Can a key component of the Kyoto Protocol help combat greenhouse gases and under-development, or will good intentions go up in smoke?

As bitter winds race across the frozen countryside kicking up swirling snow devils, Canadians can be forgiven for welcoming rather than fearing 'global warming'. But for the 10,000 residents of Tuvalu, this phenomenon has dire consequences. Scientists predict the inhabitants of the nine atolls that make up Tuvalu may become the world's first climate change refugees. Their South Pacific islands, on average only two metres above sea level, are highly vulnerable to a climate change-induced rise in ocean levels. It could wipe their country off the world's map within 50 years.

After February 16, 2005, however, when the Kyoto Protocol becomes international law, there could be a way to prevent, or more realistically delay, catastrophes such as climate change-related flooding of low island states like Tuvalu. The Clean Development Mechanism, a tool included in the Kyoto Protocol, allows the 37 industrialized countries that have ratified it to offset their climate change emissions by investing in sustainable development in the 95 developing countries that have also signed on.

The Kyoto Protocol commits industrialized nations to reduce their emissions of the gases that cause climate change (greenhouse gases or GHGs) by a level that varies by country. Canada, for instance, agreed to reduce its emissions of GHGs by six percent below 1990 levels by the Kyoto reporting period (2008 - 2012). Members of the European Union must reduce theirs by seven percent while the U.S., of course, has opted out of the initiative.

Because GHGs are largely caused by industrial activities (e.g. burning fossil fuels to produce electricity and steel or to drive cars) developing countries have historically emitted far fewer of the emissions that cause climate change. As a result, they are not required by the Kyoto Protocol to meet reduction targets during this reporting period. Furthermore, under the Clean Development Mechanism (CDM), the actions they do take to reduce their GHG emissions can be turned into "carbon credits" and sold to industrialized nations that can use them to meet their unmet targets.

The CDM may sound like snake oil. Critics argue it is a way for the industrialized world to buy its way out of an environmental quandary - and international commitments. But the people who've been exploring this tool explain that while there are problems with the concept, it holds substantial potential because the CDM has the dual purpose of reducing detrimental gas emissions while promoting sustainable development.

Roger Samson is the Executive Director of Resource Efficient Agricultural Production (REAP), a Quebec-based, not-for-profit organization that works with farmers to promote sustainable agriculture. Samson describes the potential of the CDM to reduce GHG emissions cost effectively while simultaneously providing social and environmental benefits.

In Canada, explains Samson, one way to reduce GHG emissions is to drive a car that burns less gasoline and therefore produces fewer GHGs. He compares the Toyoto Prius, a hybrid-electric car, with the same manufacturer's Camry. A Prius costs about $3,000 more than a Camry and produces about two fewer tonnes of GHGs per year. This means that someone buying a Prius would pay $300 per tonne of GHG reductions over a five-year span for the car.

Compare this, he says, to the simple Mayon Turbo Hi-Efficiency Stoves that REAP promotes in the Philippines. They cost $10 each and reduce GHG emissions because they are more efficient than traditional stoves, and because they burn surplus rice husks rather than charcoal. (Rice remains a primary stable for huge swaths of the developing world, grown across the planet.) Each $10 investment reduces, on average, a Filipino family's GHG emissions by almost half a tonne per year. The cost over five years works out to $4 per tonne.

So the Federal Government can encourage Canadians to buy a Prius, Samson explains, or they can distribute Mayon Turbo Stoves at one-seventy-fifth the cost per tonne of GHG emissions reduced. It doesn't mean Canadians shouldn't buy that hybrid car, but there is a world of solutions out there, some cheaper than others.

While many people agree that emission reductions can be obtained less expensively in developing countries, the CDM isn't as straightforward to use as this example suggests. Figuring out how it works, getting developing countries ready to use it and putting together suitable projects has not been easy. Currently, the CDM's bureaucratic nature frustrates those who recognize its potential.

To encourage use of the CDM, the Canadian International Development Agency created a Cdn$100-million, five-year fund called the Canadian Climate Change Development Fund (CCCDF). Its goals include promoting activities in the Global South that address the causes and effects of climate change while simultaneously contributing to sustainable development and poverty reduction. Most of the 36 main projects, six small projects and three multilateral funds it supported have wound down or will be finished by the summer of 2005. But Canada and its partners in these projects now have a wealth of experience working with the CDM, and several of these initiatives will continue on as a result of the seed funding they received.

Anna van der Kamp of the Delphi Group, an Ottawa-based think-tank and business consulting firm that tries to make markets more environmentally and socially sustainable, managed a Canada-Argentina Capacity Building Initiative that received just over Cdn$1.5-million from the CCCDF. "Two of the projects we worked with have the potential to become CDM projects," she explains from her office in Ottawa. These two are out of some 20 that the project invested in by sending in teams of Argentine and Canadian experts to evaluate their potential to reduce GHG emissions, look into the legal requirements to develop a CDM project, and estimate the cost of implementation.

