy AM0053 in conjunction with this methodology. The revised methodology would also allow organic industrial waste eg. organic sludge generated from the effluent treatment plant of a pulp and paper manufacturing process to be co-fired as fuel in industrial boilers.

However, CDM Watch and the Global Alliance for Incinerator Alternatives (GAIA)22 believe that allowing sludge from effluent treatment plants to be burned as fuel is a bad idea. In the case of paper mills (the proposed project), this sludge contains high quantities of chlorine (which is typically used in the paper bleaching process). Burning chlorine in the presence of organic matter is sure to produce high quantities of organochlorine emissions, including dioxins, furans, PCBs, and other persistent organic pollutants (POPs). These POPs are specifically regulated by the Stockholm Convention on POPs23 which enjoins parties to undertake the „continuing minimi-zation and, where feasible, ultimate elimination“ of these POPs; and to use „best available techniques“ to reduce their emission, in particular in new sources. These would include, at a minimum, a variety of pollution control technologies (spray drier, activated carbon and lime injection, baghouse filters, selective catalytic reduction, fly ash vitrification, etc) that are not used in industrial boilers of the type envisaged. Nor is the revision specific to sludge from paper mills; it envisions using other slud-ges, from other industries or from municipal sewage, which are even more heavily contaminated and contain a wider variety of chemical contaminants (including heavy metals and industrial chemicals and their breakdown products).

CDM Watch commends the attempt to improve this important methodology. However, none of the suggested changes correct a very basic flaw in the methodology which is that it simply does not count any biogenic emissions of CO2. As recent stu-dies in the scientific literature24 have shown, this is a fundamental accounting error that significantly skews project-by-project GHG emissions calculations.

Action to be taken by the Board: Effluent sludge is an extremely contaminated substance. Burning it will release significant quantities of toxic pollutants and create new ones. Industrial boilers are particularly ill-equipped to deal with the emissions generated. As such, it is inappropriate for the CDM to subsidize major new sources of toxic emissions and in particular, as a UN body, the CDM has an obligation to avoid undermining other UN treaties (in this case, the Stockholm Convention) already in force. CDM Watch urges the Board to refer the revision request back to the methodo-logy panel to excise references to sludge and to address the biogenic carbon issue.

22 http://www.no-burn.org/section.php?id=8523 http://chm.pops.int/Portals/0/Repository/convention_text/UNEP-POPS-COP-CONVTEXT-FULL.Eng-

lish.PDF24 e.g.: Searchinger, et al., (2009), Fixing a Critical Climate Accounting Error, Science 326:527-528; Mellillo,

et al., (2009), Indirect Emissions from Biofuels: How Important?, Science 326:1397-1399; Wise, et al., (2009), Implications of Limiting CO2 Concentrations for Land Use and Energy, Science 324:1183-1186

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8. TÜV SÜD in the spotlight despite suspension

While TÜV SÜD remains suspended, WWF has released an updated rating that shows that the shortcomings of CDM-certification agencies are lasting25. On a scale from A (best) to F (worst) the

‘best’ grade was a D, which was awarded only once.

More than 900 projects have been evaluated for this analysis. The rating is based on a statistical evaluation of decisions by the EB on projects that were validated positively by a DOE and which are later either registered, rejected, reviewed or requested for correction by the EB (see table on the left).

The analysis shows that the number of project registrations directly accepted by the CDM EB decreased from 41% to 36% since the 2009 rating; the EB demanded correc-tions of 57% of the projects that were positively assessed by DOEs (2009: 51%); 7% of applications were directly dismissed by the EB (2009: 6%). In most cases the projects are not registered automatically because the EB disagreed with the DOEs in their additionality assessment, an essential requirement under the Kyoto Protocol.

As in the May 2009 rating, TÜV-Nord keeps the best performance with a D rating and BVC the poorest performance with an F rating. All other DOEs are in the middle ground and have an E+ rating. The score of TÜV-Süd and DNV decreased compared to the previous rating, whereas the score of SGS increased. See table below.

The updated rating shows that there is a large discrepancy between the expectations of the CDM Executive Board and the way DOEs perform validation and verification functions. This situation has not improved since the last rating published in May 2009. The recent suspension of TÜV SÜD and partial suspension of Korea Energy Management Corporation on 26 March show once more that problems observed in the past continue to exist.

