Comments on the CDM Project Design Document
for the
Bujagali Large Hydro, Uganda
The Bujagali Dam project is ineligible to receive
credits under the Kyoto Protocol. Claims to the contrary are likely not
only ultimately to rebound unfavorably on any firm making them but also to
contribute to the disintegration of the carbon offset market from which
many hope to profit.
Even under the most generous definitions, and excluding
technical questions about the level of carbon emissions from the project
itself, its construction, its effects, and the abuses connected therewith,
Bujagali cannot be interpreted as a project whose implementation is
dependent (as a whole or in any quantifiable part) on registration with
the CDM. AES and the Government of Uganda signed a Memorandum of
Understanding to develop the project in 1994, long before the Kyoto
Protocol. AES and the Government have already signed an Implementation
Agreement and a Power Purchase Agreement committing them to developing the
project. IDA, IFC and various export credit agencies have already approved
funding for Bujagali. According to MIGA, "AES has informed all members of
the World Bank Group that it remains committed to the Bujagali Hydropower
project, in which it has already invested more than $40 million." The
claim that carbon credits could subsidize increased returns for wealthy
private investors, even if it could be substantiated, is irrelevant to the
question of whether the project will go forward. Nor has any increment of
uncertainty about project viability been identified which CDM registration
could quantifiably remedy. Hence there is no conceivable way the
contribution of CDM registration to project realization could be assigned
a numerical fraction greater than zero, even if a single counterfactual
non–project scenario could be isolated. The project is accordingly
non–additional under any reasonable interpretation of the Article 12
definitions set out in Decision 17/CP.7, paragraph 43: "a CDM project
activity is additional if anthropogenic emissions of greenhouse gases by
sources are reduced below those that would have occurred in the absence of
the registered CDM project activity".
It is an axiom of the baseline–credit system that a
single counterfactual without–project scenario must be isolated. (If more
than one possible alternative future emissions scenario is specified,
quantitative comparisons with the relevant effects of each story line will
have to be made, the number of credits will be indeterminate, and the
accounting system will break down.) This is impossible in principle; but
the selection of a baseline for Bujagali has followed a process which is
open to particularly devastating criticism for being unrealistic. To take
just one example, a geothermal option has been disregarded despite being
the the least–cost option for the expansion of power generation in Uganda
(it is cheaper per megawatt than Bujagali), one based on technology at a
similar stage of readiness, and one likely associated with less GHG
release.
By undermining the integrity of the Framework Convention
on Climate Change as a whole, and indeed indirectly subsidizing climate
change, the granting of carbon credits to Bujagali would have a damaging
effect as well on business opportunities for firms, such as
PriceWaterhouseCoopers, which hope to gain validation contracts in the
long term. One would expect it to be a critical matter of self–interest
for PWC and other validation firms to tread cautiously at this stage with
respect to CDM and the Kyoto Protocol flexible mechanisms generally, given
that the as–yet unformed carbon market will for the foreseeable future be
at more or less constant risk of rapid collapse as long as the viability
of the commodity to be traded remains in question. Crucial here is the
well–canvassed "Lemons Market" problem (for the exploration of which,
among other things, the Berkeley economist George Akerlof won the Nobel
Prize last year). Where buyers as well as sellers have a less than
overwhelming concern with product quality, as with the CDM, there is also
the winner–loser gap argument. In an anonymous market, there exists a
still further tendency toward market collapse under conditions of indirect
reciprocity described in the altruist–defector argument.
In addition, it is well to remember that in the wake of
the ENRON, WorldCom and other recent scandals, the public and the markets
have become increasingly sensitized to accounting fraud. The matter is all
the more critical in the present case in that while the ENRON fraud is
complex in some of its details, the non–additionality of Bujagali, and the
spuriousness and multiplicity of the baselines in question, are obvious
and can be easily understood by anyone. For those looking forward to a
functioning carbon offset market perhaps more than anyone else, it is
critical that the Bujagali scheme not be validated as a CDM project.
Larry Lohmann
The Corner House
Dorset, England
