On the wooded hills outside the city of Harbin in the northeastern province of Heilongjiang, Chinese developers are building towering wind turbines that will spin day and night to generate clean electricity. The project represents the hope that China, which recently surpassed the U.S. as the world's largest source of greenhouse gases, has truly embraced environmentalism.
The planned 29 turbines near Harbin represent something else as well: the widely accepted notion that market forces can be harnessed to aid the fight against climate change. Under the international treaty known as the Kyoto Protocol, Chinese wind-power developers are selling "carbon credits" reflecting their reductions in emissions of carbon dioxide and other heat-trapping gases.
Corporate and government buyers from industrialized countries pay for the credits as a way of complying with the Kyoto climate-change rules. The funds generated are supposed to encourage additional green-energy projects without forcing owners of older factories and power plants to close down their facilities or undertake expensive renovations. Credits sold under the Kyoto pact generated nearly $7 billion worldwide last year. Beijing has collected almost two-thirds of the total carbon revenue flow since 2002.
Unfortunately, wherever they have been used, carbon credits have been subject to manipulation. On Dec. 4 the U.N. committee that oversees the international credit trade refused to approve 10 Chinese wind farms, including the Harbin complex. The U.N.'s concern is that the Chinese projects would have been built even without the proceeds from credits.
If that's correct, the sale of credits would not stimulate production of any additional clean energy. Credit purchasers would receive empty environmental bragging rights, and the Chinese developers would obtain an undeserved windfall. "This is 21st century climate-policy snake oil," says Michael Dorsey, a professor of environmental studies at Dartmouth College.
Officials at China's National Development & Reform Commission, which oversees the country's ambitious-sounding goals to expand renewable energy use, didn't return repeated phone calls seeking comment on the U.N. decision.
Despite the potential for exploitation of the carbon market, representatives of 192 nations are discussing ways to expand it at the U.N. climate summit in Copenhagen, which runs through Dec. 18. The U.S. Senate, meanwhile, is poised to consider sweeping environmental legislation early next year that includes provisions allowing corporations to avoid certain pollution-reduction mandates by purchasing carbon credits.
Since the Kyoto Protocol was signed in 1997, many economists, environmentalists, and politicians have endorsed the idea that selling various types of carbon credits (also known as offsets) provides an efficient means of directing funds to the most feasible clean energy projects around the world. A number of credit-trading systems now exist; the U.N. supervises those that operate under the Kyoto accord.
Their success, however, is predicated on the credits stimulating activity that would not have occurred without special financial incentives. David G. Victor, a professor at the School of International Relations & Pacific Studies at the University of California at San Diego, estimates that between one-third and two-thirds of all carbon credits awarded to developing countries under the Kyoto agreement have rewarded developers whose projects would have been built without the carbon funding. "Carbon offsets offer this promise of letting you have your cake and eat it, too," says Michael W. Wara, a Stanford University law professor specializing in environmental policy. "The problem is they don't work very well."
The 10 Chinese wind farms were rejected, in part, because U.N. officials fear Beijing is actually reducing its financial support for wind power as a gambit to help the country's clean-energy projects qualify for carbon payments from abroad.
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