CDM: Capital Destruction Mandate?

By Floy Lilley, J.D.
December 11, 2004

Some $900 million investor dollars are supposedly seeking CDM (Clean Development Mechanism) projects.

Can anyone give a good reason why? Will a CDM get you into heaven? Get it in writing, if you are told that.

Perhaps huge concessions in tax codes will create incentives for these confused drivelling messes, because certainly none exist now.

A CDM issue paper by the Climate Protection Programme for Developing Countries stresses that "CDM projects must prove that they are additional" in order to receive national and international approval to commence. How do they do that?

"Project developers can choose between different approaches to demonstrate additionality:

• The project is not business-as-usual and thus additional because a more economical alternative exists.


• The project is not business-as-usual because without the sales of the CERs (Certified Emissions Reductions) the project is not economically viable.


• The project is not-business-as-usual because several significant barriers (e.g. investment) exist for the project."

Get it? If your business plan projects only failure and risk, and it can offer up no investor benefits, then it is perfect for the United Nations central plans.

No wonder the United Nations is always begging.

Brian Dawson of the United Nations Development Program, New York, has just this morning at a side event on Development Dividends admitted, "CDMs have not really developed anything. So far they have been all costs and no benefits."

On the same panel, D. Babu of New Delhi pointed out that the controversial additionality requirement is the acid test as to whether a project gets accepted, yet the price of a CER is too miniscule to make any project worthwhile.

A Columbian representative contributed that her country finds the social costs of forcing these projects onto cities to be too risky. Columbia is trying the taxation path since the straightforward economic one is closed to all trying to implement these CDMs. Columbia is extending fifteen year tax exemptions on total revenues to projects that can claim "to make some social investment." Columbia's few projects are primarily publicly owned.

The lone panelist with no powerpoint was the most informative. Andrei Marcu, President of Canada's International Emissions Trading Association (IETA), said "Additionality is difficult because it asks for proof of intent. Any lawyer will tell you that is not doable. You are asking to be able to be in a man's mind."

Marcu stressed that "business will take the path of least resistance. A man must make a profit to survive and he knows he will be judged by that, not by his charitable contribution to support some money-losing CDM project."

"Now CDMs have little value," Marcu emphasised, "because CERs have so little value, except to the EU (European Union). Markets migrate to simple solutions. Sustainable development is not even defined. One should NOT be excluding certain technologies and one should NOT be making the few incentives so perverse. Such as in the situation in which your country has passed a law mandating the use of renewables, but because the use is mandated no renewable project can be considered additional."

Concluding both his points and the session, Marcu reminded attendees that no CDM has any value now past the year 2012 anyway and that fact alone kills any investor interest. "Realize that one has to be in business for there ever to be any demand for a CER at all."

Trying to get back to a warm fuzzy feeling that Marcu's cold reason had denied him, a Belgian trade unionist demanded a response to "Where is corporate responsibility in all this talk of profits?"

Without hesitation Marcu responded with: "There is no contradiction between profits and corporate responsibility. You are a union man and profit is the only chance you have of keeping a job. If your company was all social responsibility as you define it and no profit there would be no company and, for you, there would be no job."

Now THAT makes sense.