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Clean Development Mechanism of the Kyoto Protocol This article is published in three parts. The first part discusses the goals and objectives of the Clean Development Mechanism (CDM) of the Kyoto Protocol, while the remaining two parts take a critical look and discuss the major issues involved in the CDM. The present deliberations on climate change issues in global fora are largely an outcome of the Kyoto Protocol. The Kyoto Protocol established three flexible mechanisms to supplement the domestic actions of the industrialized countries to fulfill their quantified emission limitation and reduction commitment as required under the Article 3 of the Kyoto Protocol. The three mechanisms are: Joint Implementation (JI: Article 6); Clean Development Mechanism (CDM: Article 12); and International Emission Trading (IET: Article 17). The present paper discusses mainly the Clean Development Mechanisms (CDM). The CDM was established to explore low-cost options to mitigate the impacts of climate change.The industrialized nations who are already quite efficient in their energy utilization levels (Norway is a prime example) are emitting high quantities of greenhouse gases as an obvious fallout of their advanced stages of industrialisation. Hence, they will have to spend a lot of resources to even slightly increase their energy efficiencies or lower their greenhouse gas emissions. Conversely, the same amount used to achieve similar ends in the developing countries could bring about significantly greater results, because the Third World operates with comparatively inefficient technologies and present considerable opportunities for cost-effective GHG mitigation options. The CDM brought about to achieve this specific end was indeed a viable economic option, given the global nature of the problems. The purpose of the CDM Projects shall be to assist developing countries in achieving sustainable development, and in contributing to the ultimate objective of the Convention and to assist Parties in Annex I in achieving compliance with their quantified emission limitation and reduction commitments. The CDM has its predecessor, in spirit at least, in the Activities Implemented Jointly (AIJ) Pilot Phase that began in 1995 and has a five year lifetime. AIJ, JI (Article 6 of the Protocol) and CDM (Article 12 of the Protocol) are all project based mechanisms designed at exploration of least cost mitigation options across countries. Except that AIJ, under the pilot phase, does not provide any credit to either of the Parties (Investor or the host), the rest of the operational aspects are practically the same. In the operation of AIJ, JI and CDM the additionality and baseline criteria remain the same and are critical for their eligibility. The Asia-Pacific and African Regions had very little opportunity to learn lessons and do capacity building during the AIJ pilot phase. At the same time, such learnings and capacity building in these regions are absolutely essential for a successful CDM regime. The AIJ pilot phase therefore, needs to be extended beyond 2000 at least by another three years viz. to the end of 2003. In harmony to this decision, the CDM should also have an interim phase upto 2003 for a smooth transition from AIJ to CDM mode of operation. The interim phase of CDM should be viewed as an opportunity of learning by doing. During the interim phase, simple CDM projects should be taken up for a smooth take off. After 2003, there should be no restriction on the type of CDM projects provided they meet the eligibility criteria (discussed elsewhere) for CDM. The provisions of credits from CDM projects even during the interim period should remain as provided for in the Article 12 of the Protocol. To encourage the investors, the AIJ extended beyond 2000 should have the benefit of credit-sharing that accrues during 2000 and 2003. This will be quite fair for both the investor and host country parties and provide encouragement to project participants. During the negotiations of the Kyoto Protocol, non-Annex I country delegates feared that the price differential between reductions in industrialised countries and developing countries/economies in transition would result in minimal domestic efforts to reduce emissions, as well as minimal incentives for innovative research in the industrialised countries. Moreover, for stabilization of atmospheric concentration of greenhouse gases at a level that would prevent dangerous anthropogenic interference with the climate system, a strong domestic action to bring down their consumption intensity and emission reductions by the Annex I countries would be essential. In order to force this issue of strong domestic actions, developing country Parties were instrumental in inserting the concept of supplementarity into the three flexibility mechanisms, expressed as ‘Supplemental to’ in Articles 6, 17 and "part of" Article 12. Article 6.1(d)..... states that acquisition of emission reduction units shall be supplemental to domestic actions for the purpose of meeting commitments under Article 3. Similarly Article 17 (Emission Trading) states very clearly that any such emission trading shall be supplemental to domestic actions. Supplementarity ensures strong domestic action by the industralised countries for mitigation of greenhouse gases. The carbon credits from JI, IET, CDM should provide only a small functions of the Annex 1 Parties’ Commitments. This can be effective only if there is a cap or fixed numerical restriction on the quantity of emission reduction that can be achieved internationally through JI, CDM and IET. It is necessary for the UNFCCC/SBSTA to decide uniformly for all the three mechanisms, a cap that the world constitutes ‘supplemental’. If it is left for the implementing Parties to decide, there may be considerable ‘horse
trading’ and the essence of a strong domestic action would be lost. In fact
without a strong domestic action by the Annex I Parties, it is doubtful if the
objective of the Convention will ever be achieved. Another word of caution have to be
sounded for all AIJ/CDM/JI projects and particularly CDM projects. The project
developers have to keep in mind the sustainable development priorities in the
host country, with special attention to the ecosystem in and around the
project area. Since Sustainable Development may mean different things to
different country parties, each state/country project must agree upon a set of
quantified Sustainable Development Indicators (SDI) at the beginning of each
CDM project. For the credit of CERs, these quantified SDIs must be met through
the project activities, and verified. Some of the SDIs are indicated below as
an illustration only. They are: · provision of safe drinking water · provision of basic health facilities · education to children and women · provision of shelter to the poor, particularly in the rural areas · transfer of clean and sustainable technologies and additional finance · rural development, including sustainable agricultural practices · conservation of bilateral diversity · promoting of stakeholders' participation in the project identification, design and implementation. · Promoting
international trade Not all projects that result in emission reductions are eligible for trading under the CDM. In order to qualify, projects will need to have several general characteristics which are explicit or implicit in the Kyoto Protocol. Design should also include the following criteria :- General Principles - The design should ensure: (1) environmental effectiveness, environmental performance (2) economic efficiency for cost effectiveness and (3) equity Rigorous applications of these principles may raise transaction costs of the projects and thus change the economic efficiency. In the design stage itself, the concept of CO2 equisistent reduction of the six gases viz; carbondioxide(C02), nitrous oxide(N2O), methane(CH4), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6), should be introduced, and their procedure for emission reduction measurements agreed upon. Other design parameters that need to be taken into consideration are :-
· The proceeds from certified project activities should be used to cover administrative expenses
Criteria for real, measurable and long-term benefits related to climate change Paragraphs (b) and (c) of Article 12.5 set out two project criteria. The first requires that environmental benefits of CDM mitigation projects must be real, measurable and long term. The second requires that the benefits be additional. Assessment of whether CDM projects will fulfill these criteria require comparing projects against a baseline, which would be static or dynamic. In many cases, it is counter-factual to construct a baseline that may never actually happen. Assessing environmental benefits also requires establishing system boundaries appropriate to the scale and complexity of the project to assess ‘leakage’. Another aspect that is central to the proper and efficient functioning of the CDM, and has to be incorporated in its design, is the question of vulnerability of the host Parties. In this regard, its needs to be mentioned that all host Parties will be required to adapt to climate change mitigation options, given the scarcity of the resources at their command, in varying degrees of intensity. It would be very hard for the developing countries to divert their scarce economic resources from their main developmental activities to mitigate or provide for adaptation to climate change. The Second Assessment Report (SAR) of the IPCC has clearly brought out that the developing countries in general will be impacted by the adverse effects of climate change as they do not have the financial/technological resources and capacity for adaptation to climate change. The author is the Manager, Global Environment Systems, with the Environment Systems Branch, Development Alternatives.
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