CDM giving excessive amounts of money to big factories – is it a problem?

Environmental capital today commented on a “marginally economical” chemical factory making 97% of it’s profit from selling CERs generated by destuction of nitrous oxides:

The company, Rhodia SA, manufactures hundreds of tons a day of adipic acid, an ingredient in nylon, at its factory here. But the real money is in what it doesn’t make. The payday, which could amount to more than $1 billion over seven years, comes from destroying nitrous oxide, or laughing gas, an unwanted byproduct and potent greenhouse gas. It’s Rhodia’s single most profitable business world-wide. […] The Rhodia factory in [South Korea] alone is slated to bring in more money, under the U.N.-administered program, than all the clean-air projects currently registered on the continent of Africa.

The post suggests there must be something wrong with a system that means factory owners can make more money from cleaning up pollution than their normal business. It does intuitively seem like a very expensive way to make a factory in a industrialised country do something that would be business as usual for a similar plant in Europe.

If the CDM is operating perfectly, it shouldn’t be a problem. The value of CERs is determined by markets and, in climate change mitigation terms, reductions generated this way are just as good as any other. There are two key questions to think about:

  1. Would the gases have been cleaned up anyway? The CDM would argue it makes a reasonable judgement of this issue. Many disagree and believe it’s too difficult to work out. A quick thought I will consider more carefully later: could additionality as a binary concept (all emission reductions will be eligible for CERs if the project wouldn’t happen without them) be replaced with a sliding scale in which a project is only eligible for a number of CERs that would push it above the line?
  2. Is awarding CERs for this kind of activity encouraging more factories to open, just so they can clean up the pollution? The CDM has responded to this by saying that only old factories will be awarded CERs. The difficulty is the same – in theory it makes sense but it’s just too difficult to establish whether pollution is new or old.
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