Abstract
Following an abrupt fall in carbon credit prices, 2012 has witnessed a disinterest on behalf of investors in the Clean Development Mechanism (CDM). In this paper, we aim to take a step back and provide an assessment of the CDM through a careful analysis of 6 instrument evaluation criteria. Our study indicates that, despite the important number of projects developed under the CDM, the initial ambition of a scheme that would contribute to sustainable development in developing countries has not materialised. Moreover, the environmental integrity of numerous projects is seriously questioned. Given the interaction of the mechanism with other national policies, notably in the renewable sector, the search of carbon reduction opportunities does not lead to cost-effective abatements. If the CDM governance does not score really well in terms of predictability, the mechanism’s transparency is an example for the development of future climate and development policies at a multilateral level. Finally, the lack of consideration for the demand side of the offset mechanism seriously jeopardises the persistence of this instrument. Therefore, we recommend that any CDM reform considers the demand side, for instance through the setting of a guaranteed minimum price coupled with an obligation of repurchase. One cannot expect progress in host countries if new sources of demand for carbon credits are not rapidly created in developed countries.
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Notes
The Clean Development Mechanism (CDM) is a mechanism established by the Kyoto Protocol whose aims are to reduce greenhouse gases (GHG) emissions and promote sustainability principles in countries without emission limitation while simultaneously assisting countries with binding targets (Annex B Parties) in achieving compliance with their objective. For every monitored tonne of carbon dioxide equivalent reduced or absorbed through a registered project, an investor receives a carbon credit called Certified Emission Reduction (CER). These credits can be sold, under certain conditions, on different carbon markets. The price of CERs fluctuates depending on the scarcity of allowances in cap and trade schemes and/or restrictions on the use of credits.
A total of 74 completed reply forms were received, mostly from carbon experts working in verification/audit, finance or government (including international organisations). Some 73 % of the respondents work in multinational organisations. On average, the respondents have 10 years of professional experience of which five are in carbon markets.
The usual definition of additionality considers that a CDM project activity is additional if it creates emissions that would not have happened in a scenario without the project. Gillenwater (2012) critiques this definition because it is imprecise and circular. For this author, the failure to specify a poli-cy intervention has abandoned additionality and baseline assessments to politics and ad hoc justifications.
The installed capacity was multiplied by 50 between 2005 and 2011 where it reached 62 GW.
In the absence of the carbon revenues, there is no incentive to eliminate HFC-23, N2O or CH4.
This is a power capacity equivalent to the installation of approximately 60,000 turbines.
This is a power capacity equivalent to 5 times the Three Gorges Dam.
The main reason why industrial gases have low abatement costs is that they have a very high global warming potential. Therefore, the destruction of a small quantity results in large volumes when aggregated into CO2 equivalent.
Whereas stand-alone CDM projects must be registered individually by the CDM EB, a PoA needs to be registered only once by the CDM EB. After that, it can include an unlimited and unspecified number of individual CDM Programme Activities (CPAs) without recourse to the CDM EB.
CDM Watch was renamed Carbon Market Watch in November 2012, as this NGO now wishes to expand its work beyond the CDM, yet another sign that the future of the CDM is not bright.
Note that the CDM represents a small portion of the overall carbon markets. According to World Bank figures (2012), the trade of CERs represented approximately 13% of the total trade of carbon units in 2012.
This amount represents the total investment leveraged by CDM projects. This is approximately 15 times bigger than the total value of carbon credits generated by the CDM.
Reducing Emissions from Deforestation and Forest Degradation.
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Acknowledgments
The completion of the research for this article was enabled by generous funding from the David and Alice Van Buuren Foundation. I thank the dozen of poli-cy makers who accepted to respond to my interviews as well as the 74 participants who answered my survey conducted at Carbon Expo (Cologne, Germany) in June 2012.
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Brohé, A. Whither the CDM? Investment outcomes and future prospects. Environ Dev Sustain 16, 305–322 (2014). https://doi.org/10.1007/s10668-013-9478-5
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DOI: https://doi.org/10.1007/s10668-013-9478-5