MAC: Mines and Communities

South African coal-fired plant bids for "clean development" grants

Published by MAC on 2010-07-17
Source: New York Times, The Guardian

The World Bank's decision to bankroll a huge coal-fired power plant in South Africa has created uproar in - and outside - the country. Now, the company behind it, Eskom, is bidding for UN carbon credits to be provided under the UN's so-called (and in many peoples view fraudulent) Clean Development Mechanism. See:

This is the second example over the past two months of the World Bank underwriting a potentially highly damaging mine-related project. Just last week a raft of organisations condemned the Bank's political risk insurance arm, MIGA, for backing an Indonesia mine in a biologically sensitive area. See:

Although the South African plant is being equipped with "cleaner super-critical technology" there's no guarantee it will also benefit from carbon capture and storage - itself a highly dubious and largely untested technical fix.

The World Bank's project document for the plant itself admits that - whatever attempts are made to reduce global greenhouse gas emissions from the plant (and not to mention those caused by mining the coal in the first place) - the majority of gases will still escape to the atmosphere.

New South African coal plant seeks emission credits for 'cleaner' coal function

New York Times

2 June 2010

A South African utility company that recently won a $3.75 billion World Bank loan to build the world's fourth-largest coal-fired power plant now is seeking international carbon credits for making the plant more efficient. Eskom Holdings Ltd. has confirmed it is conducting a feasibility study to see if the 4,800-megawatt Medupi Power Station might be eligible for credits under the Kyoto Protocol's Clean Development Mechanism. The plant will be South Africa's first power station in more than 15 years and the first to use supercritical technology allowing it operate with greater efficiency. "When you look at CDM, you look at the baseline of a country. South Africa is currently based on subcritical coal," Mandy Rambharos, Eskom's climate change and sustainability manager, told ClimateWire. "This is supercritical. It is cleaner."

If Eskom ultimately wins CDM approval - and potentially millions of dollars - for avoiding greenhouse gas emissions by using more efficient technology, it won't be the first company to do so.

But the move is provoking fury from environmentalists who have fought the plant. They insist Eskom should not be allowed to receive both World Bank aid and carbon credits to build a plant that will emit 25 million tons of carbon dioxide into the atmosphere annually.

"If there were a World Cup for chutzpah, Eskom would be the bettors' choice to win," said Jennifer Haverkamp, managing director for international climate policy at the Environmental Defense Fund. "First they go after scarce international public funds, now CDM credits.

The Medupi Plant is becoming a poster child for how far we are from the road to a sustainable, climate-stable path for development." Jake Schmidt, international policy director of the Natural Resources Defense Council (NRDC), accused the World Bank of failing to look into the project thoroughly enough before approving the loan.

'Trying to get paid twice'?

"Someone at the World Bank dropped the ball on this important issue related to the financial viability of this loan, or Eskom is trying to get paid twice," he said. "Either way, something continues to be fishy about this project and how the World Bank handled it." The fight surrounding the Medupi loan was one of the most vicious in recent World Bank history. Environmental groups insisted the bank had an obligation to stop using limited public resources to fuel coal projects, particularly as the institution sought a greater role in relieving the impacts of climate change. The World Bank maintained that its top obligation was reducing poverty and enhancing energy access - even if that sometimes means funding fossil fuel.

In the ensuing lobbying blitz that spanned several continents, South African Finance Minister Pravin Gordhan argued that in order for the country to sustain growth rates and create jobs, "we have no choice but to build new generating capacity - relying on what, for now, remains our most abundant and affordable energy source: coal."

Developing countries sided with South Africa, while industrialized nations engaged in a protracted debate over reconciling their governments' calls to solve climate change with funding a new coal plant.

Ultimately, the United States and three other countries abstained as other World Bank board members approved the loan. A U.S. Treasury spokeswoman declined this week to comment on Eskom's latest move.

But World Bank spokesman Roger Morier allowed in a statement that the CDM "could be one of the options" for Eskom. "The Medupi power plant will be the first in Africa to use cleaner super-critical technology, making it one of the most efficient large-scale power plants on the continent. World Bank financing for Medupi and the wind/solar components, however, only meets a small part of Eskom's overall financing needs," Morier said. "As Eskom looks for additional financing for its critical energy program, the CDM could be one of options it considers," he said, adding,

"Questions about the eligibility of a future Eskom proposal under the CDM are most appropriately addressed by the CDM and Eskom."

As the first power station in Africa to use cleaner "supercritical" technology, the Medupi plant will reduce emissions by 5 percent. It also is fitted for carbon capture and storage (CCS) technology if and when it becomes available, though the World Bank's independent report said recently that it is "hard to tell" whether CCS will ever be a realistic option at Medupi.

According to the World Bank, $3.05 billion of the total loan will go toward completing the Medupi coal plant. Another $260 million will go toward piloting a utility-scale 100-megawatt wind power project in Sere and a 100-megawatt concentrated solar plant with storage in Upington.

South Africa, meanwhile, vowed to use $1.25 billion of a larger World Bank loan package to reduce emissions at power plants. It also assured countries it stands by a commitment its leaders made at the Copenhagen climate summit last year to peak emissions between 2020 and 2025, plateau and then begin to actually cut carbon output. In describing Eskom's current efforts toward CDM approval, Rambharos said the company is conducting a routine feasibility study. Eskom, she said, assesses all projects to see if they may meet criteria for carbon credits.

