In May, the CDM’s executive board began consulting on new rules on the eligibility of reforestation projects to generate emission reduction credits (CERs).
Existing rules say projects must demonstrate that the land to be reforested was clear of trees in 1990 - the Kyoto baseline year. This was designed to prevent the deliberate clearance of forests to make way for CDM reforestation projects.
To the dismay of environmental groups, this requirement may be dropped. The new rules proposed by the board’s reforestation working group only require project developers to demonstrate "the land was not intentionally converted to non-forest land for the purpose of implementing a [CDM] project".
This could be almost impossible to prove, and the board has asked for ideas on how to develop new procedures to assess projects.
"This proposal offers a perverse incentive to deforest," said Jutta Kill of forest campaign group FERN. Not only are they losing the baseline year, said Ms Kill, "but some parties are also pushing for the definition of forests to be changed. It would open up huge areas of land for exploitation and they are just the areas where there are conflicts over land-use and indigenous people’s rights."
Nor did the proposed safeguards impress Ms Kill. "I see huge potential for unverifiable claims," she said. "This is opening up yet another loophole that could allow through fraudulent projects."
The row is the latest in a series of controversies about the trading scheme. Another involves the cost effectiveness of projects to destroy emissions of HFC23 - a refrigerant by-product with a global warming potential 11,700 times higher than carbon dioxide. Such projects can generate high numbers of CERs, so although they only account for 11 of the 645 projects registered so far, they account for nearly 30% of the CERs generated.
Retrofitting plants to incinerate HFC-23 is relatively cheap and can generate CERs for less than €1/tCO2e - far less than the general market rate of €6-10/tCO2e.
Writing in the journal Nature in February, Michael Wara of Stanford University calculated that plants could make more money from selling CERs than they can from selling the refrigerants they manufacture. He estimated that retrofitting all existing plants that emit HFC-23 would cost around €100 million, far less than the €4.7 billion it would cost through the CDM.
Grant Kirkman of the UN Framework Convention on Climate Change, which administers the CDM, claimed it "finds the most cost effective routes for cutting CO2. The fact that people are investing in these cheap, effective projects shows it works.
"Before the CDM, people were still emitting these gases. Most plant in developing countries have no legal requirement to cut back on emissions. Without the CDM, the money would not have been generated." He added that only existing plant are eligible for CDM projects.
However, some parties to the Kyoto Protocol want to allow the CDM to fund abatement from new plants. This could create a perverse incentive for new plants to be built and lead to a rise in emissions. The issue is due to be discussed at the UN’s climate summit in Bali in December.
In spite of these concerns, CDM project credits are widely regarded as more credible than voluntary emissions reduction credits because they must follow set procedures to demonstrate that the claimed emissions reductions are real, measurable and additional. The board has rejected around 2% of projects for failing to demonstrate additionality.
But some observers question whether the board, which is made up of part-time, unpaid experts, will be able to cope with the expected flood of projects.
So far its response to an increasing workload has been to beef up its secretariat to deal with the day-to-day administration of the mechanism. But this may not be enough to deal with the huge numbers of expected project referrals - more than 1,600 are in the pipeline already. The board’s reform is also on the Bali meeting’s agenda.