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CDM - a systematic waste of resources!?

Submitted by Hans Nilsson on Mon, 2007-09-03 07:00.

The flexible mechanism known as CDM has a built-in mechanism for failure. It systematically favours energy-supply over efficiency improvements. Small luck that it is renewable supply. Remember the recent words from the CEO of Shell: "What is the point of producing ever more energy if we continue to waste most of it"?

In a study presented to UNIDO, it is shown that out of 563 registered CDM projects, only 3% (19) are dealing with end-use energy efficiency. The rest are variations on the theme of renewable and improved supply. To further put emphasis on how limited the use of CDM-financing is to promote energy efficiency globally, the majority of these 19 projects are in India. Good, but after all, India is one of the developing economies that are better equipped than many others to deal with energy economics. So, instead of making better use of the limited resources we have in the world, we are eagerly supplying more energy to waste!

Well, there might be hope. The problem has been identified and people in the World Bank staff are arguing for making use of CDM-resources to finance lighting projects. There are certainly problems with verification and many other things that have to be considered to prevent double-counting or delivery of "hot air", but there also simply has to be a solution, also!

We need the CDM as a mechanism for developing countries to "leap-frog" from bad technology to good, but we also need to make this where it makes the best use of resources overall.


Market efficiency

Submitted by Benedikt von Butler on Wed, 2007-09-19 12:25.
Hans, it is a valid point that in principle "Negawatts" (Amory Lovins) are preferable to Megawatts even if the latter are from renewable sources. However, I can't agree with your assessment that the development of renewable energy under the CDM is a "failure". I would argue that any action that brings us to a less CO2 intensive economy is a success compared to the fossil fuel heavy business-as-usual scenario. In this respect the development of renewable capacity goes hand in hand with energy efficiency, rather than being a question of either-or. Speaking about efficiency: As you know the Clean Development Mechanism is driven by the price of carbon credits which are traded in a global market place. When project developers/investors allocate their resoucres to generate emission reductions, they will aim to generate such emission reductions at the lowest cost - which is the principle of market efficiency. With respect to CDM it just happens to be the case that renewable energy projects give you more "bang for the buck", more emission credits per dollar, than comparable energy efficiency projects. In this respect the CDM actually acts quite efficient within its current legal framework. There certainly is room to fine tune the system, to provide sticks and carrots to direct the flow of investment. But after all the goal is to reduce emissions at the lowest cost to the global economy. To push energy efficiency just for the sake of it would defeat the very principle of efficiency.
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However the waste continues

Submitted by Hans Nilsson on Sat, 2007-09-29 12:38.

Thank you Benedikt,

I am happy to see that my provocative headline was picked up. And I am happy to agree with you that CDM works. My point is that it can work better if it finds a way to allow energy efficiency to work on a "level playing field". Which it does not do today.

The amount of renewable projects financed by CDM is not primarily because they are yielding more per dollar, but because the CDM-administration do not (yet) know how to make baselines for CDM-efficiency projects, and to process them properly. The transaction costs are immense!

There are however powerful forces working to make a change. Among them the World Bank. And I do not wish them luck! I demand them to be successful! If not we will continue to throw good (renewable) energy into big holes of wasteful use.

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Hans:You're the second

Submitted by Hans De Keulenaer on Mon, 2007-10-01 10:21.

Hans:

You're the second person in this thread to state that renewable energy projects yield more emission credits per dollar invested than energy efficiency, so I must be missing something.

How to explain this?

Thanks,

Hans 

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Where is the biggest bang for the buck?

Submitted by Hans De Keulenaer on Thu, 2007-09-20 12:13.

Benedikt: Your statement about renewables producing more emission credits per dollar invested surprises me. I would have expected that energy efficiency - an incremental investment, would be more efficient per dollar invested than renewables where you need to build a new system from scratch and have it connect it to the grid.

A few years ago, we've done the exercise for 4 technologies, investing 'on paper' 1 M$ in each. Obviously there are many assumptions about wind and solar availability, or duty cycle, but typically energy efficiency projects produce about 10 times more credits per $ invested.

It is important though to calculate the incremental investment, i.e. the cost of upgrading equipment when one has taken the decision to invest. If one approaches energy efficiency from the viewpoint of retiring existing assets, stopping operations, and bringing in new equipment, probably the situation will be the other way round. But this is not how the efficiency market operates for the moment.

The challenge of energy efficiency projects in the CDM context is different - while in renewables 1M$ could go into a single project, and produce sizeable emission reductions, the emission reductions from efficiency projects are spread over a great many projects. Monitoring even 5% of 7000 motors would make a project uneconomical.

In my view, the small size of individual projects, and the prove of additionality are the main barriers for efficiency projects in CDM.

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Load Management, Energy Efficiency and Energy Conservation

Submitted by Chetankumar Sangale (not verified) on Sat, 2007-12-15 09:05.

In my point of view, to have reduction in demand and energy consumption, the user should be coached for better understanding of energy use and energy bill reduction.

There are two kind of changes that energy experts introduce: operational change and is technological change:

  1. operational: change in usage of equipment, i.e a change in habits of using energy. This will result in a reduction of energy consumption - and energy costs - without the need for making an investment.
  2. technological: replacing conventional equipment by energy efficient ones or changing parts of equipment or changing infrastructure to ensure reduction in energy while ensuring safety. This requires capital investment.

For energy experts it is essential to start both these changes simultaneously in a project.

The change is good and constructive, and should be consistant.

Thanks,

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