Clean Development Mechanism

Transcription

1 Climate Change Policy 4118 ENV Clean Development Mechanism Assignment 1 Karolina Szenczi 9/2/2013 s

2 Table of Contents Table of Figures... 1 List of Abbreviations... 2 Introduction... 3 The CDM in relation to the Kyoto Protocol and the UNFCCC... 3 Main money instruments used by the CDM... 4 The Governance of CDM... 4 The two types of countries involved in the CDM... 5 Information instruments used to monitor and report on the CDM... 6 Is CDM a well-designed policy in terms of appropriateness, efficiency and effectiveness?... 6 Conclusion... 7 References... 8 Table of Figures Figure 1: CDM Process (Gilman 2008)... 3 Figure 2: Governance of CDM (UNFCCC 2013)... 4 Figure 3: Parties to UNFCCC (Efficient Carbon 2010) P a g e

3 List of Abbreviations A/R WG - Afforestation and Reforestation Working Group CCS WG - Carbon Dioxide Capture and Storage Working Group CDM Clean Development Mechanism CDM AP - Accreditation Panel CDM EB Clean Development Mechanism Executive Board CER Certified Emission Reduction Credit CMP Parties serving as the Meeting of the Parties to the Kyoto Protocol ET International Emission Trading GHG Greenhouse Gas JI Joint Implementation LCD Least Developed Countries Meth Panel - Methodologies Panel OECD - Organization for Economic Cooperation and Development RIT - Registration and Insurance Team SIDS - Small Island Developing Sates SSC WG - Small-Scale Working Group UNFCCC - United Nations Framework Convention on Climate Change 2 P a g e

4 Introduction Clean Development Mechanism The Clean Development Mechanism (CDM) is a market-based arrangement defined by the Kyoto Protocol under the United Nations Framework Convention on Climate Change (UNFCCC), design to reduce greenhouse gas (GHG) emissions globally. CDM enables wealthier nations -Annex I countries- to earn certified emission reduction (CER) credits by investing in projects in developing countries -Non-Annex I countries-. This paper will analyse the CDM and its strength and weaknesses. Firstly, the CDM and its relation to the Kyoto Protocol and the UNFCCC will be defined followed by the outline of the main money instruments used by the mechanism. After that, the governance of the CDM will be introduced subsequently with the description of the two main types of countries involved and their roles. Afterwards, various information instruments used to monitor and report in the CDM will be discussed. The advantages and disadvantages of the mechanism will be highlighted, completed with an overall conclusion of the main findings. The CDM in relation to the Kyoto Protocol and the UNFCCC The CDM is an arrangement defined by the Kyoto Protocol to the UNFCCC, designed to fight greenhouse warming (Gilman 2008). In 1992, countries joined an international treaty the UNFCCC to cooperatively consider options to limit average global temperature increases and resulting climate change as well as to cope with already inevitable impacts (UNFCCC Figure 1: CDM Process (Gilman 2008) 2013). There are 195 parties to the UNFCCC and 192 parties to the Kyoto Protocol (UNFCCC 2013). The Kyoto protocol was signed in 11 December 1997 and in force since 16 February 2005, sets binding targets for all industrialized nations to reduce GHG emissions (Freestone 2011). Moreover, the Kyoto Protocol introduces three flexibility mechanisms - the CDM, the Joint Implementation (JI) and the International Emission Trading (ET) for financing emission reduction abroad (Freestone 2011). CDM allows emission-reduction projects in wealthier countries to earn certified emission reduction (CER) credits towards 3 P a g e

5 their GHG reduction goals by financing projects in less technologically and industrially advanced developing countries, that will reduce GHG emissions overall (Gilman 2008). Figure 1 on page 2, briefly illustrates the CDM process, described above. CDM is designed to act as an investment mechanism that enables both private and public organizations from countries with emission reduction targets - called Annex I countries to invest in emission reduction projects found in developing countries (Non-Annex I) and in so doing earning CER credits, that can be used as currency or sold on the open market to other parties (Anonymous 2010). Main money instruments used by the CDM CDM allows emission-reduction projects in wealthier countries to receive CER credits, which can be traded and sold, and used by investor countries while fostering sustainable development in the host country (Rahman et al 2010). Each CER unit is equivalent to one tonne of CO2 (UNFCCC 2013). CDM is also a main income for the UNFCCC Adaptation Fund, by a 2 % levy on CERs issued (UNFCCC 2013). The CDM and emission trading provisions of the Kyoto Protocol designed to help GHG emission reduction at lower cost globally (Chadwick 2006). However, to ensure reliability, the reductions must pass through a series of cautious approval, monitoring and evaluation procedures that create additional transaction costs (Chadwick 2006). Moreover, CDM s additional conditions create limits that magnify these transaction costs (Chadwick 2006). Chadwick (2006) highlights if these transaction costs are significantly high it can challenge the success of the CDM. The Governance of CDM The UNFCCC (2013) outlines that, the CDM Executive Board (CDM EB) controls the Kyoto protocol s CDM under the authority and direction of the Conference of the Parties serving as the Figure 2: Governance of CDM (UNFCCC 2013) Meeting of the Parties to the Kyoto Protocol (CMP) as illustrated on Figure 2. Pedersen (2008) highlights that projects have to register with the CDM EB and fulfil the conditions 4 P a g e