25 http://www.cdm-watch.org/?cat=6

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In particular the suspension of TÜV SÜD opens questions as to how the draft policy framework on non-compliance of DOEs currently being discussed will address these serious shortcomings. Within this context it is important to note that the modalities for the suspension of TÜV SÜD state that the decision of the Board was based on two outstanding issues26 :

1) That TÜV SÜD gave positive validation opinions even though the DOE had con-cerns about additionality

2) That staff of TÜV SÜD was not qualified to undertake work as per the CDM accreditation standard

These two reasons for suspension cast serious doubt over the ability of TÜV SÜD to carry out essential key requirements to validate CDM projects. Moreover, CDM Watch would like to draw the attention of the CDM Executive Board to the fact that accor-ding to the modalities for suspension, TÜV SÜD was not allowed to upload PDDs for public comments as part of the validation process. Yet, TÜV SÜD uploaded the PDD for the Plantar project27 for public comments from 15 April to 28 May 2010. Plantar had previously requested registration and was put under review by the Board over non-compliance with key requirements related to the participation of civil society in the validation process. Moreover, the comment period was closed on 28 May early evening so that many stakeholders that had prepared comments for submission just before the deadline (00.00 GMT), including CDM Watch, could not submit anymore.

Ironically, the reason why the Plantar project was reviewed was the very fact that the period for public comments was too short (30 instead of 45 days). Yet, AGAIN, TÜV SÜD made it impossible for concerned civil society to respond to the public commen-ting period by: 1) Uploading the PDD at an unexpected time:

a. No NGO expected the PDD to be uploaded before the suspension was lifted and hence did not check the complicated UNFCCC website during that period.

b. CDM Watch had done a routine check on the validation page and could notify civil society only days before the closing of the public commenting period.

c. However while there was desire to respond, a couple of days did prove as a seri-ous obstacle given that civil society involved in the host country does not speak English and need to translate documents first.

2) Closing the period for public comments before the expected deadline: a. Although acting swiftly it was not possible to submit a comment via the

UNFCCC website.b. Without any particular notice, the public commenting period was arbitrarily

closed and left civil society representatives who took the time to prepare com-ments with no opportunity to submit them.

c. To date, comments have not yet been uploaded to the website.

Action to be taken by the Board: While it is certainly positive that the CDM Executive Board initiated a system of measurements and sanctions for DOEs three years ago, CDM Watch regrets that this system is not yet operational. Moreover, CDM Watch regrets to notice that important information about spot checks that lead to a sus-

26 http://cdm.unfccc.int/EB/053/eb53_repan02.pdf27 http://cdm.unfccc.int/Projects/DB/TUEV-SUED1242052712.92/view

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pension is not publicly accessible. In particular, CDM Watch urges the Board to make public the positive validation reports of the non-additional projects as referred to in the modalities for suspension of TÜV SÜD. Moreover, with regard to the disrespect that TÜV SÜD brings to civil society related to serious and effective public participa-tion, the Board should take action and reject PA 2569 in order to set a signal that civil society participation in the CDM must be taken seriously.

9. Key safeguards in the CDM appeals procedure

In Decision 2/CMP.5, the Parties to the Kyoto Protocol requested the Board to design procedures for appeals to challenge decisions by the CDM Executive Board and DOE performance.28

The inclusion of an appeals procedure in the CDM project approval process presents a crucial opportunity for the Board to promote enhanced accountability, legitimacy and public trust in and acceptance of the CDM as a valid tool for reaching its goals under the Kyoto Protocol – namely, mitigating global climate change while promoting sustainable development. It is likewise an opportunity to introduce cohe-rence and quality control into the Board decision-making process.

Following the brief presentation of the results of a call for inputs from stakeholders, the Board will consider a policy paper (pdf) on draft procedures for appeals against decisions of the Board during this upcoming meeting. The Board will specifically discuss following questions:

1. Who should act as the appellate body? 2. What should be the scope of appeals allowed?3. Who should be allowed to appeal?4. What information should the appellate body consider in making its decision?5. Generally, what should be the type of appeal process?6. What deference should the appellate body owe to the ruling of the initial decisi-

on maker?7. What obligations should be placed upon the appellant to receive a favourable

ruling?

