Sustainable hydropower and carbon finance

The Clean Development Mechanism (CDM) has helped finance more than 2000 hydropower projects, representing the largest source of OECD bilateral funding for hydropower. Europe, through its European Union Emissions Trading Scheme, has been the major supporter. However, environment and sustainability regulations intending to ensure ‘respect’ for the World Commission on Dams’ guidelines are falling short, prompting calls to use the industry-led Hydropower Sustainability Assessment Protocol (HSAP). This Issue paper explores CDM project data and finds that, under a healthy carbon price, the cost of the HSAP would not be a barrier to accessing carbon finance, and could even strengthen the carbon market.