Making Carbon Offsets Work in the Developing World: Lessons from the Chinese Wind Controversy

Abstract The Clean Development Mechanism (CDM) is the leading international carbon market and a driving force for sustainable development globally. But the eruption of controversy over offsets from Chinese wind power has exposed cracks at the core of how carbon credits are verified in developing economies. It has become almost impossible to determine whether offsets from Chinese wind are “additional” and that they in fact represent “real” reductions beyond business as usual. Unless this problem can be resolved, it threatens to spread beyond wind in China and could threaten the ability of carbon markets to deliver the mitigation demanded by international climate policy. In 2009 the CDM Executive Board (EB) shocked the carbon market by forcing an unprecedented review of whether multiple Chinese wind projects satisfied UNFCCC additionality requirements. CDM investors reeled as the safest CDM bet became the riskiest; the Chinese government publicly criticized the UN’s oversight of carbon markets; and the CDM EB prepared itself for an unprecedented fight over how carbon offsets could be verified in the world’s largest CDM market. At the center of the controversy is the Chinese power tariff for wind. 
Author Gang He and Richard K. Morse; Program on Energy and Sustainable Development, Stanford, Working Paper #90, March 2010
6 Renewable Energy, 6.2.0 Wind, 6.2.10 Finances and Pricing