The challenge of renewing CDM projects (Newsletter #16)

In 2012, a large number of projects will come up for renewal. It is vital that sound rules govern how these renewals are evaluated and approved. Yet a decision by the CDM Executive Board last year, weakens the requirements for project renewals, leaving room for interpretation that could lead to a substantial over-issuing of credits.

Projects can choose to receive credits either for 10 years, or for three times 7 years (21 years in total). If they choose the latter, the assumptions that were initially made to calculate the credits a project receives have to be reassessed every 7 years. So if a project developer chooses this 21-year option, they have to weigh the benefit of a much longer crediting period against the risks of generating fewer credits in each new crediting periods.

Circumstances can change significantly over 7 years. A technology that may have been prohibitively expensive may now be competitive. Or the business-as-usual technology may have become less competitive, e.g. because of rising fuel prices. A crediting period of 21 years is very long, so it is absolutely vital that the baseline scenario (what would have happened without CDM support) is reassessed at each renewal period to avoid over-crediting projects.

The rules for the renewal of the crediting period are spelled out in the Marrakesh Accords.[1] Yet the CDM Executive Board weakened the rules last year by removing the requirement to reassess the baseline scenario without providing guidance on the implications of this decision. For example: what does it mean to have to reassess the baseline but not the baseline scenario? We share the concerns of the CDM Methodology Panel who issued a note^{^[2]} on this topic at its last meeting that these rules need to be clarified and strengthened to avoid artificial credits being issued.

CDM Watch recommends that the CDM Executive Board develops clearer guidance on how to reassess the baseline at the renewal of the crediting period. To ensure the quality (and correct amount) of credits issued in the subsequent crediting period, the circumstances that should be assessed should include economic changes, technological changes and changes in market structure.

A crediting period of 21 years is very long, so it is absolutely vital that the baseline scenario (what would have happened without CDM support) is reassessed at each renewal period to avoid over-crediting.

[1] Paragraph 49(a) of the modalities and procedures for the clean development mechanism.

[2] Methodology Panel Information note “Tool to assess the validity of the original/current baseline and to update the baseline at the renewal of a crediting period.”

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