Download What are the main money instruments used by the CDM?

Spring
Analysis of the Clean Development
Mechanism.
Aaron Jamieson
S2759702
Climate Change Policy
8/09/2014
14
6
Table of Contents
Introduction ....................................................................................................................................... 3
How does the CDM relate to the United Nations Framework Convention on
Climate Change and Kyoto Protocol?......................................................................................... 3
What are the main money instruments used by the CDM? ............................................. 4
What organisation or organisations oversee the CDM, what two types of
countries are involved, and what roles do they play? ....................................................... 4
Do you think that the CDM is a well-designed policy in terms of appropriateness,
efficiency and effectiveness? Why or why not? Provide evidence to support your
answer. ................................................................................................................................................. 6
Conclusion .......................................................................................................................................... 7
Reference List:................................................................................................................................... 9
List of Abbreviations:








Certified Emission Reduction……………………………………………..... (CER)
Clean Development Mechanism Executive Board………….………. (CDMEB)
Clean Development Mechanism…………………………………...………. (CDM)
Designated National Authority……………………………………………... (DNA)
Green House Gas………………………………………………………..……….... (GHG)
Non-Government Authorities…………………………………….…………..(NGO)
Project Design Document………………………………………………….….. (PDD)
United Nations Framework Convention on Climate Change.…... (UNFCCC)
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Introduction
Of the three flexible mechanisms introduced by the Kyoto protocol to establish
greenhouse gas (GHG) emissions targets, the Clean Development Mechanism
(CDM) has arguably been the most effective. Labelled as a ‘trailblazer’ for being
the first global environmental and credit scheme, the mechanism seeks to
achieve
sustainable
development
promoting
environmentally
friendly
investment from industrialised country governments and businesses. There are
two main objectives of the CDM to contribute to sustainable development in
emerging countries and to reduce emissions in developed countries (Chopra &
Garg 2010). Throughout this paper issues will be covered as to how the CDM
relates to the United Nations Framework Convention on Climate Change and
Kyoto Protocol, the main money instruments used, and what organisation or
organisations oversee the CDM to be brief.
How does the CDM relate to the United Nations Framework
Convention on Climate Change and Kyoto Protocol?
Under the Kyoto protocol 37 countries took on a commitment to limit/ reduce
the amount of pollutants they produce. The CDM is an instrument under the
Kyoto protocol that focuses on development in unindustrialised countries. It
seeks achieves this through allowing ‘emission-reduction projects in developing
countries to earn certified emission reduction (CER) credits, each equivalent to
one tonne of CO2’ (United Nations Framework Convention on Climate Change
2014). This enables the CERs to be traded or sold to other countries in order to
reach their emission reduction targets.
The UNFCCC adaptation fund was created in ‘2001 to finance adaptation
projects and programmes in developing country that are particularly vulnerable
to the adverse effects of climate change’ (United Nations Framework Convention
on Climate Change 2014). The funding is produced through the CERs issued for
the CDM activity along with other sources. Proceeds from the CDM equate to 2
per cent of the CERs allotted.
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What are the main money instruments used by the CDM?
The main money generating mechanism used by the CDM are the CER units sold
to projects. The CDM under the Kyoto protocol creates these offset credits and
issues them to Annex I (Developed) countries that invests in developments that
both reduce emissions and promote sustainable development in Non-Annex
(developing) countries (Francois & Hamaide 2011).
In the first 8 years of the CDM (from 2004 to 2012) 6,725 projects have
commenced creating 2.73 billion CERs. These CERs then result in mass financial
flow from Annex 1 countries to Non-Annex countries (Burian & Arens). Of the
CER units sold an amount equating to 2% of the final cost is placed into the
UNFCCC adaption fund. The adaption fund was established to supply projects in
developing countries capital in order to adapt to climate change and create
sustainable developments.
What organisation or organisations oversee the CDM, what two types
of countries are involved, and what roles do they play?
As can be seen in figure 1 below ‘The Clean Development Mechanism Executive
Board (CDMEB) supervises the Kyoto Protocol’s clean development mechanism’
(United Nations Framework Convention on Climate Change 2014). This
governance is achieved under the authority of the ‘conference of the parties
serving as the meeting of the parties to the Kyoto Protocol’ (CMP) (United
Nations Framework Convention on Climate Change 2014).
Figure 1: Governance (United Nations Framework Convention on Climate Change)
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The CDMEB is in charge of the CDM overseeing each project, as each
development needs approval before any further development. The CMP however
has the final say, as decision made by the CDMEB must stay consistent with the
guidelines and regulations of the CMP (CDM-Executive Board 2011).
The two types of countries that the CDM is concerned about are, developed
countries and developing countries. As mentioned earlier they are defines as
Annex I (developed) and Non-Annex I (developing) countries by the Kyoto
protocol. The theory behind this is that developed countries purchase CERs off
developing countries that then invest the funds into sustainable development
projects.
What information instruments are used to monitor and report on the
CDM?
Under the CDM all projects are monitored and accredited to the type of project
that is being brought forward. These categories consist of:

