Can Sustainable Development be Clean and Cheap? a Promising 'carbon Credits' Case Study

Copyright (c) 2008 Daniel Lafleche

Must the costs of clean development necessarily be prohibitive for developing nations?

Let's take a closer look at exactly how this is called into question.

There is a common belief that the most efficient way to rein in greenhouse gas emissions is to implement a two-tiered regime in which developed nations will shoulder a much greater burden. The justification for this belief is that because it is wealthier, the necessary foregoing of present consumption will be much less as a proportion of national income. The hardship endured will therefore be substantially less.

There are a number of arguments as to why the nominal costs of developing green infrastructure and power generation should be greater or lesser in developing countries. Those who suggest the costs are greater point to the need to import (often expensive) hardware and foreign technical expertise. Those who argue that it can in fact be less costly point to lower labor costs in developing countries and, sometimes, cheaper domestic inputs. The true answer of course is case- and industry-specific. For simplicity, let's assume that the costs are broadly the same at the aggregate level.

But what if the costs of "green investment" in developing countries could be defrayed or even offset entirely, and this without increasing tax strains or calling for foreign donors to foot the bill? Innovating intermediaries such as UK-based EcoSecurities have been so bold as to make this seemingly improbable end a reality. The concept is delightfully simple; as allowed for under the Kyoto Protocol's Clean Development Mechanism (CDM), developing nations which reduce their greenhouse gas emissions are entitled to carbon credits which can in turn be sold on an open market. These credits are readily purchased by developed-world producers that need them to be in compliance with emissions caps. And the developing-nation party has found an essentially zero-cost avenue to sustainability.

For a better understanding of the mechanism and the championing role played by the intermediary, let's take a look at an EcoSecurities case study. The process begins with an assessment of a company's assets to determine the emission reduction that can be achieved. In the project development phase, the necessary "green investment" is implemented with zero capital investment by the contracting company. Finally, EcoSecurities guarantees that it will purchase the carbon credits generated after implementation. The Celulose Irani biomass-to-electricity project in Brazil is an exemplary case. With the help of EcoSecurities, this paper producer was able to find a clean and renewable source of energy by utilizing the biomass that is a by-product of its production process. EcoSecurities provided financing for the project, and lent its technical know-how of biomass energy production to Irani through the implementation of the project. After completion, EcoSecurities purchased Irani's new carbon credits for resale. Without this involvement, Irani's expanding production would have continued to apply pressure to the traditional fossil fuel-derived grid.

There are currently more than 900 registered CDM projects underway around the world, about 60% of which are to be found in Asia and the Pacific. The viability of these projects is, of course, dependent upon the continuing ability to sell the acquired carbon credits. This means that the project would become unsustainable if the market for those credits were ever to dry up (for example if developed nations, pursuing their own green projects, no longer needed to purchase carbon credits to comply with emissions caps).

In a world where the United States alone accounts for a quarter of greenhouse gas emissions, provided that some permutation of the two-tiered international agreement can be reached, this seems rather a distant scenario.