See Newsletter #1, November 2012

At its last meeting in September, CDM Executive Board made a series of unfortunate decisions. At their upcoming meeting in Doha they will again discuss a number of important issues. At a time when carbon markets are collapsing due to severe oversupply, the CDM needs to be significantly reformed. Board members need to roll up their sleeves and take bold decisions that dramatically cut down the number of CDM credits from non-additional and over- credited projects.

CER prices have fallen to an all-time low of below EUR 1. The low prices are caused by an over-supply of credits and not enough demand. At their last CDM Executive Board meeting a number of issues were under discussion that could have potentially improved the environmental integrity of the CDM and consequently also cut the number of credits to be generated from certain CDM projects. It is therefore doubly unfortunate that the CDM Executive Board made several decisions that further undermine the environmental and social integrity of the CDM:

• Refused to consider alternative approaches to additionality: Last year, Parties in Durban gave the Board the mandate to improve the rules that determine whether a project is considered “additional” (whether it would not have happened without the CDM). There are currently too many large infrastructure projects in the CDM that are clearly not additional (see Bumpy Road to EU ETS Reform). Nevertheless, the Board declined to adopt effective ways to address the fundamental flaws in the way how additionality is demonstrated.
• Reinstated the methodology that allows new coal power projects to register as CDM projects. In an unprecedented move, the Board decided to remove safeguards from the rules that were recommended by its technical body, the Methodologies Panel. The rules adopted by the Board are considerably weaker than the version recommended by the Board’s technical experts. CDM finance for non-additional dirty carbon credits support the lock-in of emissions-intensive coal power for decades at the expense of the climate. (More on Coal Power Projects here).
• Kept the weak voluntary rules for sustainable development. The CDM Board discussed a draft voluntary tool for sustainable development co-benefits.  The already weak tool was further weakened by a decision to remove the no-harm section. Instead of requiring No Harm Safeguards that spell out obligations and reflect the full scope of human rights obligations, the tool will now be silent on these issues. At this meeting, they will probably approve the tool as it stands now (see below).

Did not agree to improve stakeholder involvement. The Board discussed recommendations for improvement of the local and global stakeholder consultation processes yet did not adopt any improvements. Instead many Board members argued against much needed clarifications and additional requirements that would ensure that stakeholder consultations are carried out in a meaningful way. They will continue discussing this issue at the upcoming meeting

IMPORTANT TOPICS AT THE UPCOMING 70TH CDM EXECUTIVE BOARD MEETING

SUSTAINABLE DEVELOPMENT MONITORING

At the upcoming meeting the Board will discuss and potential approve its voluntary sustainable development tool. This tool is designed for project participants to report on the sustainable development goals of a CDM project. However, the absence of monitoring and verification requirements and the voluntary nature of the proposed sustainable development tool undermine the legitimacy of the tool and greatly limit its utility as a reporting tool.

In line with the recommendations of the CDM Policy Dialogue, Carbon Market Watch recommends that the reporting tool is significantly strengthened and made mandatory. A broad work programme should be established to address this issue in a more substantial and effective way.

IMPROVING STAKEHOLDER PARTICIPATION

The CDM Executive Board will continue to discuss recommendations summarized by the secretariat (meeting 69, annex 22) for improvement of the local and global stakeholder consultation processes yet did not adopt any improvements. We have long been raising the issue that CDM stakeholder consultations are too often carried out insufficiently. It is essential to develop clear rules on how to conduct local consultations and establish clear guidelines to enable an independent entity to effectively assess the consultations. Many of the improvements can be accomplished within the existing mandate, as an elaboration or interpretation of the existing rules. For our detailed comments on the proposed stakeholder involvement improvements, download the CDM Watch submission here.

Carbon Market Watch calls on the Board to act swiftly and decisively to implement the proposed changes. The Board should clarify guidelines for how to conduct and how to validate a local stakeholder consultation. It is also important to clarify what the repercussions for a project proponent are when he is not in compliance with the stakeholder requirements. In case the project proponent remains non-compliant, projects should not receive a positive validation and should not be registered. If valid concerns are raised after project registration (e.g. human rights abuses) such projects should be suspended and not be issued any further CER.

STANDARDISED BASELINES HEADING THE WRONG WAY

The CDM Executive Board will further discuss rules for standardised baselines. This rather technical topic is nevertheless highly important. The new rules that have been developed by the UNFCCC Secretariat could seriously undermine the environmental integrity of the CDM. We have repeatedly provided detailed input to the Secretariat and the Board on this topic. Unfortunately to no avail. Moreover, the Methodologies Panel raised alarming comments to the general approach taken on standardised baselines. The panel concludes that “the existing guidelines may not in every case lead to robust standardized baselines” and “recommends to thoroughly revise” them.

Carbon Market Watch urges the Board not to adopt the proposed standards and guidelines in its current form. The documents require a thorough and fundamental re-assessment and careful drafting.

The Board should put the existing “Guidelines for the establishment of sector-specific standardized baselines” on hold and start a process to thoroughly revise these guidelines, in close cooperation with experts in the field, stakeholders, and the Boards panels and working groups.

A work programme should be established to enhance standardisation in the additionality tool, the combined tool and relevant baseline and monitoring methodologies.

STOP OVER-CREDITING OF NITRIC ACID PROJECTS

Nitric acid CDM projects destroy N2O, an unwanted by-product in in the process of producing nitric acid. The Methodologies Panel prepared an information note, (57th meeting, annex 5) on N2O abatement from nitric acid production. Their research confirmed our previously voiced concerns that the current methodologies (AM0028, AM0034 and AM0051) provide a perverse incentive to stay with older, less efficient technology. This can lead to inflated baselines which results in the issuance of too many CERs for such projects. The Meth Panel recommends introducing the default emission factors that would remove the perverse incentives.

The Board should follow the recommendations of the Meth Panel, to revise the approved methodology AM0028 to limit its applicability to caprolactam plants, to withdraw approved methodologies AM0034 and AM0051 and to revise the methodology ACM0019 to introduce default emission factors for existing plants.