Fund for spurring
renewable energy aids coal-fired plants; Tata Power seeks subsidies for
project in Gujarat
A United Nations programme designed to combat global warming has
started
doing something no one expected: It is subsidizing fossil-fuel power
plants that spew millions of tons of greenhouse gases into the
atmosphere annually.
In the past year or so, 13 big plants in India and China that burn
natural gas have won the UN’s blessing as aids in the fight against
climate change. As a result, owners of the plants earn millions of
dollars a year from a UN programme intended to spur construction of
solar panels, wind turbines and other renewable energy projects.
This unforeseen turn is fanning new doubts about the environmental
efficacy of the UN’s “carbon trading” programme—the most ambitious
effort yet to curb emissions of carbon dioxide and other greenhouse
gases where they’re rising the fastest, in the developing world.
Concern about the programme is spreading to the US. Doubts about the
validity of some pollution cutting projects in the developing world
were one factor in the Senate’s rejection last month of a bill that
would have capped U.S. greenhousegas emissions.
The UN is now venturing further onto controversial turf. In recent
months it has opened the door to subsidizing new coal burning plants.
Advocates argue that modern, cleaner-burning fossil fuel technology is
expensive, and without help paying for it, owners would build old-style
plants that pollute more.
UN officials strongly defend their approach. For more than a year, they
have been taking a harder line in judging proposed emission-cutting
projects of all stripes, they point out. And since the world is widely
expected to continue to get most of its energy from fossil fuels for
decades, UN officials say it’s entirely appropriate for the programme
to subsidize plants that burn that fuel more cleanly.
"Some of the countries in this world are endowed with fossil fuels,”
says Rajesh K. Sethi, an Indian government official who is chairman of
the UN board that polices the subsidy programme. “It is in the world’s
best interest that they use it as efficiently as possible.”
Critics say the UN programme is straying from its purpose of promoting
renewable-energy projects. “Coal is, like, climate enemy No. 1,” says
Michael Wara, a Stanford University lecturer who has published several
papers criticizing the UN programme. For every unit of power it
produces, burning coal generates more greenhouse gas than burning
natural gas.
Wara argues that India and China are already building more efficient
plants anyway, since doing so makes economic sense at a time of rising
energy prices. Using the UN programme to subsidize these plants wastes
money that could be used for other clean energy projects.
Despite growing talk of shifting away from fossil fuel use, none of the
world’s big countries want to have to pay for that to happen. That
strain was on display this week, as diplomats met in Japan to try to
cobble together a more forceful international agreement to curb
emissions of greenhouse gases.
On Tuesday, leaders of the Group of Eight industrialized nations set a
goal of cutting emissions 50% by 2050, but made it nonbinding and
didn’t detail how they would meet it. On Wednesday, representatives of
developing countries such as India and China declined to endorse even
that loose target, saying it would hit their economies too hard.
Gujarat Power Plant
Among the coal plants seeking subsidies under the UN programme
is a $4
billion (Rs7,080 crore) behemoth currently under construction in the
western Indian state of Gujarat. When it is finished in 2012, it will
be one of the biggest coal-fired plants in the world.
The developer, electricity producer Tata Power Co., is seeking about
$36 million a year in subsidies, arguing that the alternative would
have been to build a cheaper, less-efficient power plant.
The UN hasn’t yet officially considered Tata Power’s application, but
the proposal has powerful backers. Among them: The World Bank Group’s
International Finance Corp. and the Asian Development Bank, each of
which has loaned Tata Power $450 million to fund the plant.
“Let’s be honest with ourselves,” says Darius Lilaoonwala, senior
manager of the International Finance Corp.’s power department. “These
countries are going to need fossil-fueled electricity just like the US
and Europe. So let’s encourage them to do the most efficient technology
possible.”
“Of course, if you build a coal factory, it’s not good for the
environment,” adds Tsukasa Maekawa of the Asian Development Bank. But
countries that have a lot of coal are going to burn it, he says, so
helping them finance more efficient plants makes sense.
