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Building on the success of Kyoto's market mechanisms

Parties are still taking stock of the outcome in Copenhagen, but what Parties have said so far, together with the success of the mechanisms themselves, suggests an expanded role for market-based approaches in the international response to climate change. In-Focus spoke with the UNFCCC secretariat’s John Kilani to get his views on where the Clean Development Mechanism (CDM) and Joint Implementation (JI) stand post Copenhagen. 

Image Has the Kyoto Protocol’s clean development mechanism met the goal for which it was designed?

Yes. There are now more than 2050 registered CDM projects in 62 countries – everything from community electrification, to landfill gas capture, to industrial chemical projects, destroying extremely potent greenhouse gases. Of these projects, more than a third transfer climate-friendly technologies to developing countries. 

We’ve just concluded the second year of a five-year commitment period and already more than 367 million certified emission reductions have been issued to some 640 projects. That’s equivalent to 367 million tonnes of CO2.

A question asked by stakeholders for the past several years, perhaps since CDM began, is “What will happen to CDM at the end of the first commitment period?”

Stakeholders are right to ask that question. The carbon market and the project-based mechanisms – the Clean Development Mechanism and Joint Implementation – exist because of a political decision by Parties to reduce emissions. Stakeholders are looking for signs that the market will continue when the first commitment period of the Kyoto Protocol ends in 2012. They are finding those signs in various places.

To name a few, they see that the European Emissions Trading Scheme is open-ended, that it will exist beyond 2012; they see the growing interest in market-based approaches elsewhere; they see continuing, strong interest in the mechanisms in developed and developing countries alike; and then there is the commitment, even pressure, from the private sector, together with the strong interest in voluntary offset schemes. And, most significantly, people see climate change as a critical issue that will not go away without concerted, sustained, long-term action.

Since Copenhagen, some 102 Parties have confirmed their intentions to take action on climate change, some in very detailed, specific terms. These countries account for over 80% of global, energy-related CO2 emissions.

The other project-based mechanism under the Kyoto Protocol, Joint Implementation, has been lagging behind the CDM. Will 2010 be the year that JI takes off?

Parties gave CDM a so-called “quick start”, so it’s true that CDM is much farther along in terms of number of projects. However, there are signs that JI is catching on. There are now 17 projects in three countries eligible to earn emission reduction units under so-called JI Track 2, those projects vetted by the Joint Implementation Supervisory Committee. Many dozens more are ready to go, and are awaiting the official go-ahead from countries. Although it’s difficult to predict whether this year will be the break-out year for JI, the signals since Copenhagen have been positive.

Joint Implementation is a useful, unique tool for incentivizing investment in areas of an economy where otherwise there would be little or no incentive. Once countries see the value of the tool, and decide the best way to make use of the tool, I think we will see a vast increase in JI activity. Our challenge then will be to handle the volume of projects. But that would be a good problem to have.        

Copenhagen concluded with Parties taking note of an accord calling for the limiting of temperature rise to 2 degrees Celsius and calling for tens of billions of dollars to be directed at the climate change challenge. What does the Copenhagen outcome mean for the mechanisms under the Kyoto Protocol?

The Copenhagen Accord doesn’t speak directly to the mechanisms under the Kyoto Protocol, but it does refer to various approaches, including opportunities to use markets, to enhance cost-effectiveness and promote mitigation actions. It says that developing countries, especially those with low emitting economies, should be provided incentives to continue to develop on a low emission pathway.

This supports what Parties have said previously. They have explicitly endorsed the continuation of market mechanisms to mitigate climate change and generate funds for adaptation to climate change.

In the broader sense, the Accord addresses the essential elements of an international response to climate change. Parties have noted the importance of limiting global warming, and they have noted the large sums that will be needed to address climate change. These two elements are linked fundamentally to the carbon market and the project-based mechanisms.

The carbon market and the mechanisms exist because Parties made a commitment to reduce emissions, thus giving the right to emit a value, and because Parties saw the benefits of using market-based approaches to, among other things, mobilize the vast sums necessary to address climate change.

Aside from the Copenhagen Accord, Parties in Copenhagen did take important decisions on the mechanisms which provide further guidance to the CDM Executive Board and the Joint Implementation Supervisory Committee. The decision relating to the CDM contains specific mandates on how to improve the mechanism.

You mention that Parties took a decision in Copenhagen relating to the Clean Development Mechanism. What are the key features of that decision?

The biggest single element of that decision grants the CDM Executive Board, the body that oversees the mechanism, the flexibility to make changes to the CDM’s registration and issuance procedures. In other words, the Board can take a hard look at all of the procedures and related timelines and make any improvements that they see fit, based on the experience gained in implementing the mechanism to date. This could greatly quicken the process for stakeholders.

The Parties have also allowed for the allocation of financial resources to assist in the development of projects in countries with fewer than 10 projects. This could help extend and expand the benefits of the CDM.

Several other elements of the decision respond directly to requests made by stakeholders, such as the establishment of procedures for stakeholders to appeal decisions, and enhanced support to Designated National Authorities in the form of training and information sharing.

It’s important to note that virtually all of the requests made by Parties in their decision taken in Copenhagen were recommended by the CDM Executive Board. The CDM is continually evolving and improving, based on experience. The Copenhagen decision was a continuation of that process of evolution and improvement.
Where do you see the mechanisms in 10 years?

I see growing awareness about climate change and growing action to address it. Action to mitigate climate change, and address its effects, will require resources, it will require participation by the private sector, and it will take a global response. For these reasons I see a growing role for carbon markets and market-based mechanisms like the CDM and JI. Parties have said virtually the same thing, so my prediction is really a restatement of what Parties have said on the subject. The market mechanisms will continue to scale up, evolve and improve.

John Kilani is Director of the Sustainable Development Mechanisms programme in the UNFCCC secretariat, Bonn, Germany.