Emissions trading could have a positive impact on the hydroelectric industry, explains Neil Ford

Hydroelectric schemes are often subject to fierce criticism from environmentalists because of their impact on both human settlements and river basin ecology. Yet the sector is increasingly finding itself on the other side of the argument in the debate over reducing carbon dioxide emissions. Despite some controversy over the level of emissions produced by water reservoirs, hydroelectric projects certainly fall into the low emissions category and should find favour in a variety of ways as emissions trading begins to take off.

A series of recent indications point to more rapid global warming. Research on the Greenland ice sheet indicates that it is melting ten times quicker than believed even five years ago, while according to the recent Arctic Climate Impact Assessment report, the permafrost zone is retreating in North America and so presumably also in other Arctic areas, while the extent of both permanent and seasonal sea ice is reducing. Apart from contributing to rising sea levels, this also releases carbon and methane that is currently sequestered in the permafrost. Moreover, the increase in the amount of carbon dioxide in the atmosphere appears to be speeding up according to measurements taken by the US National Oceanic and Atmospheric Administration.

The Kyoto Protocol

The Kyoto protocol came into force in February 2005 and the agreement is of great relevance to the hydro sector because it encourages even moderate reductions in emissions. Most governments seek to secure a basket of electricity supplies, with thermal, hydroelectric, possibly nuclear and now increasingly renewable energy each playing a role. Increasingly strenuous efforts by many governments to cut carbon emissions are creating greater enthusiasm for hydroelectric and renewable energy projects.

The US’ failure to ratify the protocol cast some doubt on Kyoto’s long term success but Russia’s decision to sign up in September 2004 seems to have injected fresh impetus into the arrangement. One reason for the Russian policy appears to have been the rapid fall in Russian industrial capacity and energy production during the first half of the 1990s. The industrialised nations of the world were given the overall target of reducing emissions to 5% of 1990 levels by 2008-12, and Russia looks like easily achieving this, although most other industrialised countries look like actually increasing their emissions over the same period.

Whatever the motivation behind the Russian decision, it now seems probable that the protocol will become binding in international law, a process which required countries responsible for at least 55% of 1990 GHG emissions to ratify the agreement. As a result, enthusiasm for renewable and hydroelectric schemes is likely to increase, while emissions trading is likely to become more popular.


Emissions trading enables countries to trade in allocations of GHG emissions, so that mainly poorer countries in the developing world can sell their unused allocations to countries that exceed their quota. States with substantial hydroelectric capacity may also generate unused credits for sale because of the low level of emissions produced by hydro schemes.

Domestic trading is also set to take off. Companies such as BC Hydro in Canada have calculated that they will increase their own GHG emissions over the next few years and so hope to participate in projects elsewhere in the world where they can reduce emissions. The company’s project manager Tim Lesiuk said: ‘It’s not so much where the reduction happens, just that it does.’ This process is known as offsetting and could lead to investment in hydro schemes elsewhere in the world.

Emissions trading takes various forms. The first phase of the European Emissions Trading Scheme (ETS) was brought into operation at the start of 2005, covering carbon dioxide emissions from power plants and major factories. The other five GHGs (methane, nitrous oxide, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride) will be included over time, while the EU also hopes to include transport companies at some stage.

Each plant or factory is allocated a carbon allowance and must purchase credits from other qualifying organisations if they exceed their own limits in order to avoid fines. The value of credits will rise and fall on the open market and they are being traded at five exchanges.

Trading systems are not limited to the West. Egypt hopes to introduce a mandated market share (MMS) that would require the country’s seven electricity suppliers to source a minimum proportion of their requirements from renewable energy sources, including hydro schemes. The government has applied to the World Bank’s Global Environment Facility (GEF) for a grant to finance the scheme. Elsewhere, even governments that are somewhat sceptical about global warming are introducing their own systems. Australia, for example, has introduced the Mandatory Renewable Energy Target (MRET), which requires energy suppliers to trade in renewable energy certificates.

Organisations such as the United Nations Environment Programme and the European Parliament have proposed eventually allocating an equal amount of GHG emission to every person in the world, based upon the total figure that the scientific community believes the atmosphere can sustain. However, such a policy is certain to be resisted by many industrialised nations, and particularly by the US, because they would be forced to cut emissions by at least 90%.

However, most climatologists agree that the current targeted cuts in emissions in industrialised states will have to be intensified over the coming decades. A global cut of around 60% is often quoted as the minimum level required over the next 30 years. The transport and construction industries would also have to make a major contribution to achieve this, but as far as the energy sector is concerned, this would probably entail a major switch away from coal and oil fired plants towards renewable and hydroelectric energy.

Emissions from hydro projects

As might be expected, the hydroelectric sector is keen to point out its role in minimising carbon emissions. The executive director of the Canadian Hydropower Association, Pierre Fortin, said: ‘One way to reduce GHG emissions while continuing to supply the growing energy demand is to increase the development of clean, renewable energy sources such as hydro power.’ However, estimates of carbon dioxide emissions from different forms of electricity generation vary widely.

This is particularly true when it comes to hydroelectric power plants because of carbon emissions from vegetative matter. In 2000, the well-publicised World Commission on dams (WCD) report concluded that: ‘Greenhouse gases are emitted for decades from all 30 dam reservoirs in the boreal and tropic regions for which measurements have been made.’ It continued, ‘some values for gross emissions are extremely low, and may be ten times less than the thermal option. Yet in some cases the gross emissions can be considerable.’

Flooded biomass aside, the report found that: ‘Carbon is flowing into the reservoir from the entire basin upstream, and other development and resource management activities in the basin can increase or decrease future carbon inputs to the reservoir.’ To what extent a dam project enables or speeds up the release of carbon from rotting vegetation is difficult to calculate and the WCD report appealed for the ‘explicit assessment of future net GHG emissions of a project’ through its full life cycle.

