An Analysis of theClean Development Mechanism

(A Project Presentation prepared for the partial fulfilment of ED76.11 Natural Resource Management)

Presented By:Pradeep Baral

Katika Punbuatoom

Kyoto Protocol Flexibility Mechanisms

(Source – UNITAR/UNEP)

Joint Implementation

(JI) (Article 6)

Clean Development Mechanism (CDM)

(Article 12)

Emissions Trading (ET) (Article 17)

Clean Development Mechanism

• Allows a country with emission-reduction commitment to implement an emission reduction project in developing countries

• Such projects can earn saleable Certified Emission Reduction (CER) credits

• Each CER is equivalent to one ton of CO2 equivalent which can then be counted towards meeting Kyoto targets

(Source - http://unfccc.int/kyoto_protocol/mechanisms/clean_development_mechanism/items/2718.php)

Twin Objectives of CDM• to help developed countries fulfil their commitments to

reduce emissions, and

• to assist developing countries in achieving sustainable development.

(Source - http://cdm.unfccc.int/about/dev_ben/index.html)

CDM – Additionality Criterion• Article 12.5 of the Kyoto Protocol: "Emission reductions resulting from each CDM project activity

shall be certified...on the basis of...reductions in emissions that are real, measurable, and additional to any that would occur in the absence of the certified project activity”

Financial Additionality Cannot be ‘anyway would have happened project’ Should not divert the Official Development Aid (ODA)

Environmental Additionality Overall amount of GHGs abated by the project relative to a baseline Emission reductions should be real and measurable

(Source - http://figueresonline.com/csdafinal/english/publications/cdm/es.baumert.html)

CDM Project CycleProject Participants develop PDD,

using approved EBMM

Project participants secure letter of approval from DNA

PDD is validated by DOE

Project submitted by DOE to CDM EB. Registration is the formal

acceptance of CDM Project

Project participant responsible to monitor emissions

DOE verifies whether actual emission reduction took place

DOE submits verification report to CDM EB with request to issue CER Source -

http://cdm.unfccc.int/Projects/diagram.html

The Demand Side of CERs• European Union (Under EU ETS scheme)• Sovereign buyers – Annex I countries such as Japan, Australia and Canada• Multilateral Development Banks and Carbon Funds – World Bank Carbon Partnership Facility,

ADB Carbon Market Program

(Source - http://carbonmarketwatch.org/category/eu-ets/, Dhakal (2013))

CDM Project Transaction Costs

Source - http://www.slideshare.net/juanpadominguez/global-distribution-of-cdm-projects

Decision Flowchart for CDM Project

(Source – Transaction Cost and CDM, Chadwick (2006))

CDM Project History (As of February, 2015)

Status of CDM projects in the project cycleNumber

At validation 816Request for registration 24Registered, no issuance of CERs

5020Registered, CER issued 2578Total registered 7598Pending Publication

202

Total Number of CDM Projects 8640

Source - http://cdmpipeline.org/overview.htm#4

Regional Distribution of CDM Projects

Region Number of small-scale Number of full scaleNumber of all

projects

Latin America 412 11.8% 729 14.2% 1141 13.2%

Asia & Pacific 2928 83.8% 4134 80.3% 7062 81.7%

Europe and Central Asia 26 0.7% 62 1.2% 88 1.0%

Africa 90 2.6% 152 3.0% 242 2.8%

Middle-East 39 1.1% 68 1.3% 107 1.2%

Developing World 3495 100.0% 5145 100.0% 8640 100%

Source - http://cdmpipeline.org/overview.htm#4

Distribution of CERs Issued

(Source - https://cdm.unfccc.int/Statistics/Public/CDMinsights/index.html#iss)

90% of all CERS issued

CDM Projects by Sector

(Source - http://cdmpipeline.org/overview.htm#4)

CERs Issued by Sector

Source - http://cdmpipeline.org/overview.htm#4

CDM in Second Commitment Period 2013-2020• Doha Amendment to the Kyoto Protocol at CMP 8, Doha• Non-Annex I Parties may continue to participate in existing CDM projects and may

also participate in new CDM projects registered from 1 January 2013 onward.• Annex I Parties (including those without emission targets in the second commitment

period) may participate in existing and new CDM projects and may receive CERs forwarded from the CDM registry to accounts in their national registry that are issued in respect of emission reductions and removals achieved by CDM Projects in the Second Commitment Period (CP2).

Source - https://cdm.unfccc.int/faq/index.html

CER Market Analysis

Source: http://www.climatechangecapital.com/thinktank/research/

• Falling CER price• Market Crash

How to calculate emission reduction under the CDM?

Source: www.globalccsinstitute.com

CDM Project ExampleDecha Bio Green Rice Husk Power Generation • 7.5 MW Rice Husk plant supply and grid export

• Baseline Emission = 29,620 tCO2e/yr• Project Emission = 0 tCO2e• Leakage Calculation = 0 tCO2e• Emission Reduction = 29,620 tCO2e/yr• Electricity delivered to the Thailand Grid = 51,246,000 kWh

Source: https://cdm.unfccc.int/Projects/DB/RWTUV1251209528.4/view

Advantages of CDM

• Contribute positively to the local environment• Improving quality of life of people• Contribute positively to the economy in parallel • Provide an additional financial contribution • Encourage Foreign Direct Investment and technology transfers• An additional source of income by CERs

Source: https://cdm.unfccc.int/about/dev_ben/ABC_2012.pdf

Challenges of CDM

Source: Stadelmann et al. 2013

1. Many Non-Additional Projects

2. Lack of Political Willingness

3. Perverse Incentives

4. Limited Contributed to Local Sustainable Development

5. Imbalance Regional distribution

6. Opportunity Cost

7. The Risk of Carbon Market

Increasing demand side Reducing supply side• Advanced developing countries

using CERs domestically in ETS • Directly required CERs from

government• The alternative potential demand

for CERs in Airline and Maritime Industry

• Discounting of CERs by host-country

• Excluding projects from the CDM • Qualitative restrictions and

changing the length of crediting periods, and additionally check

Recommendations for CDM rescue options

Source: Stadelmann et al. 2013

Conclusion