6 specified, like real, measurable and long term benefits related to mitigation of climate change. Moreover, CDM EB is the approval body at the UNFCCC (Pedersen 2008). Under the CDM EB a Designated Operational Entity (DOE) private certifiers who validate projects and verify emission reductions - and a Designated National Authority (DNA) - authorities who approve projects and facilitate participation accredited authority to act under the CDM (UNFCCC 2013). The DOE is either a domestic legal entity or an international organization accredited and designated by the CDM EB (UNFCCC 2013). The CDM EB is supported by the Methodologies Panel (Meth Panel), the Accreditation Panel (CDM AP), the Registration and Insurance Team (RIT), the Small-Scale Working Group (SSC WG), the Afforestation and Reforestation Working Group (A/R WG) and the Carbon Dioxide Capture and Storage Working Group (CCS WG) as outlined in Figure 2 on page 3. These groups have been established by the CDM EB to assist in the performance of its functions (UNFCCC 2013). Furthermore, the CDM EB may draw on necessary expertise including from the UNFCCC roster of specialists (UNFCCC 2013). The two types of countries involved in the CDM The two types of countries involved in the CDM are called Annex I and Non- Annex I countries. The two main objectives of the CDM are one, to assist Annex I Countries to meet their GHG emissions reduction objective, and two, to encourage sustainable development in the Non-Annex I Countries where the projects are implemented (Belvin 2011). Non- Figure 3: Parties to UNFCCC (Efficient Carbon 2010) Annex countries vary from fast growing economies to Least Developed Countries (LDCs) and Small Island Developing Sates (SIDS) with more fragile economies and infrastructure (Belvin 2011). CDM can be seen as a tool to limit climate change effects and improve the condition in developing countries, through capacity building, infrastructure and technology transfer (Belvin 2011). CDM enables Annex I countries with GHG reduction commitment to invest in projects that reduce emissions in Non-Annex I countries as an alternative to more expensive emission reductions in their own countries (Quian & Bin 2011). 5 P a g e

7 Information instruments used to monitor and report on the CDM The CDM Glossary of terms define monitoring as collecting and archiving all relevant data necessary for determining the baseline, measuring anthropogenic emissions by sources of GHGs within the project boundary, and leakage, as applicable (Baker & McKenzie 2013). In other words, monitoring refers to the measurement and analysis of GHG emissions from a project within its boundary to define the volume of emission reductions that are applicable to the project (Baker & McKenzie 2013). Baker & McKenzie (2013) clearly states that monitoring is an important pre-requisite to verification and certification. Methodology used for reporting in CDM is comprehensive and uses a variety of techniques from automated numerical analysis to manual review and verification of questionable data (Cassel 2008). Cassel (2008) emphasises that using correct methodologies, monitoring equipment and protocols are crucial for successful CDM projects. Information instruments used to monitor and report on the CDM include Project Design Document (PDD), quality assurance (QA) and quality control (QC) procedures and other techniques required by individual projects. Approved monitoring methodologies combined with quality equipment, good project QA/QC and management can provide accurate, transparent and auditable data (Cassel 2008). Necessary equipment and technology is transferable to developing countries (Cassel 2008). Is CDM a well-designed policy in terms of appropriateness, efficiency and effectiveness? Every policy has its advantages and disadvantages. CDM is yet to be a well-designed policy as there are various parts of the mechanism lack of clarity and certainty. The CDM Policy Dialogue (2012) research paper highlights that there is a clear lack of accountability within the structures of the CDM governing body, including the lack of a clear definition of the roles of different groups and their shared accountability. Increased publicity would accompaniment measures and strengthens accountability within the CDM (CDM Policy Dialogue 2012). Automation of the CDM operation would greatly improve the efficiency of the performance, validation and registration procedures, by noticeably reducing the incidence of errors and limit duplication of data (CDM Policy Dialogue 2012). Kolk & Mulder (2011) suggests that Regulatory uncertainty has been inherent in climate change policies due to the absence of a successor to the Kyoto Protocol. Many companies have asked for a stable, more certain policy framework, however beside this disadvantage, governing uncertainty may 6 P a g e