Fundamental principle
One of the fundamental principles of the UN initiative, called the
Clean Development Mechanism, is that it should subsidize pollution
cutting projects only if they would otherwise be too expensive to
build. The Tata Power plant, however, will be built whether or not it
gets the UN programme’s financial aid. The power plant “has to go on.
We’ve already started the project,” says Prasad Menon, Tata Power’s
managing director.
In addition, the Indian government essentially required the plant to
use high-efficiency technology. Menon argues the project should still
receive the UN subsidies because “it’s a good move for the West to
encourage India to move in this direction.”
This tension has dogged the international global warming campaign since
its inception. Under a 1997 treaty, the Kyoto Protocol, most
industrialized countries other than the US agreed to cap their
greenhouse gas emissions. They thenrequired heavily polluting companies
within their borders to cut their emissions over time.
Developing countries didn’t accept emission caps, arguing that stunting
their economic growth to cope with a century’s worth of pollution from
the developed world would be unfair. As a compromise, the treaty
created the Clean Development Mechanism, which aims to chip away at
developing world emissions one project at a time.
Under the UN programme, companies in wealthy nations can meet their
environmental obligations at home by financing pollution cutting
projects in the developing world. Companies in the developing world get
cash, while the companies in the West get “carbon credits”—permission
slips to continue coughing out their own carbon dioxide and other
greenhouse gases. The system is designed to curb world-wide emissions
at the lowest possible cost.
But the system works only if the developing world projects actually cut
emissions. If projects such as coal- and gas-fired plants India and
China would have been built even without financial aid, then the UN
programme isn’t actually cutting emissions.
The UN has the job of assessing the environmental validity of
developing-world projects that seek subsidies. But gauging whether a
proposal actually cuts emissions is tricky. The UN board must make two
judgment calls: whether the project would reduce the country’s
emissions below what they otherwise would be, and whether the project
would have been built even without the UN subsidy.
It’s a “hypothetical thing,” says José Domingos Gonzalez Miguez,
a Brazilian government official on the UN board. “This is the problem.”
Every month or two, the board’s 20 members fly to Bonn, Germany. There,
in a UN high-rise, they meet for several days, poring over proposed
projects. The meetings are posted on the Internet and watched by
investors with big money riding on the decisions.
The UN programme was created to encourage renewable-energy projects.
But, in May 2006, the board approved the concept of letting gas-fired
power plants sell carbon credits. A stream of gas-fired plants began
applying.
Three of the biggest plants sit near each other in the east China
province of Zhejiang, near Shanghai. Construction on all three had
begun before the UN board’s decision.
The owners of the three plants argued in their UN applications that the
cheapest way for them to generate electricity would have been to build
coal-burning plants. But because they had built more efficient
gas-fired plants, they argued, they deserved permission to sell a
carbon credit for every extra tonne of carbon dioxide that, according
to their calculations, their plants would have emitted had they been
built to burn coal.
Together, the three plants were seeking permission to sell 2.7 million
carbon credits each year. A credit represents permission to emit one
ton of carbon dioxide a year. Given that such credits from developing
countries are now selling for about $13 apiece, UN approval would
translate into about $35.1 million a year for the owners of the three
plants combined.
The value of carbon credits from projects in the developing world was
$7.4 billion last year, up 28% from 2006, according to the World Bank.
Based on projects that have applied so far to sell carbon credits
through 2012, when the Kyoto treaty’s emission caps expire,
fossil-fueled power plants account for only about 7% of the market,
according to UN figures. But their share has been growing rapidly.
The architects of the UN programme hoped it would spark a renewable
energy revolution, inducing a shift away from fossil fuels and toward
everything from the sun to the wind to animal waste. In fact, renewable
energy accounts for only about one-third of the carbon credits proposed
to be issued through 2012, according to UN figures.
Emissions audit
The owners of the three Chinese gas-fired plants worked with a broker
that specializes in organizing carbon credit projects. That firm, in
turn, had hired a Norwegian auditing company, Det Norske Veritas, to
certify that the plants’ in-house emissions calculations were accurate.
