Tue 25 Apr 2017 – While ICAO deliberates over rules concerning what offsets should be eligible under its carbon scheme for international aviation, a study prepared for the European Commission concludes the UN’s Clean Development Mechanism (CDM) has fundamental flaws in terms of overall environmental integrity. An offset mechanism established under the Kyoto Protocol to contribute to GHG mitigation, the CDM will end in 2020 – just as the ICAO CORSIA scheme gets underway – and a future design is required under the successor Paris Agreement. The fundamental principle that only real, measurable and additional emission reductions are generated, has not been adequately followed in most of the projects covered by the CDM, finds the study by Öko-Institut. Lessons should be learned and applied to other crediting mechanisms like CORSIA, it advises. NGOs, meanwhile, say ICAO runs the risk of repeating the mistakes and the aviation sector should not rely on offsetting to address aircraft emissions.

With almost 7,700 CDM projects and more than 1.6 billion Certified Emission Reductions (CERs) units or credits issued, the UN mechanism has developed into a vital component of the global carbon market and will form an important basis for future mechanisms. The key feature of such a policy is that the credited and transferred emission reductions should not have occurred in the absence of the mechanism. The ability to deliver such a result depends heavily on having a reasonably effective way to assess additionality both for specific project types and on an aggregate basis, and to set a baseline such that the number of credits issued does not, in total, exceed actual reductions. However, says the study, demonstrating additionality and setting baselines are the areas of most concern with the CDM and it has been difficult to implement reliable assessment methods.

Öko-Institut estimates around 85% of the covered projects and 73% of the potential CER supply have a low likelihood of ensuring environmental integrity, defined as ensuring emission reductions are additional and not over-estimated. Only 2% of the projects and 7% of potential CER supply analysed have a high likelihood of ensuring environmental integrity.

Most energy-related project types (wind, hydro, waste heat recovery, fossil fuel switch and efficient lighting) are unlikely to be additional, claims Öko, mainly because the revenue from the CDM for these project types is small compared to the investment costs and other cost or revenue streams, even if CER prices – currently less than €0.50 per metric tonne – would be much higher than today.

Öko says that compared to earlier assessments of the environmental integrity of the CDM, its analysis suggests the mechanism’s performance as a whole has not improved over time, despite enhancements of a number of CDM standards. The main reason for this is due to a shift in the portfolio towards projects with more questionable additionality. It accuses the Executive Board that oversees the CDM of simplifying rules that have had the effect of undermining integrity, such as introducing ‘positive lists’ for many technologies where additionality is questionable, and failing to exclude project types with a low likelihood of additionality.

However, concedes Öko, the CDM has provided many benefits. “It has brought innovative technologies and financial transfers to developing countries, helped identify untapped mitigation opportunities, contributed to technology transfer and may have facilitated leapfrogging the establishment of extensive fossil energy infrastructures,” say the authors of the study, which was also contributed to by the Stockholm Environment Institute and INFRAS. “The CDM has also helped to build capacity and raise awareness on climate change. It also created knowledge, institutions and infrastructure that can facilitate further action on climate change. Some projects have provided significant sustainable development co-benefits.”

Despite these achievements, and with well over a decade of considerable experience, “the enduring limitations of GHG crediting mechanisms are apparent,” they add.

The future role of crediting mechanisms should be revisited in the light of the Paris Agreement, advises the study. However, the context for their use has been fundamentally changed as a result of all countries now having to submit mitigation pledges under their Nationally Determined Contribution (NDC). Much of the current CDM project portfolio will fall within the scope of NDCs, which has implications for double-counting of emission reductions.

Although few countries have so far indicated they intend to use international credits to achieve their mitigation pledges, an important source of demand will come from the aviation sector under CORSIA. Avoiding double-counting with emission reductions under NDCs will be a challenge that is similar to that of avoiding double-counting between countries, observes the study. Parties to the Paris Agreement should ensure integrity of international transfers of mitigation outcomes, advise the authors. “The includes robust accounting provisions, inter alia, to avoid double-counting but should also extend to other elements, such as comprehensive, transparent and ambitious mitigation pledges as prerequisite to participating in international mechanisms.”

As part of fundamental and far-ranging changes to the CDM, the study recommends limiting the mechanism to project types that have a high likelihood of delivering additional emission reductions. However, as far as Öko is concerned, this would therefore strike out most energy projects, which form the majority of the CDM portfolio. This also has implications for Chinese support of CORSIA. Almost two-thirds of the potential CER supply in the period 2013-2020 is expected to be provided by CDM projects in China.

Öko also recommends focusing climate mitigation efforts on forms of carbon pricing that do not rely extensively on credits and on measures such as results-based climate finance that do not necessarily serve to offset other emissions. CERS, for example, could be purchased and cancelled as a form of results-based climate finance, rather than using them for compliance towards meeting mitigation targets.

