The future of CDM - from the point of
view of developing countries
Feedback from the Carbon market Insights conference
to the Practitioner’s Network.
Pascale Junker
Paris, 24 mars 2010
Carbon market insights 2011 - the setting
• A trader’s fair organised annually by Thomson
Reuters Point carbon. (Amsterdam 1-2 mars 2011 )
• General feeling that international Climate Change
conferences aiming at universally binding
reduction legislation is not the way forward
(contrary to emerging economies’ take off).
• Market based approaches are more accurate, if
they guarantee real net reductions and
environmental integrity
• End of old inter-governmental global diplomacy
Carbon market insights 2011 - the setting
• Rise of decentralised post-national powers:
Companies, markets, banks, local communities,
cities, religious groups, universities, R&D,
mercenaries, NGOs, like in Middle Ages
• This incl Carbon markets, which might become
larger than oil markets
• Emitting countries’ primary concern: energy
supply before Climate change
• CDM seen as an immature, EU ETS as a mature
market as well as more cost-effective than CDM
• Markets perceived as the cheapest way to
mitigate
CDM in 2010, a reminder
• In 5 years of operations, CDM boomed
• 560 mio CERs issued
• 2 900 registered projects, expecting 2 000 mio
CERs by 2012
• 3 156 projects under validation, expecting 800
mio CERs until 2012
• Total expected generated CERs by 2012:
3,3 billion CER (1 billion deemed realistic)
• 157 DNAs notified
• 103 Approved large-scale, 70 small-scale
baseline methodologies
CDM improved its process
• CDM cycle in UNFCCC got shorter, Issuance of
credits faster, Number of projects registered
increased
• New UNFCCC facilities for 50 LDCs:
– simplified rules: on additionality, simple cost analysis
acceptable in some EE projects, 1 round of review
only, less requirements for monitoring
– Simplified financing: Least Developed Countries Fund
Special Climate Change Fund, (Adaptation Fund),
Loan scheme to support the development of CDM
projects in countries with less that 10 registered
projects; PoAs
UNFCCC - Least developed countries fund
• LDCF est. in 2001, managed by GEF, focused on
adaptation.
• 44 NAPAS completed, 36 NAPA implementation
project proposals have been approved for $131
mio.
• voluntary contributions amount to $287 mio for the
LDCF.
• “The LDCs, despite their small economies and
limited institutional and technical capacities, are
now among the most advanced in the world with
respect to cutting edge actions to reduce
vulnerability and increase adaptive capacity to the
adverse impacts of climate change.” GEF
UNFCCC - Special Climate change Fund
• SCCF est. in 2001, managed by GEF.
• finances projects relating to: adaptation;
technology transfer and capacity building;
energy, transport, industry, agriculture,
forestry and waste management; economic
diversification.
• 22 SCCF implementation project proposals
have been approved for $92 mio.
• voluntary contributions amount to $131 mio
for the LDCF.
UNFCCC Loan scheme for LDCs
• to support the development of CDM projects in
countries with less that 10 registered projects
• To cover the costs: of the development of PDDs;
of validation and the first verification for these
project activities.
• Sources: interests from CDM Trust fund,
voluntary contributions from donors
• Low LDCs emission Criteria:
– Min 7,500 t CO2 eq annual average emission
reductions over the first crediting period
• Not operational yet
CDM at risk for effectiveness,rational aspects
• Unadequate geographic distribution remains
• High prohibitive transactions costs + upfront
payments
• CDM governance seen as bad: Environmental
integrity needs civil society involvement,
Additionality check inherently impossible,
Monitoring sustainability in the hands of host
countries: no project ever rejected for
sustainable dev. reasons, assessment and
revision not transparent
• Need for a CDM court, judicial arm
• CCS, supercritical coal and waste in CDM
CDM in LDCs
• Africa hosts only 57 CDM projects or 1.97% of
all registered CDM projects
• LDCs account for 14% of all PoAs in pipeline
• 7 PoAs registered, 73 under validation
• 1 of the 7 registered PoAs is in Africa: "Uganda
Municipal Waste Compost Programme”
• 2 sub-regional West-African PoA are under
prior consideration/validation:
– Energy Efficient Lighting (Senegal, Mali)
– Promoting Efficient Stove Dissemination and Use
(BKF, Gambia, Senegal,Togo)
CDM in emerging economies
• Advanced dev. countries are reluctant to
pledge because of the existence of
CDM: once they adopt a legally binding
emission reduction target, they exclude
themselves from CDM revenues
• CDM revenues provide only minor part
of project financial needs (on average
less than 5%)
Why invest in LDCs and PoAs?
