Clean Development Mechanism Essay ⋆ Environment Essay Examples ⋆ EssayEmpire

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The Clean Development Mechanism (CDM), defined in Article 12 of the Kyoto Protocol, is one of three project-based flexible mechanisms authorized in the December 1997 Kyoto Protocol to the 1992 United Nations Framework Convention on Climate Change (UNFCCC). The overall aim of CDM is to provide for a more cost-effective way for industrialized countries (referred herein as Annex 1 countries) to meet their greenhouse gas (GHG) reduction targets they agreed to by ratifying the Kyoto Protocol. Article 12 of the Kyoto Protocol defines the purpose of the CDM as at least threefold: to help countries comply with their emission reduction commitments, assist developing countries in achieving sustainable development, and contribute to stabilization of greenhouse gas concentrations in the atmosphere.

In the experience so far with negotiating CDM projects, there have been issues with equity distribution of CDM resources, not unlike the equity issues that arise in other resource negotiations between developed and undeveloped countries. There has been limited involvement in the least-developed countries due to reasons such as high transaction costs of preparing a CDM project; lack of capacity to undertake a CDM project; and baseline energy scenarios that are mostly made up of biofuels such as fuelwood and other agricultural residues, which would make many projects ineligible under the CDM as compared to baseline scenarios made up of fossil fuels. A majority of CDM transactions have taken place in emerging markets such as China, India, and Brazil.

Another issue affecting equity distribution is the limitations that have been put on the land use, landuse change, and forestry (LULUCF) sector. LULUCF project activities in the CDM have been restricted to afforestation and reforestation projects only, so forest management and conservation activities are ineligible.

In the CDM context, inequities arise due to Annex 1 countries’ interest in sequestering a maximum amount of carbon for the least amount of investment, and non-Annex 1 countries’ vested interest in fostering sustainable development projects that not only sequester carbon, but also leave a legacy of training and long-term economic enrichment.

How it Works

Governments and companies in Annex I countries purchase project-based greenhouse gas emission reductions in developing countries mostly to meet their obligations under the Kyoto Protocol or to trade them on the market for a potential profit. Some examples of CDM projects are renewable energy projects that include wind, solar hydro, biomass, and biofuels; methane reduction, mostly from landfill gas flaring; energy efficiency, including building efficiency; and bio-sequestration through afforestation and reforestation projects.

The money that flows to developing countries through CDM transactions is widely known as carbon finance. Carbon finance is basically a payment to a project entity for the emission reductions generated from that project, like a commercial transaction. The selling of emission reductions-or carbon finance-has been shown to increase the financial viability of projects by adding an additional revenue stream in hard currency, which reduces the risks of commercial lending or grant finance. Thus, carbon finance provides a means of leveraging new private and public investment into projects in developing countries that reduce greenhouse gas emissions, thereby mitigating climate change while contributing to sustainable development.

Emission reductions are calculated based on an established baseline scenario that must be explained within that project’s Project Design Document (PDD), which will eventually need to be registered with the CDM Executive Board (EB), the body that regulates international project-based emissions trading under the Kyoto Protocol. The PDD, before becoming registered, must be approved by a Designated National Authority (DNA) in the project’s host country and validated by an independent, third-party auditor called a Designated Operational Entity (DOE). Designated Operational Entities are firms accredited by the CDM EB in order to assure that the baseline scenario is real and that the project is additional to business-as-usual practices. Once the project becomes operational, the project entity monitors the project based on a monitoring plan that is also included in the PDD. Throughout the life of the project, an accredited DOE will periodically visit; based on the monitoring plan and the data collected from the project entity, will verify that the emission reductions are actually happening and issue a report to the CDM EB stating that a certain amount of emission reductions have been generated. This will eventually lead to certification of those emission reductions and then, finally, issuance of the Certified Emission Reductions into the registries of those governments and private companies that have purchased the emission reductions from that project.

One Case to Contemplate

The world’s first large-scale, forestry-based carbon offset project is the Innoprise-FACE Foundation Rainforest Rehabilitation Project (INFAPRO); its objective is to use enrichment planting and forest reclamation of indigenous tree species, fast-growing pioneers, and forest fruit trees to rehabilitate 25,000 hectares of degraded areas in Malayasia. INFAPRO is a cooperative venture between the FACE Foundation of the Netherlands-which is investing monetary resources to sequester carbon-and the Sabah Foundation, a semi-government forestry organization in the state of Sabah, Malaysia. The FACE Foundation committed a total of $15 million with expectations that the project will sequester at least 4.25 million tons of carbon.

Although there are many tangential and exacerbating issues related to the CDM, from a basic business standpoint, the system appears to be working. For example, in 2005, 374 million tCO2e (100 million tons of atmospheric CO2 equivalent), mainly of Certified Emissions Reductions (CERs), were transacted at a value of $2.7 billion with an average price climbing over $7.23. Many hope that the negative kinks in the system will be worked out over the course of time and experience; and that stakeholders on all levels will realize not only the ecological benefits of engaging in carbon trading and emissions reduction, but also the longer-term social, cultural, and biological benefits.

Bibliography:

Margie Orford with Barry Kantor and Stefan Raubenheimer, Climate Change and the Kyoto Protocol’s Clean Development Mechanism (Practical Action Publishing, 2004);
Michael See, Greenhouse Gas Emissions: Global Business Aspects (Springer-Verlag, 2001).