CDM Watch and other environmental organizations have submitted responses29 to an earlier call for public input and strongly recommend that the Board adopt procedu-res that meet the following basic criteria:

• The right of stakeholders to appeal must be implemented as broadly as possible to address the wider impacts that flawed CDM projects have on global climate change and sustainable development.

28 Decision 2/CMP 5, Further Guidance on the Clean Development Mechanism29 Submission by CDM Watch, Earthjustice and Transparency International available at http://cdm.unfccc.

int/public_inputs/2010/cmp5_para42_43/cfi/S71E746O1LKEWDX7VG76607DX8CBJ1; Submission by the Climate Action Network (CAN) available at http://cdm.unfccc.int/public_inputs/2010/cmp5_para42_43/cfi/KTDEUYD4LL4X9ZVNV62GFQMFLNEM2S; Submission by Paryavaran Mitra available at http://cdm.unfccc.int/public_inputs/2010/cmp5_para42_43/cfi/TEB1FK9HTMZZ7P4OQUKN0T02PO4KAW

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• Stakeholders must be afforded the right to request a review of registration or issuance requests in order to avoid unnecessary appeals.

• Appeals must be allowed on EB decisions to approve a project following review, not just rejections, and include both procedural and substantive violations.

• Appeals must be allowed on EB decisions whenever there is probable cause that a DOE may not have performed its duties in accordance with the rules or require-ments of the CMP or EB.

• The time within which appeals may be brought should not be limited where new, material facts come to light indicating that a CDM project does not meet the core requirements.

• An accurate and complete record upon which the appeal is based must be com-piled and made publicly available.

• Rules, procedures, and codes of conduct and ethics must be put in place to ensu-re that the appeals body is independent, competent, impartial, and accountable.

Action to be taken by the Board: Key safeguards such as the ones listed above must be included in the appeal procedure in order to promote transparency, accountabili-ty, and consistency in the CDM project approval process, improve the efficacy of the CDM as a tool for reducing greenhouse gas emissions, and allow for more meaningful public input into the Board’s decision-making – something that is woefully lacking under the current procedures.

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The CDM Watch NetworkAction Solidarité Tiers Monde – ASTM, Luxembourg / Both ENDS, The Netherlands / Agricultural Deve-lopment and Training Society – ADATS, India / Angikar Bangladesh Foundation, Bangladesh / Centre for Education and Documentation – CED, India / Centre for Science and Environment – CSE, India / Earth-justice, USA / Church Development Service - EED, Germany / Forum of Collective Forms of Cooperation - FCFC, India / Forum Environment & Development, Germany / Germanwatch, Germany / Global Alliance for Incinerator Alternatives – GAIA , Philippines / Indian Network of Ethics and Climate Change – INECC, India / International Rivers, USA / Khazer Ecological and Cultural NGO, Armenia / Noé 21, Schweiz / Laya Resource Center, Indien / Matu Peoples‘ Organisation, India / Mines, minerals and PEOPLE – mmP, India / Orissa Development Action Forum – ODAF, India / Paryavaran Mitra, India / South Asian Network on Dams Rivers And People – SANDRP, India / Stanford Environmental Law Clinic, USA / The fair climate network – FCN, India / WWF European Policy Office, WWF Deutschland und WWF Japan

Disclaimer: The opinions expressed here do not necessarily reflect the views and opinions of the entire CDM Watch Network.

About CDM Watch

CDM Watch is an initiative of several international NGOs and was re-established in April 2009 to provide an independent perspective on CDM projects, methodologies and the work of the CDM Executive Board. The ultimate goal is helping to assure that the current CDM as well as a reformed mechanism post-2012 effectively result in emission reductions that are real, measurable, permanent, independently verified, and that contribute to sustainable development in CDM host countries.

Contact

Eva Maria FilzmoserProgramme Director CDM WatchNGO Forum Environment & Development

Rue d‘Edimbourg 26 . 1050 Brussels . Belgiumeva.filzmoser@cdm-watch.org

www.cdm-watch.org