Carbon Market Watch

For fair and effective climate protection.

A closer look at the CDM Executive Board agenda for 2012 (Newsletter #18)

11 Feb 2012

We provide an overview on several issues on CDM Executive Board’s agenda in 2012.

The agenda of CDM Executive Board’s first meeting in 2012 is full. Aside from the 25-page annotated agenda, there are no less than 31 appendices that Board members have to wade through!

Most importantly the Board will discuss strategic priorities for 2012 based on the CDM two-year business plan for 2012- 2013 and the CDM management plan for 2012 (see Annex 1 and Annex 2 here). In the box below you will find the objectives listed in both plans, followed by our comments below.

Objectives for the CDM as stated in the Board’s management and business plans

A. Greater efficiency and enhanced predictability in the operation of the CDM through simplification, improved objectivity and integrity, and compliance with sustainable timelines Ensure operational capacity and improve efficiency in the operation of the CDM

The Board shall continue to assess its processes and requirements with a view to reducing complexities and ensuring that all submissions related to project activities, accreditation and standards are processed within agreed timelines and in accordance with agreed standards and procedures. In particular, the Board shall ensure that the expected increase in registration and issuance requests towards the end of the first commitment  period will be managed in line with established timelines;

Improved objectivity, clarity and integrity in the CDM

The Board shall strengthen the objectivity and clarity of requirements established for the CDM in a manner which ensures the environmental integrity of the mechanism and helps deliver on its promise for sustainable development; 

Enhanced transparency of the CDM

The Board shall supervise the mechanism in a transparent and participatory manner, ensuring greater transparency regarding its work and its processing of submissions and continue to enhance the governance structure of the mechanism;

B. Expansion of the reach and reputation of the CDM through outreach, further development of requirements, increased distribution of projects, and focused skills development

Regional and sub-regional distribution and skills enhancement

The Board shall take all actions within its authority to enhance the distribution of CDM projects, project types and programmes in those countries, regions and sub-regions currently underrepresented in the CDM. Activities shall also be undertaken to contribute to the skills enhancement of stakeholders;

Enhanced promotion and further development of the mechanism

The Board shall champion the CDM, ensuring an enhanced understanding among civil society, policymakers and market participants of its benefits and its contributions to both the mitigation of climate change and the sustainable development of communities and countries, and contribute to the policy debate and intergovernmental negotiations regarding the future of the CDM and the international climate regime.

Focus on standardisation

Standardisation remains one of the main priorities of the Board. The management plan outlines a long list of deliverables. Both the Methodologies Panel and the Small Scale Working Group have been tasked to develop top-down standardised methodologies and to evaluate further possibilities for standardisation in existing methodologies. CDM Watch has discussed the merits and shortfalls of standardisation in previous newsletters. We  want to reiterate a word of caution: although standardisation can help improve efficiency and integrity, it is by no means a silver bullet (as the experience with the coal power methodology ACM0013 has shown) and assumptions have to be carefully assessed to avoid free-riders.

Speaking of standardisation, the Board will discuss what to do about N2O abatement projects from nitric acid production. Last year the Board approved methodology ACM0019 for N2O abatement which can be used for both existing and new nitric acid plants. The methodology uses a simplified approach with a declining baseline emission factor. It is a positive example of how standardisation can be used to simplify procedures while at the same time using a baseline that minimises the threat of gaming and ensures the conservative issuance of credits.

CDM Watch recommends:

Given the Board’s emphasis on increasing standardisation, a logical next step is to retire the existing methodologies AM0028 and AM0034 to make room for a consistent, standardised approach.

Additionality and the state of carbon markets

Carbon markets have experienced a serious decline in the last half year (see the guest article on the EU-ETS). Prices are at an all time low. CDM credits now trade at 4 Euros or less. The Secretariat will provide the Board with up-to-date information on the health and outlook on carbon markets. The current imbalance in supply and demand (credit issuance is at an all time high while demand has dropped significantly due to the economic crisis) adds urgency to the Board’s task to increase the environmental integrity of the CDM. Having strong rules that exclude free-riders also ensures that prices are not artificially low because of extra non-additional credits.

The meeting agenda and the management plan are conspicuously silent on the issue of additionality (except for additionality for micro-scale projects). This is strange given the high level objective of increasing environmental integrity. At the last Board meeting, the outgoing member Lex DeJong gave an eloquent presentation on the need to reassess the additionality rules for large scale infrastructure projects. This concern was reflected in the CMP guidance to the Board in Durban (see our summary on COP17).

CDM Watch recommends:

Given the goals stated in the management and business plans, we expect the Board to seriously examine additionality and pro-actively propose changes that will increase the integrity and efficiency of the CDM.

Risk-based assessment

Many projects are trying to get registered before the end of 2012 after which the EU will only accept new projects that are located in Least Developed Countries. The Secretariat reported at the last meeting that because of the large volume of projects, projects can no longer be approved or issue credits within 30 days and suggested hiring additional staff. The management plan outlines the steps for developing a ‘risk-based approach.’ Such an approach would allow the Board to only conduct spot checks and not have each project evaluated individually.  The topic will again be discussed at this meeting.

Figure 1 taken from the draft report to the CMP shows the steep growth in projects.

CDM Watch recommends:

The Board is discussing ways to speed-up the registration process because the Secretariat is under-staffed and the volume of projects that request registration can fluctuate quite considerably (which makes it difficult to just add staff). However, a risk-based approach is indeed risky in terms of safe-guarding the environmental and social integrity of CDM projects since it would make it even more difficult to identify and eliminate harmful projects. The rules and process for such a ‘risk-based’ approach have not been clarified yet, and we urge the Board not to weaken existing rules. All projects need to be examined carefully to ensure they are additional and do not cause harm.

Sustainable development and Civil Society Engagement

CDM Watch is glad to see ‘sustainable development’ and ‘civil society’ mentioned in the objectives for the CDM in 2012. The human rights abuses reported last year and the many studies that have confirmed that the CDM does little to promote benefits for local populations, make it clear that both issues need to be examined and strengthened. The management plan lists tasks to improve the stakeholder consultation process and to develop voluntary measures to “highlight the co-benefits of CDM projects and PoAs Sustainability benefits of CDM projects.”  CDM Watch welcomes these plans and urges Board members to treat them as a matter of urgency.

CDM Watch urges the Board to be ambitious in their plans to improve sustainable development and pro-poor benefits in the CDM. The measures listed in the management plan are much needed steps in the right direction.