CDM reforms: what project developers want, need and expect /// CARBON FINANCE

Hopes are high but expectations low for this year’s once-in-a-decade review of the rules governing the Clean Development Mechanism, says Gareth Phillips

It is important to be clear about the scope of the forthcoming review of the rules governing the Clean Development Mechanism (the ‘CDM Modalities and Procedures’, or M-P). The most important thing that project developers want is greater demand for high quality compliance-grade emission reductions. What we, the global population, need is greater ambition – if governments do not step up to the challenge by announcing tougher targets, emissions of greenhouse gases (GHGs) will not decrease and we will not achieve the aim of limiting the average rise in global temperatures to 2⁰C above pre-industrial levels.

Neither of these wants or needs are directly within the scope of the review. However, we do believe that changes which can be implemented via the review could influence demand for certified emission reductions (CERs) by improving the CDM’s credibility, and thereby helping governments to increase their levels of ambition.
So, the review of the CDM M-P – hopefully to be concluded in Warsaw later this year – is critically important for the future of the global fight against climate change. What do we expect? Unfortunately, we expect very little, but we hope that negotiators will take up the challenge of reviewing the CDM’s processes with the objective of making the CDM fit for the next stage of the fight against climate change.
The Project Developer Forum’s (PD Forum’s) full list of wants is laid out in our various submissions to the CDM Executive Board (EB) and the Subsidiary Body for Implementation (SBI), and is available at www.pd-forum.net. We have defined a package of measures which we believe are radical enough to alter the nature of the CDM such that it fulfills the expectations of a wide range of stakeholders. In summary, the most important improvements we seek include:

• Strengthening the environmental integrity of CDM projects, for example through the adoption of positive lists of technologies which are considered automatically additional, in terms of the emission reductions they achieve
• Addressing governments’ expectations that the CDM contributes to host country mitigation and is not just a pure offsetting mechanism. This could be achieved, inter alia, by ensuring that a share of the credits issued to CDM projects would be deducted and cancelled in favour of the host country’s emissions reduction target or pledge, or through the use of CERs in a host country's regional or sectoral emissions trading system.
• Fairer and more transparent treatment of conservativeness, through the adoption of accurate baseline and monitoring methodologies combined with the creation of a single methodology-specific conservativeness factor which is applied when CERs are issued.
• Allowing all nations to use CERs for offsetting purposes.
• Clear commitment to the rules of law, including the establishment of an appeals panel.
• A transparent review of the duration of the crediting period, with input from all stakeholders.
• Removal of the executive function from the EB (accordingly, renamed the Board) so that it focuses on guiding the CDM and ensuring that it generates the kinds of emission reductions which governments want to buy.
• Increased membership of the EB to 24 members (from 10), including two from civil society and two from the private sector, doing away with alternates.Creation of an Executive CDM Director within the UN climate secretariat to oversee the expanded role of the secretariat in the transparent execution of the CDM.
• Clarity on the role of E+ and E- policies (ie, those favouring more emission–intensive technologies or less emission-intensive technologies respectively) including a time limit on E- policies and the right to include E- policies in the establishment of the baseline and proof of additionality.
• Shorter time frames for registration and issuance.

In addition, the PD Forum has proposed that the CDM EB abandon the concept of small-scale projects on the basis that they are no easier to implement than normal-scale projects and have significantly complicated the CDM. With the removal of the small-scale classification, there is no need for Programmes of Activities (PoAs) which, to date, have taken up massive amounts of resources but not yet issued a significant number of CERs. PoA can be moved to the registry of Nationally Appropriate Mitigation Actions (NAMAs) where independent auditors – or Designated Operational Entities (DOEs) – can verify credits under a different accreditation programme.
Likewise, afforestation and reforestation (A/R) can be taken out of the CDM and relocated to the REDD+ mechanism (reduced emissions from deforestation and forest degradation). Again, A/R has consumed massive amounts of resources but issued very few CERs – on top of which, the main markets have shown no appetite for these credits or the underlying technologies.
We consider that such changes would reinforce the CDM’s role as the single standard for emission reduction projects and enable both developed and developing countries to use the CDM as a project-based mechanism which delivers: high quality emission reductions at a low price; sustainable development for host countries; host country mitigation; helps to build capacity for the development of NAMAs, domestic emissions trading schemes; and the most effective means of financing the development of renewable energy in developing countries. Additionally, the CDM could become a service provider to any new approaches under the Framework for Various Approaches, which seeks to account for efforts to reduce emissions outside the UN climate convention.
As to what project developers need, the overwhelming requirement at the current time is demand for emission reductions and higher prices for CERs. While this is beyond the scope of the current review, we believe that if negotiators give the right directions, starting at the Subsidiary Body 38 meeting in June, then they could trigger the start of a turn-around in the future of the CDM.
The right directions would include:

• a clear commitment to complete the review of the CDM M-P in Warsaw this year and not to drag it out for longer;
• full engagement at the planned workshop, where Parties and stakeholders can discuss their proposals; and
• clear commitment from the Parties to making the CDM the leading emission reduction mechanism of the future.

What do we expect to happen? Currently there are few signs of real commitment and no nation is stepping forward to champion the issues:

• The workshop on the review of CDM M-P is now scheduled, to take place during June’s meeting rather than before, which does not give stakeholders such as the PD Forum, and DOE Forum a chance to interact with negotiators before they adopt their positions on the review.
• The Executive Board’s input to the M-P consultation, in our opinion, falls far short of the kind of proposals we need to see to change the fate of the CDM. Given that several of the EB members are also negotiators for the mechanisms, we already face an uphill struggle.
• The media and the general public are largely unaware of the significance of the CDM and its role in international and, potentially, domestic emissions trading, alongside the many other benefits it brings.
• Environmental NGOs seem happy to see the mechanism remain constrained and despite the lack of other alternatives, they tend to focus on historic criticisms of the CDM.
• Investors are indifferent – they can more easily make adequate returns from fossil fuel than from CDM-supported renewables.

So, in conclusion, project developers have plenty of ideas about the future of the CDM and we hope that negotiators will make the most of this once-in-a-decade chance to listen to practitioners and other stakeholders. We hope that they will take the opportunity to build upon and improve the successes which we have already seen under the CDM and work to avoid more superstorms, droughts, wildfires and geopolitical instability.
Gareth Phillips is chief climate change officer with Sindicatum Sustainable Resources and chairman of the Project Developer Forum. E-mail: gareth.phillips@pd-forum.net