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North Korea: Witness to Transformation

North Korea and the Clean Development Mechanism

by | February 4th, 2014 | 07:00 am
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We missed an interesting post by Benjamin Habib on the East Asia Forum last November on North Korea’s participation in the Framework Convention on Climate Change. North Korea ratified the Convention in 1994 and the Kyoto Protocol in 2005. Habib notes that North Korea has expressed an interest in “capacity building,” a euphemism for aid, but it now also has six projects under the Clean Development Mechanism (CDM).

The CDM is a market-based mechanism to assist the advanced industrial states (Annex 1 countries) in meeting their emission limitation and reduction commitments under the treaty. The CDM allows countries—and firms within them—to meet commitments by buying Certified Emission Reduction (CER) units, which in turn are generated by CDM emission reduction projects in developing countries (non-Annex 1 countries, which do not have obligations under the Convention). The projects and the issue of CERs arising out of them are subject to approval and monitoring to ensure not only that they are real but that they are  “additional”: that they do not reflect projects that would have taken place in any case. Given the difficulties North Korea has had with other types of monitoring, it will be interesting to see how it fares in meeting not only initial project requirements, but ongoing ones as well.

Habib’s post links through to two spreadsheets, one on the number of CDM projects (.xls download), the other on total carbon credits (.xls download). The spreadsheet shows that North Korea has six projects, all of them registered in 2012; Curtis Melvin at North Korea Economy Watch has been on the story and provides links to details. All are small hydro projects.

The counterparty on these projects is Topič Energo, a Czech company. So who is Topič Energo, anyway? It turns out that Bloomberg tracked this one down last year. Topič Energo is essentially a broker; its owner, Miroslav Blasek, lined up the deals with North Korea, noting in the Bloomberg interview that the North Koreans “immediately grasped that this is a way to make money.” Ironically, the firm that needed the offset was an unnamed Chinese company with production in Europe.

The Korean projects are listed as generating about 200,000 CER’s. Emission prices have been falling steadily, and Habib estimates the annual return at only $1 million. But for a government strapped for cash, we can imagine this as an appealing way to turn corvee labor around small dams into hard currency. Who knows? In addition to their small carbon reduction function, such projects might contribute to mitigating the country’s myriad energy problems as well; for an overview, see a comprehensive new report of possible energy futures for the DPRK by David von Hippell and Peter Hayes at Nautilus.

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