Vivek Kumar

The third conference of the Parties (COP3) held at Kyoto, Japan in December 1997 adopted a Protocol to the Convention on Climate Change under which industrialised countries (Annex I countries) will reduce their combined greenhouse gas emissions by at least 5% below 1990 levels by the period 2008-2012. The Protocol known as the Kyoto Protocol (KP) will enter into force 90 days after it has been ratified by at least 55 Parties to the Convention, incorporating Parties included in Annex I accounting for at least 55% of the total 1990 carbon dioxide emissions of the Parties. Each Party included in Annex I is required to make demonstrable progress in achieving its commitments under the Protocol by 2005.

The Kyoto Protocol laid down four ‘flexibility’ mechanisms to bring down greenhouse gas emissions reductions. The Clean Development Mechanism (CDM) is one such mechanism for supplementing domestic actions by the developed countries for emission reductions under the Kyoto Protocol. The purpose of the CDM as defined under Article 12 of the Kyoto Protocol is to :

The CDM will operate under the supervision of the CDM Executive Board, which has since been constituted during COP7 at Marrakesh. This will ensure a prompt start to the CDM in developing countries to promote sustainable development through CDM project activities that would bring additional foreign investment and clean technologies for reduction or avoidance of carbon emissions.

CDM being a project based initiative can increase technology transfer. The CDM can provide financial incentives for environmentally sound technologies and influence technology choices. As a voluntary mechanism, this requires co-operation between developed and developing country parties, as well as between governments, private sector entities, and community organizations. Project based crediting can lead to tangible investments and to the development of local capacity to maintain the performance of these investments. These investments could incrementally assist developing countries to achieve multiple sustainable development objectives, such as economic development, improvement of local environmental quality, minimisation of risk to human health by local pollutants, and reduction of green house gases.

Much about the design and governance of the CDM, however, remains to be resolved. There is a need to design simple, unambiguous rules that ensure environmental performance in the context of sustainable development, while also favouring investment. The multilateral oversight and governance provisions in CDM, and project based tran-sactions, will raise the transaction cost of investment in CDM projects as compared to the cost of mitigation through other means.

Though there is no specific provision referring to technology transfer, a number of features make the CDM unique. The Clean Development Mechanism invites Annex I Parties to work with developing countries to further sustainable development and the overall objectives of the Convention on Climate Change. This is possible largely only by the transfer of environmentally sound technologies.

The CDM projects are to be supervised by an Executive Board, which will provide supervision and guidance for implementation of projects. The Kyto Protocol also calls for independent auditing and verification of CDM project activities. These provisions reveal an effort to ensure transparency and credibility in the process, and a need for agreement on standardised procedures for measuring performance, thus certifying emissions reductions.

Project based crediting through the CDM should, however, lead to tangible investments and development of local capacities to maintain the performance of these investments. These projects should assist developing countries to achieve sustainable development. Careful project screening and selection, including host community decision-making, will assist in multiple benefits for all participants.

The Asia Least-cost Greenhouse Gas Abatement Study by the Asian Development Bank has identified a few sectors in India where CDM projects can be taken up. A list of sectors and possible technologies that should be considered for GHG emission reduction was drawn up.

The study estimated the GHG emission reduction potential of varied technologies and the cost of emission reduction. The study concluded that the renewable energy technologies have the highest GHG emission reduction potential. The cost per tonne of CO2 saved is also low for renewables compared to the absolute amount of investment. The renewable projects can hence meet the developmental needs of the country and at the same time help in reducing carbon-dioxide emissions and addressing climate change.

However, the renewable energy projects being small-scale projects, in general, are faced with other problems like high transaction costs compared to the total project costs. The Protocol, however, seems to take care of this issue keeping in view the large-scale developmental benefits offered by renewables. The recent provisions in the Marrakesh Accords for prompt start of small scale CDM projects are aimed at these objectives only. The Kyoto commitments shall thus mean that there would be available finance for these distributed renewable projects.

A point of caution at this point of time should not be overlooked. A lot of positive developments have taken place as far as CDM is concerned during the Bonn and Marrakesh meetings of the Parties, however, in view of the USA withdrawing from the CDM, the market does not remain as lucrative as it was a couple of years ago. In such a circumstance, the CDM can offer only very limited opportunities to developing countries? q

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