8 benefit some companies if the find the opportunities of flux early (Kolk & Mulder 2011). Karp & Liu (2000) states that transaction costs associated with the CDM are high and unavoidable, therefore in some cases can discourage trading between OECD and developing country. Prouty (2009) argues that CDM works like any market, money oriented, hence developing nations can be victimised by the market-based decisions of the developed countries. Furthermore, CDM is a competitive mechanism that naturally favours moredeveloped developing nations that have already begun industrialization and have a strong financial and governmental institution (Prouty 2009). In addition, the Kyoto protocol requires environmental specifics, as each project must reduce GHG emissions below the level that would be achieved without the project (Prouty 2009). As a result of these, less-developed developing countries will be disadvantaged in attracting CDM projects as more-developed developing countries have large-scale, high-pollution activities that can be incrementally improved as oppose to small-scale activities (Prouty 2009). Conclusion In conclusion, this paper have analysed the Kyoto Protocol s CDM and its strength and weaknesses. CDM is a market-based arrangement defined by the Kyoto Protocol under the UNFCCC, design to reduce GHG emissions globally. The UNFCCC is an international treaty joined in 1992 to cooperatively limit climate change and its effects. The Kyoto Protocol was signed in 11 December 1997 and in force since 16 February 2005, provides required targets for all industrialized nations to GHG emissions. CDM enables wealthier nations to earn CER credits by investing in projects in developing countries. Two main types of countries involved in the CDM are Annex I and Non-Annex I countries. CER is the main money instrument of the CDM. Moreover CDM is the main income of the UNFCCC s adaptation fund. The main controlling body is the CDM EB under the supervision of the CMP. CDM EB is supported by various panels, working groups and organisations to assist in the performance of its functions. CDM is comprehensive and uses a variety of techniques from automated numerical analysis to manual review and verification of questionable data for monitoring and reporting. While CDM has its advantages, it is yet to be a well-designed policy as there are various parts of the mechanism lack of clarity and certainty. Lack of accountability, lack of public awareness, and regulatory and methodologically uncertainties are some of the issues CDM have to overcome. 7 P a g e

9 References Anonymous, The Kyoto Protocol's Clean Development Mechanism, Business and the Environment, vol. 21, no. 12, 2010, pp Baker & McKenzie 2013, CDM Rulebook: Clean Development Mechanism Rules, Practice & Procedure (online), Available: < (1 September 2013). Belvin, M. 2011, The Clean Development Mechanism and the poverty issue, Environmental Law, vol. 41, no. 3, p Cassel, M. L. 2008, CDM - Monitoring & Reporting for Carbon Credits, Wastecon 2008 Presentation and Paper, Geotech, California. Freestone, D. 2011, Kyoto Protocol, in Berkshire Encyclopaedia of Sustainability, ed. K. Bosselmann, D.S. Fogel & J.B. Ruhl, Great Barrington, Berkshire, pp Gilman, L. 2008, Clean Development Mechanism in Climate Change: In Context, ed. B. W. Lerner & K. L. Lerner, Cengage Learning, Gale, pp Karl, L. & Liu, X. 2000, The Clean Development Mechanism and its controversies, Journal of IGCC, vol. 11, no. 2, pp Kolk, A. & Mulder, G. 2011, Regulatory Uncertainty and Opportunity Seeking: THE CASE OF CLEAN DEVELOPMENT, California Management Review, vol. 54, no. 1, pp Pedersen, A. 2008, Exploring the clean development mechanism: Malaysian case study, Waste Management & Research, vol. 26, no. 1, pp Prouty, A. E. 2009, The Clean Development Mechanism and its Implications for Climate Justice, Columbian Journal of Environmental Law, vol. 34, no. 2, pp Qian, Y. & Bin, J. 2011, Clean Development Mechanism Cooperation in China, Low Carbon Economy, vol. 2, no. 4, pp P a g e

10 Rahman, S. M., Dinar, A. & Larson, D. F. 2010, Diffusion of Kyoto's clean development mechanism, Technological Forecasting and Social Change, vol. 77, no. 8, pp United Nations Framework Convention on Climate Change, Background on the UNFCCC: United Nations Framework Convention on Climate Change (online), 2013, Available: < (1 September 2013). 9 P a g e