(The UN board authorizes auditors to do this kind of work on its
behalf.)
In early 2007, Det Norske Veritas recommended all three projects to the
UN board.
Today, Michael Lehmann, technical director for climate-change services
at Det Norske Veritas, says he still believes the three Chinese power
plants audited by his firm properly qualified for subsidies under the
existing rules. But dozens of gas-fired plants in China are now rushing
to snag carbon-credit revenue. That suggests the system “doesn’t seem
to be right any longer,” he says—it’s unrealistic to think that none of
them would be financially viable without the subsidies, particularly
since so many are already built and running.
Sethi, the UN board chairman, says each of the plants the board has
approved complies with the rules as they exist. “Each project is seen
on its own merits,” he says, declining to say whether he thinks the
higher-level diplomats who made that policy should change it. “We are
simply the implementing tool,” he says of the board he heads.
Officials of the companies that own the three Chinese gas-fired plants
defend their applications, saying they comply with the programme’s
rules. “Gas is within [the] terms,” says Li Jian, who works in the
production technology department of one of the power companies,
Zhejiang Guohua Yuyao Fuel Gas Power Generation Co. “So we got
approved.”
The three plants’ applications were still pending before the UN board
when, in early 2007, two coal-fired plants applied for permission to
sell carbon credits. That prompted several months of testy debate among
members of the UN board, who were conscious of how politically
controversial the idea was.
Board members from developing countries that don’t burn a lot of coal
argued against approving the coal-fired plants. Miguez, the board
member from Brazil, said it violated the UN programme’s intent.
“This would create loopholes,” he said. “We are here as the board of
the Clean Development Mechanism. And I think we should stress the word
‘clean.’ "
But members from countries that stood to gain from the proposal
supported it. They included members from Canada and Japan—both
industrialized countries that accepted emission caps under the Kyoto
treaty, and which therefore were hunting for cheap carbon credits to
buy. Also supporting the applications from the coal plants were board
members from India and China, two developing countries for whom
domestic coal is a cheap energy source.
The proposal would “be of very great use in countries like India and
China,” Sethi, the board member from India, told his colleagues during
one of the meetings that was broadcast online.
Board approval
The board approved the coal proposal in September 2007, after adding
provisions phasing out the rule over time and reducing the number of
carbon credits any coal-fired plant could sell.
A few months later, the board approved the three Chinese gas-fired
power plants’ applications to sell carbon credits. And Tata Power
formally asked the board to approve the sale of carbon credits from the
massive coal-fired plant the company was developing in Gujarat.
Tata says the plant will emit an average of 26.7 million tonnes of
carbon dioxide annually during its first decade of operation. That’s
2.8 million fewer tonnes than the plant would discharge if it used the
less-efficient coal-fired technology prevalent in India today, it says.
So Tata is asking the UN to let it sell 2.8 million carbon credits
annually. That would be worth about $36 million at current market
prices.
The Tata plant has its roots in an electrification push by the Indian
government. The government had rolled out plans in early 2006 for about
a half-dozen huge coal-fired power plants. Dubbed by the government the
“ultra mega” plants, they would each be able to produce a sizable
4,000MW of electricity.
Tata Power’s application to sell carbon credits is being reviewed by
Det Norske Veritas, the auditing firm. The firm’s Lehmann says he has
his doubts about Tata’s bid. “Look at the facts,” he says. “The project
has received funding. It’s part of the policy of the government to
implement this type of project,” he says. Whether the plant needs
carbon market money “is really questionable.” Lehmann says that the
auditing firm is still looking into the project and hasn’t yet made its
recommendation.
In May, a second Indian coal-fired plant applied for UN permission to
sell carbon credits.
wsj@livemint.com
Kersten Zhang and Gao Sen contributed to this article.
http://www.livemint.com/2008/07/11174223/UN-takes-heat-on-programme-for.html?atype=tp
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