U.N. Climate Summit: The CDM Gets its Day in Court

U.N. Climate Summit: The CDM Gets its Day in Court

For many engaged in the global carbon markets through the Clean Development Mechanism (CDM), today's experience in Pozna? was like finally having their day in court.

For the unfamiliar, the CDM is a "flexible mechanism" created under the Kyoto Protocol that enables investment by developed (Annex I countries) in project-based activities to reduce greenhouse gas (GHG) emissions in developing (non-Annex I countries). The purpose of the CDM is to promote meaningful reductions in developing country GHGs while also promoting sustainable development.

If a project undertaken through the CDM can rigorously prove and document that the associated emission reductions would not have otherwise occurred under a business-as-usual scenario, they are awarded Certified Emission Reduction Credits, or CERs. At present, these CERs can be generated by more than 100 different project types -- from anaerobic digestion of animal manure, to industrial energy efficiency and installation of renewables like wind, small-scale hydro and geothermal.

So far, the CDM has generated tremendous investment in emissions mitigation, with "low carbon entrepreneurs" (like EcoSecurities!) now supporting more than 1000 emission-reducing projects registered with the Executive Board which are projected to reduce 2.5 billion tonnes of developing country emissions through 2012. (For some perspective, this number is more than five times the annual emissions of the 7th largest economy in the world, California.)

In addition, there are a further 3,000 projects under development and/or awaiting registration, and the FCCC secretariat's Paper on Investment and Financial Flows to Address Climate Change shows that 86 percent of all current investment is coming from the private sector.

The CDM, which is strong in theory and admittedly flawed in practice, has come under fire repeatedly in the recent past, due to questions about its environmental effectiveness and ability to promote sustainable development. One of EcoSecurities' key objectives at COP has been supporting efforts to advance meaningful CDM reform that will address these issues, while also making the process more streamlined and straightforward for project developers like ourselves.

This morning, the Conference of Parties Serving as the Meeting of the Parties (CMP) undertook a rigorous debate of CDM reform, with China taking the lead and more than 10 minutes of floor time to methodically list their grievances with the existing CDM system and potential reforms for improvement. Many of the suggested reforms addressed both by the Chinese and other delegates -- such as professionalizing and supporting the capacity of the Executive Board to hand down policy decisions, and promoting institutional memory through the creation of case law -- have long been advocated as vital to long term market viability by offset project developers and other market participants.

For many international market participants who have grown weary of both the CDM inefficiencies, and the often unfairly critical pictures painted of the CDM in the press, today felt like a solid first step towards addressing and improving on many of these issues.

When the new U.S. delegation takes over next year, it will be interesting to see how they chose to engage on the issue of the CDM. Given its strong potential to promote private business investment in developing country emissions reductions, and to provide domestic cap-and-trade cost containment though availability of least-cost reduction credits, the Clean Development Mechanism may ultimately be an important tool for U.S. technology deployment, capital mobilization, and political compromise.