Three months on from our first report[1] about the Aguan biogas project[2] in Honduras, the difficult question of how to address human rights violations linked to CDM projects remains unresolved. However, encouraging precedents have been set by various players in the CDM. It is now up to policy makers at all levels, especially at UNFCCC but also at a European level, to provide clear guidance on this issue.

The project under question, located in the Bajo Aguan region in Honduras, is linked to deplorable human rights violations. The project is currently seeking registration under the CDM. It intends to reduce emissions by collecting biogas from methane emissions to replace the use of fossil fuels for heat generation in a mill of a palm oil plantation of Grupo Dinant’s subsidiary Exportadora del Atlantico. It is a relatively small project in the context of the CDM, forecasting an annual reduction of about 23,000 tonnes of CO₂ that could generate about US$2.8 million between 2010-2017.

DEG (Deutsche Entwicklungsgesellschaft) and EDF Trading have terminated their involvement

Further to the findings of a recent report resulting from a fact-finding mission of several international human rights groups led by FIAN, the German public development bank DEG (Deutsche Entwicklungsgesellschaft) declared that it will not pay out an already approved loan to Grupo Dinant, the value of which Dinant owner Miguel Facussé reportedly put at USD$20 million.

In addition, EDF Trading which is a wholly-owned subsidiary of Electricité de France SA’s and one of the biggest CDM investors, has also pulled out of its contract to buy carbon credits from the project.

Clear response by the UK government still outstanding

In a letter dated June 2009, the United Kingdom’s CDM authority confirmed its voluntary participation in the Aguan project for EDF Trading. This step is required under CDM rules in order for a CDM project to be able to sell its credits once registered. In March 2011, after the human rights abuse concerns had emerged, 76 organisations sent an Open Letter to the UK Government, urging them to withdraw their authorisation. In a response received on 14 April 2011, Chris Huhne, Secretary of State for Energy and Climate Change, rejected the demands to withdraw project authorisation based on the information available. But following EDF Trading´s decision to terminate its involvement, a representative of the UK government responded to a Parliamentary question on 10 May 2011 that “the UK LoA was valid for use only by EDF, the termination of their involvement in the project effectively renders the letter defunct”.

Given these two different UK Government responses, it is unclear how to interpret the UK government position. CDM Watch and human rights groups very much welcome the moves from the two major funders (DEG and EDF Trading) to distance themselves from the project. The UK government must now also send a clear message distancing itself from this project and its human rights abuses.

CDM Executive Board to discuss Aguan

CDM Executive Board members have postponed the registration of the Aguan project and will discuss it at their 62^nd meeting in July 2011. The CDM Executive Board has stated that they have no mandate to investigate human rights abuses and that any matters related to the sustainable development of the project (which is one of the two official key requirements of the CDM) are determined by the government that hosts the project. In this case, the de facto government of Honduras.

However the CDM rules require a minimum level of public participation which includes a local stakeholder consultation that has to be held in the vicinities of the project before the project can enter the validation stage. The rules require that the CDM project auditor (DOE) determines whether “comments by local stakeholders that can reasonably be considered relevant for the proposed CDM project activity have been invited”.

The Aguan project’s validation report confirms that local stakeholder consultation has been adequately performed according to the CDM requirements. However, the continued heavy local resistance against the project suggests this is not the case.

CDM Watch calls on the CDM Executive Board to respond to a letter it sent to the CDM Executive Board on 4 January 2011 and to make sure that “local stakeholders that can reasonably be considered relevant for the proposed CDM project activity” have been asked to make their views heard.

UNFCCC: Overhaul of Sustainable Development Criteria

Current CDM rules rely on the CDM host country government to assess whether a project contributes to sustainable development. This places the assessment of sustainable development in the hands of governments that have an interest in seeing more investment in their respective countries. To date, no CDM project has ever been rejected on the basis that it did not contribute to sustainable development.

This issue needs to be addressed at the upcoming UNFCC meetings with a clear decision at the next climate change conference in Durban (COP-17). In a recent press release, environment and human rights groups have called on the CDM Executive Board to reassess its mandate and find ways of preventing projects that are linked to violations of international laws from registering under the CDM. A stringent requirement for CDM auditors to check conformity with international human rights laws when validating projects would be an option. Also, the detection of non-conformities during the monitoring period, e.g. incidents that involve human rights violations, should lead to immediate suspension of issuance and to the project being stripped of eligibility for the CDM.

European Union: Offset Quality Criteria

As the biggest buyer of CDM carbon credits, the European Union chooses which carbon credits are allowed in the EU Emissions Trading Scheme[3] (EU ETS). The EU has made clear that ensuring quality is a high priority when it banned the use of industrial gas credits in the EU Emissions Trading Scheme as of 2013.

These are not the only restrictions that have been put in place. For example the EU ETS Directive requires that large hydro CDM projects must fulfill certain criteria according to the World Commission of Dams to be eligible in the EU ETS.

EU ETS Directive, Article 11b (paragraph 6)

“In the case of hydroelectric power production project activities with a generating capacity exceeding 20 MW, Member States shall, when approving such project activities, ensure that relevant international criteria and guidelines, including those contained in the World Commission on Dams November 2000 Report ‘Dams and Development — A New Framework for Decision-Making’, will be respected during the development of such project activities.”

The EU ETS Directive Article 11a (paragraph 9) also foresees that from 1 January 2013, measures may be applied to further restrict the use of credits from specific project types. The EU has recently commissioned a report to assess the integrity of different types of CDM projects.

In addition, EU Member States can at any time put in place additional safeguards for eligibility in their own national registries, as countries such as Belgium and Denmark have done.

Putting in place safeguards against human rights abuses seems a logical next step for the EU and its member states, given that it is in the interest of EU investor to be protected from buying carbon credits from projects that are faced with human rights abuse allegations.