However, some carbon would surely be released with or without the dam – the same cannot be said for the coal used in power generation.

It is difficult to make any generalisations because, as the WCD report points out, the rate of emission seems to vary massively. The WCD found that reservoirs in more temperate climates tend to produce very low emissions, yet in the ten Brazilian reservoirs considered in the report, emission rates varied by a factor of 500. Moreover, reservoirs can act as carbon sinks by trapping carbon underwater that would otherwise have been released, so studies of reservoir emissions must consider net rather than gross emissions.

On balance, it seems clear that more research is required to explain such wide variations, but it also seems clear that many hydro schemes should be classified as low emission as they generally produce a far lower level of emissions that thermal plants. The figures given in Table 1 are generally par for the course and are provided by the Japanese Agency for Natural Resources and Energy, which is based in a country with limited hydroelectric generating capacity and therefore has little incentive to take a biased view of the pros and cons of hydro schemes. The agency insists that ‘hydroelectric power is a renewable as well as an environmentally friendly energy source with less carbon dioxide emissions compared to other power sources, having a great importance for controlling global warming.’

According to the agency’s figures, all forms of nuclear, hydroelectric and renewable power, including wind, geothermal and photovoltaic technology, produce at most 11% of the carbon emissions of the most effective thermal power plants at minimising emissions.

Many countries have opted away from coal and oil fired plants in favour of the use of liquefied natural gas (LNG) as a feedstock and while this makes a major difference in terms of many forms of atmospheric pollution, LNG fired plants still produce high levels of carbon emissions. As Table 1 demonstrates, the main forms of power generation fall into two distinct camps: high carbon producers and low carbon producers. Such figures are based on total emissions during the full lifecycle of a project, including construction and dismantling costs, although it should be emphasised that these are average figures and results vary from project to project.

Smaller scale hydro schemes that provoke far less controversy regarding flooding could prove particularly popular. The view of the UK’s Department of Trade on hydro emissions is that they ‘are not a problem on small scale schemes. In larger schemes which have involved flooding, some carbon dioxide emissions may come from decaying vegetation in the short term.’

The role of hydro

However, if it is accepted that few governments will seek to phase out thermal plants entirely, at least within the foreseeable future, it can be assumed that most will attempt to encourage a basket of generating stock that collectively produces lower carbon emissions. For some, this involves introducing lower emission technology at coal fired plants; for others, particularly in Western Europe, it focuses on increasing the proportion of electricity generated by renewable sources to 20% or even higher.

Yet for some states, promoting hydroelectric plants may be part of their strategy. Improvements can be made to existing facilities in order to increase generating capacity, new hydro schemes could be developed in some instances, while other governments may seek to purchase credits from countries with plentiful hydroelectric generating capacity.

Egypt certainly falls in the first category. As part of a more general transformation of the power sector that has included the construction of a string of new gas fired plants, the government has sought to greatly increase the country’s level of low emission generating capacity. The region’s largest wind farm is under development at Zafarana, while solar projects are also being pursued. However, the government has also awarded a contract to Power Machines Group of Russia to modernise the twelve turbines on the Aswan High dam project to increase generating capacity from 2.1GW to 2.4GW. The Egyptian government is also considering supporting the development of a 340MW reserve hydroelectric scheme that would involve passing water through a manmade channel from the Mediterranean to the Qattara Depression, which lies below sea level, in order to power turbines.

Apart from replacing high carbon emission sources of energy, hydro projects could also make a major contribution to satisfying growth in demand over the next few decades. Hydrogen and nuclear fusion technologies are unlikely to be brought on stream on a commercial basis for a long time to come, yet the International Energy Agency (IEA) estimates that global energy demand will be 60% higher in 2030 than in 2002, so plans for a great deal of new generating capacity must be drawn up in the near future.

Asian concerns

While concern over carbon emissions and the Kyoto protocol may not be the main incentives behind the Indian government’s determination to push ahead with the construction of a string of new hydroelectric power plants, such factors will certainly feature strongly in the debate over the development of each project.

Plans for several hydro schemes in the country have previously been undermined because of environmental considerations, but the government may now feel more justified in voicing its concerns over global warming in an effort to overcome opposition.

One of the US’ main objections to the Kyoto protocol is the fact that developing countries are not required to cut emissions. By far the two most populous countries in the world, China and India, have rapidly growing economies, rising energy needs and rely heavily on coal fired power production. The two Asian giants are becoming responsible for an increasing share of global carbon emissions but under the protocol as it stands at present they are merely required to monitor and report emissions, not to cut them.

However, the more countries that are brought on board the better. The Indian and Chinese governments are both concerned about urban pollution levels and both have recently begun to tackle the problem by introducing stricter standards for vehicles, industry and power plants. While concern over sulphur emissions is not directly connected to acting to minimise carbon emissions it does at least indicate growing interest in and awareness of environmental matters and it is possible that both China and India could be brought on board in the years to come.


The impact of both the Kyoto protocol and emissions trading are as unpredictable as the effect of global warming itself. The system of emissions trading will require a great deal of development and adjustment, partly because of the amount of uncertainty that surrounds global warming. In particular, how can the relevant authorities determine how many credits to award a hydro scheme when it is so difficult to assess the amount of additional GHGs that are produced over the lifetime of such a project?

Yet it seems certain that hydroelectric plants will not use more than a fraction of their allocated credits and so operating companies will be able to make money through trading. Increased concern over climate change may also encourage some governments to invest in new water storage capacity. After a long period of criticism because of the environmental and human cost of dam projects, hydroelectric schemes could be becoming more popular, both with governments and investors, and possibly even with environmentalists.