“Our findings suggest that crediting approaches should play a time-limited and niche-specific role, where additionality can be relatively assured, and the mechanism can serve as a stepping stone to other, more effective policies to achieve cost-effective mitigation,” concludes the study.

Brussels-based Transport & Environment points out the EU no longer allows its member states after 2021 to use offsets when meeting their 2030 climate targets. “Yet at the same time, Europe is now endorsing an approach at ICAO to address international aviation emissions using potentially the same approach that this report so thoroughly discredits,” it said in a statement. Relying almost exclusively on CORSIA to address Europe’s “soaring” aviation emissions was an inherently risky strategy, it said, and represented special treatment for the carbon-intensive sector.

“This study is a wake-up call to the world that relying solely on offsets to address aviation’s climate impact is unsustainable,” said T&E Aviation Manager Andrew Murphy. “The EU must, at a minimum, ensure the worst offset projects are excluded from the ICAO scheme to avoid greenwashing by the airline industry, the fastest growing source of greenhouse gas emissions.

“Offsets won’t solve aviation’s climate problem – instead the EU needs to pursue policies such as fuel taxation, ending subsidies, reforming the EU ETS and ceasing support for airport expansion.”

Another climate NGO, Carbon Market Watch, said the study added to a growing body of evidence that showed manifold problems with using carbon offsets.

“These new findings are not surprising but they are another reminder that carbon offsetting has not worked as a reliable climate tool,” said Aki Kachi, International Policy Director. “The CDM and the emissions shifting concept of offsetting are not fit for the climate challenges ahead – the Paris Agreement’s changed policy landscape calls for a new approach to international climate cooperation.”

Added Aviation Policy Officer Kelsey Perlman: “It’s baffling to think that the aviation industry could potentially use credits that do nothing to compensate for their rapidly growing climate impact. To avoid greenwashing, aviation’s new offset market has to exclude credits that have not proven to be effective.”

Speaking on behalf of the industry at the ERA Regional Airline Conference in Copenhagen last month, Michael Gill, Executive Director of the Air Transport Action Group, said the CORSIA market-based measure scheme was one of four pillars that formed the industry's strategy to meet its climate goals, which also included the development of new technology, including sustainable alternative fuels, operational improvement measures and better use of infrastructure. However, he said, CORSIA was a fundamental part of the industry’s climate action plan and would help achieve its medium-term target of carbon-neutral growth from 2020. Getting the political consensus from 191 countries to sign up to the ICAO agreement on CORSIA had been no small undertaking, he said. “While it wasn't the perfect agreement for all parties, we should recognise it was a significant achievement.”

Ongoing work on the technical aspects of the scheme was taking place in an extremely positive fashion, he reported. “For it to be successfully implemented there are two essential parts remaining to be done,” he said. “Firstly, the work on the monitoring, reporting and verification (MRV) of CO2 emissions. It is vital to the credibility of CORSIA how operators measure their emissions and how that information is then processed.

“The second area of work is determining the environmental integrity of the scheme. It is fundamental that the offsets airlines purchase demonstrate actual carbon reductions. From our perspective, and I'm sure from that of NGOs, it is clear that we want to see high quality carbon offsets, at a level that will meet the demand for airlines around the world and which will bring about real environmental gains.”

The Öko study was originally published in March 2016, well before ICAO states reached agreement on CORSIA at their Assembly last October, but has only now been released by the European Commission’s Climate Action directorate (DG CLIMA).

Also speaking at the ERA conference, Laurence Graff, Head of DG CLIMA’s international carbon market, aviation and maritime unit, said the ICAO agreement was a good outcome and a good start. 

“Carbon neutrality from 2020, however, is in our view not sufficient but the scheme has a review mechanism that should allow for ambition to be enhanced over time and made consistent with the Paris Agreement,” she said. “We still have a lot on our plate to turn CORSIA into reality. Without extremely important rules on, for example, transparency and the quality of offsets we would not be in a position to know whether the scheme will be effective and truly deliver what it is supposed to.”

She said there was a difference in the level of climate ambition between Europe’s own carbon trading scheme for aviation, the EU ETS, and CORSIA, and the Commission will be reviewing how best to reconcile and maximise the benefits of the two schemes, while minimising the administrative burden and avoiding duplication.

Negotiations on the role of carbon market mechanisms under the Paris Agreement reconvene next month at the UNFCCC intersessional in Bonn, Germany. Also next month, ICAO is holding a seminar in Montreal that aims to share information on the design elements of CORSIA and implementation aspects, as well as the outcome from a series of regional seminars on CORSIA for ICAO states that recently concluded.

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