Hydropower in the CDM: Examining Additionality and Criteria for Sustainability

Abstract

This paper examines the effectiveness of additionality and sustainability criteria being applied to hydropower projects applying for carbon crediting under the Kyoto Protocol’s Clean Development Mechanism (CDM). We examine the conditions under which hydropower development decisions are commonly made, with a focus on China and India where the majority of CDM hydropower projects are hosted. We find that the CDM is having little effect on large hydropower development, and that the basic conditions needed for an accurate additionality assessment are not met. In particular, non-financial factors such as energy security heavily influence decisions to build large hydropower, and uncertainty in investment analysis inputs allows project developers to choose input values strategically in order to show that their projects are less financially viable than they actually are. Further, large hydropower and some small hydropower are being built in large quantities worldwide, are heavily supported by governments, and therefore should be considered common practice and ineligible for CDM crediting. We recommend that large hydropower be excluded from the CDM, and that small hydropower be accepted only in places where it is not already being built. The second part of this paper examines the European Union’s (EU’s) assessment of compliance of hydropower projects with World Commission on Dams (WCD) guidelines. We identify several shortcomings including auditor conflicts of interest, weak guidance for the assessment of public consultations, lack of documented acceptance of projects by project-affected persons, and insufficient access to compliance reports by the general public. We provide concrete recommendations to strengthen the EU’s assessment of WCD compliance.