Al Gore's Legacy - the Flexible Mechanism

By Floy Lilley, J.D.
December 8, 2004

In Kyoto in 1997 the cobbling together of the poorly crafted Kyoto Protocol faced a certain death until – out of the sky – came Wonder Gore. The erstwhile then Vice President, who passionately knew that Americans had to undergo a wrenching transformation because the earth was unbalanced, saved the day with his FLEXIBILITY magic.

One of the flexibility rabbits pulled out of the hat is called a Clean Development Mechanism. It is mainly the only permitted act that a developed country can do to a lesser developed country. It may now be legal, now that Russia kissed the KP, but it isn't pretty. Few have even a clue.

One group who should be all over the CDM admits to a touch of its own confusion. That's the International Emissions Trading Association [IETA]. The IETA was created in June 1999 to establish a functional international framework for trading greenhouse gas emmission reductions. In their own Executive Summary on the CDM for COP 10 they express these concerns:

• The whole process is extremely complex, discouraging its integration in the normal course of business processes.
• There is a reluctance of business to fully engage in the face of such uncertainties.
• There is serious risk that the Clean Development Mechanism [CDM] will function and produce output, but at parameters very different from what was initially envisaged and what is needed. It will be to better balance the needs for environmental integrity with the desire to give incentives to a large number of projects that reduce greenhouse gases [GHGs], and especially CO2.
• The long-term goals will require broader changes that cannot be incentivized by the project-to-project system that is currently emerging.

It is no wonder that there was standing room only for two hours for about one hundred observers with close to four dozen hard questions asked of the CDM Executive Board. The gathering would make anyone familiar with market economics weep. Each person with a potential project sought clarification of a process that has simply been made up as it has gone along. Frustration levels are high. How can any investors risk so much on such arbitrary modalities and processes and mandates? And, what in the world is a modality anyway.

Is rejection of a submitted project political?

How will any of the parties involved know when their actions are successful since they are not really permitted to be profitable in any terms other than some reduction of GHGs?

Mr. John Shaibu Kilanj, Chair of the Executive Board, said that it would be abnormal if the private sector was not frustrated. "We have a tough job and are frustrated ourselves. In three years we do have projects in the pipeline, but the private sector has not flooded us with proposed projects. You need to stop criticising us. We need to be one CDM family." Kilanj added later words to the effect that more money contributions were needed because expenditures are far greater than received funds. In other words, the Executive Board's activities are not sustainable.

Not just any CDM can occur. CDMs MUST generate carbon reduction. The Nature Conservancy of Bolivia demanded to know why not a single reforestation project thus far had been approved. The Board's answer was that they did not yet have any approval methodology, thus none could be approved.

A Mexican delegate wanted to know why no transportation projects anywhere had been begun yet. The Board said they had rejected the only transport request that they had received, saying that they were in a "bottom-up process."

One CDM developer complained that it had taken eighteen months for his project to even be reviewed, then the project had been returned to him for changes that would have rendered the whole project useless. He charged that year after year "nothing happens but meetings in different places."

One observer was jealous of the attention that chemical and energy projects seemed to be getting. Was the Board playing sectoral favorites?

The Royal Bank inquired after a small hydro project of theirs that was modeled on one that the Board had already voiced approval on, but because it was to generate 13MW it was too large to be sustainable. Repeat. It is a small hydro project.

Each Board member seems to imagine that he can acquire total knowledge. Just allow him enough meetings to get it all right. They plead that they have the will to manage all the world's choices over development.

It is always and everywhere a fatal conceit for man to think that any board can make the correct choices when the resources are finite. This is collectivism and central planning in its most blatant and insidious cloak. It is, and has always been the least flexible position for mankind to engage in. Stay home, Al Gore.