Van der Kamp admits that only certain types of projects are appropriate for the CDM as it is currently designed, and they tend to be large industrial initiatives that often have limited sustainable development benefits. "The companies that can take on the very onerous process of developing and registering CDMs are generally large corporations," says van der Kamp. "It's almost impossible for small communities to develop projects."

This complaint about the CDM - that it doesn't work for small projects - is a common theme. Bob Patterson is the General Manager of Canadian Solar Inc., a small Calgary firm that manages Solar Energy for Rural Electrification in Western China, another project funded by the CCCDF. "I'm not really a fan of the CDM," says Patterson. He has found that for rural solar projects it really doesn't work. "It's a real process to get through." From his point of view, the mechanism won't work for solar energy unless you can bundle together numerous installations. Otherwise, the emission reductions are simply not large enough to make it cost effective to go through the process to the exacting requirements of the CDM Executive Board.

That Executive Board operates under the authority of the Conference to the Parties of the Climate Change Convention and sets the CDM rules. The outcome of the international body's efforts to ensure that the CDM projects it approves generate verifiable carbon credits is so cumbersome that at the end of 2004, only one project had been formerly registered. Recognizing that small projects were being discriminated against, the CDM Executive Board recently introduced a new category of projects called small-scale activities that has less exacting, and costly, requirements.

John Van Mossel, a senior associate with Ottawa-based Global Climate Strategies Inc. and former overseas volunteer with the Canadian development agency CUSO, points out a common misconception about the mechanism. He advises that "CDM credits should not be the reason for doing a project." Van Mossel, who worked on a CCCDF-supported project called Adapting to Climate Change in the Caribbean, says creating carbon credits that qualify under the CDM can only be one part of a project's mission. The initiative, whether it reduces GHG emissions by capturing landfill gas, encouraging reforestation or resulting in a switch to a more benign source of energy, must make economic sense without adding the income from selling carbon credits.

That's because there have only been a handful of carbon credits sold over the past few years, and they have attracted from about US$1 to $10 for each tonne of GHG emission reductions. (These carbon credits have been bought and sold outside the CDM.) This can add up for a large project, but for a small one the income generated can be dwarfed by the cost of verifying the emission reductions and getting the host government to approve the project.

Whether it's the nature of large industrial projects or unfortunate coincidence, bigger projects that have the best potential under the CDM tend to have fewer sustainable development or poverty alleviation benefits. While it's easy to see how more efficient stoves or small-scale solar installations can have immediate and direct benefits at the community level, it's harder to visualize the same for a project that reduces GHG emissions from an electrolysis process in an aluminium plant. Yet this is a project under consideration in Argentina.

The CDM rules require a project contribute to sustainable development; however, some of the projects best able to help communities have not yet been approved by the CDM Executive Board. "If investments go towards renewable forestry projects, for example," says Carmen Virasoro, who works on climate change issues in Argentina, "they certainly will promote sustainable development since most of them will take place in rural areas of the country and bring both socioeconomic and environmental advantages." Cleaner air, community-based jobs: it's the win-win scenario that many development workers hope for.

Based on her experience in Argentina, van der Kamp admits that "the social part of sustainable development is the one that is lacking so far." Fortunately, observations such as van der Kamp's are not going unnoticed, and the rules governing the CDM are not cast in stone. Or aluminium, for that matter. This allows groups to petition the CDM Executive Board to make changes.

Jodi Browne managed a sustainable transportation capacity project in Chile, another CCCDF project, on behalf of the International Institute for Sustainable Development (IISD) in Winnipeg. As a result of this initiative, the IISD suggests that the scope of the CDM should be expanded to cover policy-based activities. More specifically, they believe that if transportation is to play a role in GHG emission reductions, it would be helpful if the CDM would consider the emission reductions that would result if, for example, the Chilean government made land use policy decisions that reduced travel demand. Currently, such a policy decision does not qualify under CDM rules.

Critics of the CDM suggest that it allows industrialized nations to buy their way out of having to make what can be difficult changes at home. And although no cap has been set to ensure that industrialized countries can't acquire most of their emission reductions by using this mechanism and doing exactly what critics fear, there is a provision that domestic activities shall form a significant part of a nation's effort.

As the Kyoto Protocol comes into effect and cold Canadian winds whistle in our ears, it's clear that the CDM isn't perfect. Though it will likely be too little too late for future generations in Tuvalu, the CDM has the potential to evolve into a tool that addresses climate change and promotes sustainable development. Hopefully, this core component of the Kyoto Protocol will show results, and not just contribute to more political hot air.

Written February 2005.

Nicola Ross is a writer, biologist and environment project manager living in Ontario.