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CDM at Cancun

December 10, 2010

Well well, the saga over the clean development mechanism (CDM) continues (subs’n req’d)…

Prior to the Cancun talks, there was a lot of focus on the future of the CDM. In particular, about how the mechanism can be reformed to help a) deliver more private sector money into developing countries to reduce emissions in exchange for carbon offset credits, and b) to develop methodologies that can spread the benefits of the CDM around more geographical space (at the moment most of the money goes to China, India and Brazil!). Now, those countries still need it, and there is in fact an argument that those are the best  places for the money to go in terms of aiding low carbon development that will change the emissions trajectories of these nations. However, if the mechanism is supposed to help deliver funds to poorer countries to aid development, then there is argument that more should go to Africa and others.

And there’s the rub, for the problem with the CDM for me is that people keep second guessing the mechanism’s true purpose.  For some, it’s meant to be about lowering abatement costs through the emissions offsets it generates for developed countries with emissions targets. For others, its meant to be a source of funding to aid with the development of low carbon infrastructures in developing countries. For yet others, it’s meant to deliver technology transfer. For yet others, it’s meant to drive sustainble development and growth itself in poor countries.

So all in all, that’s a lot of different goals to achieve at once!  And at the same there is a lot of concern and confusion about how one defines what are in fact “additional” emissions reductions under the CDM. In other words, what is a true emissions offset? Not a good starting point!

But more immediately, what is happening is that the CDM is in the process of dying on the vine: because  of regulatory/legal uncertainty about what will happen to it after 2012, when the first period of the Kyoto Protocol ends, investors don’t want to invest in those projects if they can’t get a return back after that date.

Personally, I believe that this is a shame. What we really need are as many ways to get funding to developing countries as possible to develop low carbon infrastructure. And the CDM has delivered, according to the World Bank, between 4-8 billion USD a year recently in financing for projects in these countries, coming from developed countries – particularly the private sector. Sure, the public sector in developed countries could theoretically, provide this as well, plus more, but will it?

Therefore at Cancun it was hoped that the COP/MOP could take a decision making clear that the CDM will be retained after 2012 regardless of whether there is a new Kyoto Protocol commitment period or not. In theory this is not that difficult to do. However, it turns out that in practice these commitments can’t be made yet, because parties – particularly developed countries – don’t want to make it look like they are reinvigorating the Kyoto Protocol 2.0 track of negotiations, instead of supporting the Copenhagen Accord track. In many ways this is an absurdity, since the CDM could still function independently of the Kyoto Protocol’s existence after 2012. However, one suspects that aside from the psychological boost reaffirming the CDM would give to supporters of Kyoto (who, if it fails to come back to life here, should really start seeing the writing on the wall, like India surely does – kinda),  it’s probably also an issue of the EU and othes feeling that the CDM is a significant bargaining chip for it with developing countries and so it doesn’t want to give ground until it gets something in return. The problem with doing that deal, however, is that what the developed countries really want in return is for India and China and others to give up a second Kyoto commitment period that does not include internationally binding targets for themselves. they want to bind developing countries into action. So you withold your CDM joker card until later.

Now, in some ways this might be a good thing. Yvo de Boer – fmr UN climate chief – recently said he thinks its better to wait to do CDM reform after other issues are resolved and the market can be reformed and redesigned more comprehensively in a less politicised setting. That’s probably sensible. And he would probably know! But all the same, waiting 2-3 more years to relaunch what was already working (with some hiccups, admittedly) seems like a massive waste of precious time.

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