To help countries meet their greenhouse gas emission targets under the Kyoto protocol, and to encourage the
private sector and developing countries to contribute to emission reduction efforts, three market-based
mechanisms were included in the Protocol – emissions trading, the clean development mechanism and joint
implementation. In the following interview for this Newsletter, John Kilani, recently appointed Director of
the Sustainable Development Mechanisms programme at the UNFCCC secretariat, talks about the important and
expanding role of these mechanisms in tackling climate change.
What is the role of the market-based mechanisms which you now help oversee?
They have many roles, but principally they bring the strength of the private sector and market forces to bear
on the problem of climate change. Putting a price on emissions created added incentive for countries and
companies to invest in efficient technologies. They also provide flexibility. Countries and companies that
manage to emit below their cap have emission units to sell, those that go over their cap must look to the
market. The two project-based emission reduction mechanisms, the Clean Development Mechanism (CDM)and Joint
Implementation (JI), are linked to international emissions trading, in as much as the emission units they
generate can be traded and used for compliance purposes under the Kyoto Protocol. Together, the three are
known as the flexible mechanisms.
The carbon market has its strong proponents, and its ardent detractors. What should one draw from
these opposing viewpoints?
Its clear that there are many views on how to tackle climate change. My view is that it will probably take
all the tools at our disposal, and one of the main tools is the market. The ability to buy and sell emission
units gives countries and companies necessary flexibility in how they plan for and meet their reduction
commitments. Ultimately, however, it comes down to binding commitments to reduce, like those required under
the Kyoto Protocol. Without such commitments, there is no market. I think the bulk of the criticism of the
market stems from confusion over its role. The market can help identify lower cost opportunities to invest,
it can help companies plan their investments and expenses well into the future, but buying and selling
emission units, per se, doesn’t reduce emissions.
The clean development mechanism has grown fast, but it seems that lesser developed countries are
missing out. What is being done to expand the reach of CDM?
The CDM has indeed gotten off to a quick start. There are already more than 1160 projects in 49 countries.
These projects assist developing countries achieve their sustainable development goals, they help identify
lower cost opportunities for emissions reduction, they stimulate investment flow to developing countries, and
they help put developing countries on a clean path to development. That’s a lot to ask a single
mechanism, but the CDM is achieving all of this. What it hasn’t been able to do to date is to stimulate
projects, in acceptable numbers, in lesser developed countries, especially in Africa. Effort has been made in
a concerted way since the beginning of 2007 to correct this, and the good news is that it seems to be
Under the Nairobi Framework, partner agencies and multilateral development banks – UNFCCC, UNEP, UNDP,
the World Bank and African Development Bank – have been increasing the capacity of lesser developed
countries to take part in CDM, they’re helping to set up designated national authorities in host
countries to promote and approve projects, and they’ve been raising awareness, through events such as
the Africa Carbon Forum held recently in Senegal. There are now 27 registered projects in Africa, and about
another 44 projects in the validation–registration pipeline. It’s a small number compared to the
total worldwide, but when you look at the investment that these projects represent, you see CDM is well worth
pursuing. Those 27 registered projects in Africa are expected to stimulate USD 3.9 billion in capital
investment What’s more, the World Bank came out recently with a study that indicates Africa has
great potential for a wide range of CDM projects, large and small.
We seem to hear far less about Joint Implementation. Where does JI stand, and what do you see as
Joint Implementation is positioned now to deliver. Its start, in terms of project submissions, has been
slower than earlier expected, but now with over 150 project design documents and five final determinations
through the Joint Implementation Supervisory Committee, we can expect continued submission over the next
year. It won’t be a tidal wave of projects perhaps, but still a growing presence of JI projects in the
market. There is also Track 1 JI, with host countries vetting projects themselves. To date, 19 indications of
Track 1 projects have been received, requesting identifiers for accessing the international transaction log.
So now there are two viable approaches to JI. Overall it is fair to say the potential for JI in this
commitment period is still around a couple of hundred million tonnes, despite recent suggestions from some
market players of a decrease from earlier expected levels.
Much is riding on the international climate change negotiations now under way. How do the Kyoto
Protocol mechanisms factor into these negotiations?
Yes, the Parties to the Kyoto Protocol and the Convention are extremely busy negotiating what will happen
when the first commitment period of the Kyoto Protocol ends in 2012. These negotiations need to be concluded
in December 2009 in Copenhagen. How climate change action will be financed is a central theme of the on-going
negotiations. Parties have said that the carbon market and market-based mechanisms, like the CDM and JI,
should continue, but that they could be improved. Therefore, much of the discussion in negotiations revolves
around ways to take better advantage of the market and market mechanisms. Given the huge shift in investment,
and new investment, that addressing climate change will require, it’s appropriate that Parties are
looking at ways to scale up and improve market mechanisms.