World Rainforest Movement

“Free riders” in the CDM

A recent study of the Tellus Institute and Stockholm Environment Institute-Boston Center concludes “that while the CDM could induce some legitimate lower-emission electricity generation in host countries, it could also give rise to a considerable amount of spurious emissions allowances by crediting non-additional (“free-rider”) activities –activities that would have taken place even in the absence of the CDM.” The research finds “that under some plausible CDM regimes, the CDM could serve primarily as an instrument for generating spurious credits, and only secondarily as an instrument for economic efficiency or sustainable development.”

The most striking finding of this research is the magnitude of the potential free-rider problem. “By intention, the CDM is not designed to reduce global greenhouse gas emissions. CDM projects that reduce emissions in the host countries will generate emissions credits that enable the investor countries to increase their domestic emissions, exceeding their Annex B emissions targets. Thus, at best, if the CDM operates as intended, it will be carbon-neutral on a global scale. However, in practice, to the extent that the CDM generates unwarranted free-rider credits, it will cause a net increase in global carbon emissions.”

The researchers argue that “a small flow of free-rider credits might be acceptable, if the overall outcome of the CDM were to help achieve the ultimate objectives of the Climate Convention. This outcome would occur if the CDM catalyzed development and adoption of technologies that could underpin a global transition away from carbon-intensive fuels and contribute to sustainable development. But, in the cases investigated here, it is not evident that the magnitude of potential free-rider credits is justified by the obtained benefits, such as the transfer of some renewable energy technologies to the host countries.”

The report’s main conclusion “is that free-rider credits from non-additional CDM projects threaten to undermine the environmental integrity of the Kyoto Protocol. Some CDM regimes could lead global emissions to increase by as much as 600 MtC relative to the Kyoto Protocol target, if credits awarded spuriously to projects that would have happened anyways are used in place of real carbon reductions. In economic terms, 600 MtC of free-rider credits would be worth $6 billion at $10/tC or $60 billion at $100/tC. These free riders would amount to a multi-billion dollar cross-subsidy to CDM project participants at the expense of the global environment. It is therefore imperative that policy makers devise and adopt a CDM regime that effectively encourages legitimate projects, while rigorously screening out non-additional activities.”

Article based on information from: “Cleaner generation, free riders, and environmental integrity: Clean Development Mechanism and the Power Sector. An analysis for the World Wildlife Fund” prepared by Steve Bernow, Sivan Kartha, Michael Lazarus, and Tom Page. Tellus Institute and Stockholm Environment Institute-Boston Center, September 2000