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Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocol allowing industrialised countries with a greenhouse gas reduction commitment (called Annex 1 countries) to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. The most important factor of a carbon project is that it establishes that it would not have occurred without the additional incentive provided by emission reductions credits.
The CDM allows net global greenhouse gas emissions to be reduced at a much lower global cost by financing emissions reduction projects in developing countries where costs are lower than in industrialized countries.
The CDM is supervised by the CDM Executive Board (CDM EB) and is under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC).
The CDM was an important feature of the negotiations leading up to the Kyoto Protocol. Some governments desired flexibility in the way that emission reductions could be achieved and proposed international emissions trading as a way of achieving cost-effective emission reductions. At the time it was considered a controversial element and was opposed by environmental NGOs and, initially, by developing countries who felt that industrialised countries should put their own house in order first and feared the environmental integrity of the mechanism would be too hard to guarantee. Eventually, and largely on US insistence, the CDM and two other flexible mechanisms were written into the Kyoto Protocol.
The purpose of the CDM was defined under Article 12 of the Kyoto Protocol. Apart from helping Annex 1 countries comply with their emission reduction commitments, it must assist developing countries in achieving sustainable development, while also contributing to stabilization of greenhouse gas concentrations in the atmosphere.
The major greenhouse gases are water vapor, which causes about 36–70% of the greenhouse effect on Earth (not including clouds); carbon dioxide, which causes 9–26%; methane, which causes 4–9%, and ozone, which causes 3–7%. It is not possible to state that a certain gas causes a certain percentage of the greenhouse effect, because the influences of the various gases are not additive. (The higher ends of the ranges quoted are for the gas alone; the lower ends, for the gas counting overlaps.) Other greenhouse gases include, but are not limited to, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons, perfluorocarbons and chlorofluorocarbons.
To prevent industrialised countries from making unlimited use of CDM, Article 6.1 d) has a provision that use of CDM be ‘supplemental’ to domestic actions to reduce emissions. This wording has led to a wide range of interpretations - the Netherlands for example aims to achieve half of their required emission reductions (from a BAU baseline) by CDM and JI.
The CDM gained momentum in 2005 after the entry into force of the Kyoto Protocol. Before the Protocol entered into force, investors considered this a key risk factor. The initial years of operation yielded fewer CDM credits than supporters had hoped for, as Parties did not provide sufficient funding to the EB. This left it understaffed.
An industrialised country that wishes to get credits from a CDM project must obtain the consent of the developing country hosting the project that it will contribute to sustainable development. Then, using methodologies approved by the CDM Executive Board (EB), the applicant (the industrialised country) must make the case that the carbon project would not have happened anyway (establishing additionality), and must establish a baseline estimating the future emissions in absence of the registered project. The case is then validated by a third party agency, called a Designated Operational Entity (DOE), to ensure the project results in real, measurable, and long-term emission reductions. The EB then decides whether or not to register (approve) the project. If a project is registered and implemented, the EB issues credits, called Certified Emission Reductions (CERs, commonly known as carbon credits, where each unit is equivalent to the reduction of one metric tonne of CO2e, e.g. CO2 or its equivalent), to project participants based on the monitored difference between the baseline and the actual emissions, verified by the DOE.
To avoid giving credits to projects that would have happened anyway ("freeriders"), rules have been specified to ensure additionality of the project, that is, to ensure the project reduces emissions more than would have occurred in the absence of the project. There are currently two rival interpretations of the additionality criterion:
1. What is often labelled ‘environmental additionality’ has that a project is additional if the emissions from the project are lower than the baseline. It generally looks at what would have happened without the project.
2.
In the other interpretation, sometimes termed ‘project additionality’, the project must not have happened without the CDM.
A number of terms for different kinds of additionality have been discussed, leading to some confusion, particularly over the terms 'financial additionality' and 'investment additionality' which are sometimes used as synonyms. 'Investment additionality', however, was a concept discussed and ultimately rejected during negotiation of the Marrakech Accords. Investment Additionality carried the idea that any project that surpasses a certain risk-adjusted profitability threshold would automatically be deemed non-additional. 'Financial additionality' is often defined as an economically non-viable project becoming viable as a direct result of CDM revenues.
Many investors argue that the environmental additionality interpretation would make the CDM simpler. Environmental NGOs have argued that this interpretation would open the CDM to free-riders, permitting developing countries to emit more CO2 while failing to produce emission reductions in the CDM host countries.
It is never possible to establish with certainty what would have happened without the CDM or in absence of a particular project, which is one common objection to the CDM. Nevertheless, official guidelines have been designed to facilitate uniform assessment set by the CDM Executive Board for assessing additionality.
Establishing a baseline - The amount of emission reduction, obviously, depends on the emissions that would have occurred without the project. The construction of such a hypothetical scenario is known as the baseline of the project. The baseline may be estimated through reference to emissions from similar activities and technologies in the same country or other countries, or to actual emissions prior to project implementation. The partners involved in the project could have an interest in establishing a baseline with high emissions, which would yield a risk of awarding spurious credits. Independent third party verification is meant to ameliorate this potential problem.
Reference - en.wikipedia.org |
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