Small scale CDM project activities,

Large scale CDM project activities,

Small scale CDM afforestation or reforestation projects,

Large scale CDM afforestation or reforestation projects,
The first stage is the UNFCC and the CDMEB register methodologies, projects and
certifies third-party verifiers as well as issuing and tracking the movements of
the credits in the International Transaction Log (Boyd & Goodman 2011). In
most countries the governmental Designated National Authority (DNA) evaluates
the undertaking against pre-defined criteria, which encompass the three aspects
of the triple bottom line, environmental, economic and social aspects of
sustainability (Schneider & Grashof 2007). The evaluation standard have to be
approved be the UNFCC and the CDMEB consisting of 10 members from parties
involved in the Kyoto protocol.
The second stage is the creation of a Project Design Document (PDD), designed
to predict the amount of carbon offset by a venture. The authorities involved in
the creation of this document include implementers (companies), sellers and
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other intermediary companies, brokers and states and finally buyers including
governments, large private emitters, brokers, traders, carbon funds and a diverse
host of Non Government Authorities (NGO) (Boyd & Goodman 2011). The PDD is
prepared must be prepare as it provide valuable for applicable stakeholders
including investors, the CDMEB and the DNA. Once the PDD has been completed
the DNA approves the project for sustainability and designated operating entity
validates the PDD. Finally the PDD with validation report and approval ‘letter of
the DNA form the foundation for ‘credible’ project registration and recognition
and PDDs are available for public access’ (Boyd & Goodman 2011).
The third layer that is to be addressed is the involvement of NGOs. Under the
CDM NGOs are used to further govern projects as they have been granted the
ability to monitor and influence the standards for the CDM (Shin 2010).
The Kyoto Protocol specifies “emission reductions are only to be certified under
the CDM if they are additional to any that would occur in the absence of the
certified project activity”(Müller 2009, p.5).
Monitoring of the project is
achieved observing baseline conditions (what would have been released with no
CDM) in comparison to the previously mentioned additionality.
Do you think that the CDM is a well-designed policy in terms of
appropriateness, efficiency and effectiveness? Why or why not?
Provide evidence to support your answer.
It is believed that the CDM is not the most effective mechanism in reducing GHGs
based off the appropriateness and efficiency of the policy.
The appropriateness of the CDM can be based off whether the mechanism is
appropriate at reaching the goals set by the Kyoto protocol. As mentioned by
LeGates and Stout of 40 underdeveloped countries for which data was collected
an increase of 20 per cent and noted and for the developed countries, an increase
of 15 per cent was seen (LeGates & Stout 2011). With the rate of population and
emission increasing substantially in underdeveloped countries, the question of is
the CDM a harsh enough to effect pollution levels. Lecocq and Ambrosi suggest
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that the CDM is ill-equipped to meet the required cuts in emission in developed
and developing countries alike as it deals with single project rather than
sustainable development strategies (2007). As the CDM is ill-equipped/ not
harsh enough do deal with rapid population growth in both developed and
developing counties it is not an appropriate mechanism in reducing carbon
levels.
The efficiency of the CDM deals with whether the inputs of the model generate
satisfactory outcomes. Efficiency has always been of concern with the CDM as
project approvals in developing countries take a while to process. One method of
resolving the inefficiencies suggested by Wara would be to “recognize that
although the six GHGs regulated by the Kyoto Protocol should also be regulated
by any future climate regime, any future treaty or treaties should address each
gas separately” (Wara 2006).
The last question that is to be answered is is the CDM an effective method in
reducing climate change. The effectiveness of the CDM relates to whether
projects are obtaining worthwhile results. According to Rosendahl andvStrand
“leakage occurs because emissions reductions under a CDM project may affect
market equilibrium in regional and/or global energy and product markets, and
thereby increase emissions elsewhere”(Rosendahl & Strand 2011,p.27). Due to
the emissions not being cut, but just produced in a different location there is
evidence to suggest that the CDM is not an effective mechanism in reducing
climate change.
Conclusion
The future for climate change around the world look bleak at best with no
strategies being implemented. Schemes such as the CDM and related flexible
mechanisms introduced by the Kyoto protocol have the potential to alter the
future. This report examined the relationship the CDM has with the UNFCCC and
Kyoto protocol and the main money making instruments. The organisations that
oversee the CDM as well as the two countries involved and the information
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instruments used to monitor and report on the CDM have been explained. Finally
the appropriateness, effectiveness, and efficiency of the scheme have been
analysed against suitable evidence.
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Reference List:
Boyd, E & Goodman, M, K. 2011, ‘The clean development mechanism as ethical
development?: reconciling emissions trading and local development’, Journal of
International Development, Vol. 26, No. 6, pp. 836-854, (online), Available:
<http://onlinelibrary.wiley.com.libraryproxy.griffith.edu.au/doi/10.1002/jid.18
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Burian, M & Arens, C 2009. International Journal of Climate Change Strategies
and Management: The clean development mechanism, Vol. 6, No. 2, pp. 166-191,
(Online),
Available:<
http://www.emeraldinsight.com.libraryproxy.griffith.edu.au/doi/full/10.1108/I
JCCSM-03-2013-0033 > (6/09/2014)
Chopra, H & Garg, S 2010. Clean Development Mechanism, (online), Available:
<http://works.bepress.com/bocconi_legal_papers/28/> (6/09/2014)
Clean Development Mechanism Executive Board 2011, Clean Development
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Available:
<http://cdm.unfccc.int/Reference/Notes/gov/info_note02.pdf>
(6/09/2014)
Francois, M & Hamaide, B 2011. Environmental Policy and Governance: Certified
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Available:
<
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and prospects, Review of Environmental Economics and Policy, Vol. 1, No. 1,
(online),
Available:
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