Article / 05 Dec, 2018
Panel Speaks for Continued Usefulness of Clean Development Mechanism

UN Climate Change News, 5 December 2018 – It is a product of an earlier treaty, but the Clean Development Mechanism (CDM) could help incentivize much-needed global climate action in support of the Paris Agreement, said a panel at the United Nations Climate Change Conference (COP24) in Katowice, Poland.

The Kyoto Protocol’s CDM has registered more than 8,100 projects and programmes in 111 developing countries, everything from wind power projects, to clean clookstove projects, to landfill gas projects. All have been the result of CDM’s incentive – a saleable credit issued to project developers for each tonne of CO2 they reduce or avoid.

The CDM has a “history of innovation” and its success has been “phenomenal,” said Margaret-Ann Splawn, Executive Director of the Climate Markets and Investment Association, who moderated the event organized by the CDM Executive Board. “The CDM or its successor has a role to play […] in reaching the goal of the Paris Agreement.”

In Paris in 2015, countries agreed to limit average global temperature rise to 2 degrees Celsius compared to the pre-industrial time and to strive for a safer 1.5-degree target. Countries also agreed to create tools to help meet the Paris goals, including a new market-based mechanism.

The panel, in reflecting on the achievements of the CDM, expressed the view that the CDM still has a role to play, beyond the lessons it holds for whatever comes next.

“If a bicycle gets a flat, you don’t throw out the bicycle; you fix the tire, maybe also oil the chain,” said Daniel Rossetto, Chief Executive Officer (CEO) of Climate Mundial, who worries about the “very negative signal” that would be sent to the private sector, eroding investor confidence in any future carbon mechanism, if the CDM does not find an ongoing role in the global response to climate change.

Mr. Rossetto credits the CDM with, among other things, bolstering the political will needed for creation of the European Union Emissions Trading System (EU ETS), the world’s largest cap-and-trade market. Firms with an obligation under the EU ETS became the largest buyers of CDM CERs.

The ability to use CERs provided a price “safety valve to allow the political feasibility of the EU ETS,” Mr. Rossetto explained.

Apart from emission reductions, the CDM is credited with delivering numerous co-benefits, such as improved indoor air quality and resulting health benefits from efficient cookstove projects, job creation, increased access to electricity, and access to clean water.

Emission reductions and co-benefits together are the “power of the CDM,” said Sandra Greiner, Lead Consultant at Climate Focus, drawing from a report published by the CDM Executive Board in August of this year to mark its milestone 100th meeting.

“Imagine what a mechanism like the CDM can do if the price does rise to those levels” needed to spur emission reductions in line with the 2-1.5-degree goal of the Paris Agreement, said Ms. Greiner.

Prices paid for CERs declined with diminishing demand as the companies under the EU ETS reached the limit of their allowed CER usage and the first commitment period of the Kyoto Protocol, 2008-2012, wound down. As the price fell, the number of projects seeking registration declined and many projects ceased to operate. Countries agreed but have yet to ratify a second commitment period to 2020.

The CDM “has proven efficient in terms of stimulating investment in emission reduction,” said Alexis Leroy, CEO of project developer Allcot, who wonders how countries will ever be able to put a price on emissions, essentially tax emissions with all the public objections that that might imply, without something like the CDM that operates by providing incentive.

Still, Mr. Leroy sees a source of optimism for the CDM in the handful of national markets that use the mechanism, for example in Colombia where companies can use CERs to help cover their obligations to reduce emissions. This has given a boost to CDM projects in that country.

Ricardo Esparta, Technical Director of Brazil-based EQAO, spoke of the CDM’s strengths—credible, real, measurable emission reductions—and its weaknesses—notably complexity of some methodologies. Mr. Esparta highlighted in particular the trade-off between accuracy, conservativeness and simplicity, advocating for more simplicity as the way forward.

However, the CDM veteran project developer believes the CDM should be made part of the international response to climate change post-2020. Not finding a place for the CDM will mean lost infrastructure, he said.

The CDM developed a “huge capacity,” said Mr. Esparta. Countries “can use this capacity, or we’ll have to create it all again in a few years.”

CDM Executive Board Chair Arthur Rolle, who welcomed the panelists and presided over the session, said the Board has worked hard since the CDM’s inception to ensure the environmental integrity of CERs, regularly making improvements to the mechanism.

CDM Board Vice-Chair Piotr Dombrowicki recapped the discussion and thanked the panelists.

The side event was a unique opportunity to reflect on the broad range of experience gained and lessons learned over the 17 years of the CDM and discuss their continued relevance in the current evolving context.

Photo, from left, at the podium, Ricardo Esparta, Technical Director, EQAO;  Margaret-Ann Splawn, Executive Director, Climate Markets and Investment Association; Arthur Rolle, Chair, CDM Executive Board; Piotr Dombrowicki, Vice-Chair, CDM Executive Board; Daniel Rossetto, CEO, Climate Mundial; Sandra Greiner, Lead Consultant, Climate Focus; and Alexis Leroy, CEO, Allcot.