Part of a long-term strategy

She said the opposition from environmental organizations over the plant won't affect the company's decision about whether or not to go forward. "There normally is outcry from the NGOs [nongovernmental organizations] about CDM in the country," Rambharos said, adding that Eskom started to look at the potential for earning carbon credits "long before we asked for World Bank funding." John Romankiewicz, a CDM expert with New Energy Finance, said he expects that if Eskom is investing the money and effort for a feasibility study, the company likely will apply for CDM approval.

And, he said, there is an already charted-out methodology for companies to win carbon credits for efficient fossil fuel plants.

Of the two dozen "new grid-connected fossil fuel power plants using a less GHG-intensive technology" in the CDM pipeline, one already has been approved and two others are in the final stages.

The approved project in India is a 1,320 MW coal-fired power plant at Mundra, Gujarat, that uses supercritical technology. According to the project documents, the efficiencies are expected to reduce emissions 40 percent compared to the subcritical coal plants currently operating in the country. Some U.S. environmental groups that have long opposed the CDM cited Eskom's move as further proof of the program's problems.

Karen Orenstein, spokeswoman for Friends of the Earth, called it "beyond absurd" that the coal plant might be considered for carbon credits, and called on Congress to keep offsets out of U.S. climate legislation.

"This shows the CDM can actually increase pollution rather than offset it," she said. Romankiewcz said questions about additionality - a requirement under the CDM that emissions are reduced below what would have occurred in the absence of carbon credits - are valid and remain a pressing issue for many projects before the CDM board. But, he said, simply the fact that the Medupi plant received World Bank assistance should not rule out its chances for getting credits. "All the projects have been done this way. They get a loan from a bank, whether it's the World Bank or not," Romankiewcz said.

Clean Development Mechanism to use European carbon offset credits to subsidise 20 ‘efficient' coal plants.

By John Vidal

The Guardian

14 July 2010

The United Nations is set to pay billions of pounds of public money to giant energy companies to build 20 heavily polluting coal-fired power plants on the basis that they will emit less carbon dioxide than older ones.

Data seen by the Guardian shows that 12 companies have applied to the UN for hundreds of millions of emission reduction credits to subsidise "efficient" coal-fired power stations in China and India. Many of the plants would be paid for with carbon offsets bought by European companies in lieu of cutting their own emissions.

If, as expected, the power company applications are approved by the U.N. Framework Convention on Climate Change (UNFCCC), they will earn around £3.5bn at current carbon market prices. This would make the U.N. body set up to promote clean energy and reduce global climate emissions one of the world's largest provider of funds for new coal burning.

The rush by companies to take advantage of the U.N.'s Clean Development Mechanism (CDM) subsidies follows the successful application for credits by the Indian Adani coal group for two large power stations at Mundra in Gujarat, India. Adani will earn around £25m a year for the lifetime of its power stations in return for using "super-critical" technology, which burns the coal at lower temperatures and emits up to 30 per cent less carbon dioxide than conventional power plants.

An Adani company spokesman said that its application had been approved by the U.N. only after a "complex and gruelling" evaluation process by national government, independent inspectors and a U.N. committee.

Others companies are now examining if they qualify. Eskom, the giant South African coal mining company controversially loaned £3.75bn by the World Bank in April to build what one of the largest coal-fired power stations in the world, has said it will apply for emission reduction credits. If built, the Medupi plant will emit nearly 25m tonnes of CO2 a year, more than the national output of 115 individual countries. If Medupi is allowed to sell carbon offsets to rich countries, it will be able to discount 6.5m tonnes of CO2 every year for 10 years, earning it tens of millions of pounds. It would be able offset all the emissions from a major new coal power station in a rich country, effectively allowing governments to meet carbon-reduction targets by subsidising a plant in South Africa that would have been built anyway.

Eva Filzmoser, director of CDM-watch said: "It's completely unacceptable for the U.N. to keep issuing an inflated number of bogus credits that create vast profits for carbon trading groups and chemical companies. If the U.N. wishes to avoid irreparable damage to its reputation and show that is truly serious about climate mitigation, it must put the current methodology on hold with immediate effect and halt issuing credits until the methodology is revised." The news comes at the same time as a report into the EU Emissions Trading Scheme (ETS) by the campaign group Sandbag. In 2009, European companies bought EURO860m of international offsets to comply with caps imposed by the ETS, but the report found that companies were directly subsidising competing industries in developing countries. Sandbag says this undermines claims by these companies that caps on their emissions force business to countries outside the EU and so lead to "carbon leakage". The largest purchaser of offsets, for example - Salzgitter's Glock Satzgitter steel production plant - bought 40,000 offsets from an Indian steel project.

"Frustratingly, it seems that EU installations seem to have a greater incentive to fund abatement projects amongst their competitors rather than invest in these improvements themselves," said Sandbag founder and director, Bryony Worthington, "While it is perfectly legal and on one level economically rational to do this, it begs the question of why companies would choose to send a direct subsidy to their international competitors if fears of carbon leakage were so pronounced."

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