1. Eligibility: projects in LDCs and advanced dev.
countries expected to be EU_ETS eligible.
There will be a market.
2. Scale: aggregated significant emission
reductions through PoAs
3. Beyond carbon: co-benefits, contribution to
sustainable development
4. For a 2°C pathway, need for 50% reduction by
2050, from 56Gtons now to 44Gt by 2020. 7,5
Gt need to happen in dev. countries, financed by
OECD countries : est. $60 billion/yr for
mitigation, green growth in dev. countries
Post-2012, phasing out CDM?
• Compliance in EU ETS. Imports of CERs in EU
ETS III (2013-2020) expected to derive mainly
from developing countries, incl LDCs (40%)
• Competition from New crediting mechanisms
(beyond CDM/JI) (sectoral, )
• While CER are eligible under EU ETS, new
mechanisms are not (yet)
• Interest of the private sector ?
• Many uncertainties
• Future: Pledge and review ?
Competition from New crediting mechanisms
(other than UN)
• Sectoral credits, instead of project emission targets,
without sanctions (No-lose target). Potential overlap
with CDM
• Sectoral trading by firms on the carbon market has
potential to replace CDM
• NAMAs: NAMA support (policy, standards) and
CDM credits (project, PoA) could be complementary
• Standardised baselines, a (UK) gvt initiative
• REDD++ Credits
• Uncertainty/realism about what new mec. can really
deliver in medium term
What are new mechanisms?
Institute for Global Environmental Strategies, NagisaISHINABE
CDM will continue being the dominant
mechanism in this decade
Example of NAMA and CDM credit
complementarty
Are new mechanisms going to provide any
benefits to developing countries?
YES, if :
• credits generated from new mechanisms are “additional”
• the volume is greater than current CDM, and an increase
in volume surpasses a reduction in price,
• Funding is additional
• they do not damage domestic industries by an escalated
volume of technologies and products flowing into
developing countries from developed countries.
NO, if :
• they just increase “non-additional” emissions credits and
crowd out current CDM,
• they do not come with an additional funding.
Institute for Global Environmental Strategies, NagisaISHINABE
Conclusion
• Political will to continue (enhanced) CDM, No major calls
to abolish CDM, but rather to keep enhancing,
complementing it
• CCS in CDM allowed
• EU ETS held in higher regard than CDM
• CDM: LDCs volume is the big question
• Make old and new mechanisms fungible, create (UN, EU,
national?) clearing house for harmonising standards,
cross-compliances, converting different credit units
• Need for clear policy incentives (tax emeptions for imports
of technoloy, feed in tarrifs, ..)
Conclusion
• Better guarantee of transparence, env integrity and
sustainable development
• Scalable multi-country mechanisms, abandon project by
project
• Clarify combination of ODA and other public and private
investments
• Enhance financial predictability, CDM long, 3-5 yrs before
cash-flow. 15 yrs horizon needed, ODA= 3-5 yrs project
lifespan, tax on airline ticket is more predictable source
• Standardise financing cooperation with development banks,
Bankability: should CER allow to mobilise cash ?
Perspective for dev countries
• Triple counting ?:
– Annex 1 finances green growth in LDCs
– Annex 1 finances CDM credits
– Annex 1 finances its domestic reductions targets
• Annex 1 not able to pay for whole adaptation/mitigation in the
South. Need to mobilise private, corporate, bank funding
• CDM is another N-S financial flow (FDI, ODA, loans, Climate
finance …)
• Carbon finance has to stop being a specialised, parallel field,
but should become part of all project
development/management
• Make ourselves obsolete