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OPINION: Future of the CDM Under the Kyoto Protocol

Shafqat Kakakhel, a former UNEP official, currently serves on the 20-member Executive Board of the Clean Development Mechanism. He represents the developing countries of the Asia Pacific region

The Kyoto Protocol (KP) has been salvaged and it is one of the significant outcomes of the Durban Climate Change Conference. The KP will now continue and the second commitment period has been extended. The only setback is that Japan, Canada and Russia walked out and hence the total emissions reductions under KP will become quantitatively less. The Clean Development Mechanism (CDM) and other market-based flexible mechanisms first came into existence as a result of Article 12 of the KP. Ironically it was at the insistence of the Americans that this idea of flexible mechanisms was introduced but subsequently they could not ratify the KP themselves.

At Durban there were also discussions on whether Carbon Capture and Storage (CCS) could be admissible. Technically one of the CDM-related decisions in Durban was that CCS was agreed to in principle. But very tough conditions were placed on the verification. The complex procedures were prescribed by the conference. The technology needed to store carbon underground is not commonly available.

What was at stake in Durban was the legal basis of the CDM. Technically without the KP there is no legal basis. A kind of substitute legal basis was provided by some of the Annex 1 countries such as the EU states who have their own regional emissions reductions targets agreed under the auspices of the EU. Before Durban began, it was believed that even if the KP was not extended, countries would have found a way to continue with the system. The CDM is after all one of the few successful mitigation programmes that is international in nature and involves both developed and developing countries. Developed countries can transfer their emissions reductions and developing countries can get higher investments in clean energy. A notable achievement of the CDM is transfer of technology to developing countries. To date, 44% of approved projects have used new technology. According to many NGOs that is not good enough and it should have been more like 70 or 80%, but I think that even 44% is a significant number.

Other benefits for developing countries include increased energy production, jobs and economic activity. The CDM has acquired its own viability because different countries such as Australia and China, and states in the US such as California are thinking of introducing their own carbon trading systems. The CDM Executive Board has made impressive progress in streamlining and simplifying the modalities and procedures of the CDM initially agreed upon in Marrakesh in 2001.

Before the Durban meeting, the carbon market had shown considerable strain because of the uncertainty about the future of the KP and there was a noticeable reduction in the number of projects and the price of the CERs, which had once gone up to 13 Euros and then came down to less than 5 Euros. The price has still not picked up. But now at least there is no uncertainty about the future of the CDM.

There are as of today 3,800 registered projects located in 72 countries and in addition 3,600 projects are in the pipeline, undergoing various stages of verification and validation by the CDM secretariat located in Bonn.

The geographical composition of CDM projects has changed significantly. Until recently, 65% of the projects came from India and China. Now that has changed and there are many projects in African countries – 69 projects in total. A year ago, there were only one or two projects in Africa. The major beneficiaries of the carbon trading system, however, remain China and India, followed by Brazil and Mexico.

In 2010 the transactions involving carbon trading emissions amounted to 20 billion US dollars. The main thing about the CDM is that it is meant to help the Annex 1 countries (a total of 36 countries) to buy credits in order to meet their KP commitments in case they are unable to reduce their emissions through efforts at home. They can buy credits generated by projects in non-Annex 1 countries.

The CDM’s future in South Asia is assured. It was a very uneven situation in the past as India was number two globally in hosting CDM projects and other countries in the region were absent. But in the last three years, the other Asian countries are picking up. Pakistan, which four years ago had only one CDM project at the Pak Arab Fertilizer plant, now has 9 or 10 registered projects, which is a significant jump. Bangladesh also has a couple now, as does Sri Lanka. South Asia’s share has increased and other Asian countries are also gearing up. For CDM projects you need to have a vibrant economy that needs energy, robust infrastructure, a more conducive investment climate and dynamic entrepreneurs. If Asian countries want to benefit from the CDM they need to have more dynamic and active economies.

Speaking as a Board member, I would say that the CDM has made significant progress in simplifying its procedures and in giving support to developing countries, particularly those that had not earlier benefitted from the CDM.

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