Reforming the CDM: Mission Impossible? (Newsletter #3)

At the upcoming intercessional conference starting on 3 June in Germany, Parties will discuss revisions to the rules that govern the CDM. We highlight the most important issues that need to be addressed in order to strengthen the environmental and social integrity of the CDM.

This year Parties will revise the rules that govern the Clean Development Mechanism (CDM), the so called “modalities and procedures” (M&P). The revisions are to be finalized in Warsaw, Poland at COP-19 by the end of this year.  At the upcoming intercessional in Bonn Parties will discuss changes both during the negotiations and at a separate workshop. Parties and admitted observer organizations have already submitted their views and suggestions to the UNFCCC earlier this year in response to a public consultation (see Box 1).

Box 1: Submission on CDM M&P recommendations 

The CDM is in a precarious situation, as demand for its Certified Emissions Reductions (CERs) is very low and is projected to remain low until 2020, if Parties do not increase their mitigation pledges. Because of the lack in demand and the oversupply, prices have dropped over 90% in the last year and a half and are now at around 40 Euro cents. This also impacts the quality of offsets. At such low prices, it is safe to say that it is not possible to implement new projects that are additional.

carthage

Courtesy of carthageMartin/flickr

Parties have made different suggestions on how this supply demand imbalance could be addressed. Demand could be increased, some suggest, by allowing all countries to use CERs for compliance with their mitigation pledges, by encouraging the use of CERs in the aviation and shipping sector (see article on aviation) or by buying up large numbers of offset credits through the Green Climate Fund (GCF). The significant over-supply of carbon credits is in no small part due to lenient rules, in particular rules on additionality. Therefore, Carbon Market Watch believes that such large scale “rescue” purchases of offset credits are counter-productive. Especially if the purchases involve buying up the large number of offset credits that are from projects with questionable environmental integrity. Instead using up scarce climate finance to purchase substandard carbon credits, Carbon Market Watch believes that the supply-demand imbalance needs to be addressed by countries raising their mitigation targets and by the CDM reform dramatically improving the social and environmental integrity of the CDM. The CDM can only have a viable future if it is fundamentally reformed. It remains to be seen if there is the political willing ness to do so.

The following is a summary of Carbon Market Watch’s key recommendations for the upcoming intercessional conference in Bonn. For detailed information about these recommendations, see our “Carbon Market Watch recommendations for SB38, June 2013”.

Fundamentally reform additionality requirements

  • Additionality criteria must be strengthened and require, for example, that the impact of CER revenues on the economic attractiveness of a proposed CDM project activity is considered.
  • Eligible CDM project types should be limited to the ones that have a high likelihood of being additional. Exclude those project types with low likelihood of additionality. (e.g. large greenfield infrastructure projects).
  • Project types where baselines and additionality are intrinsically difficult to determine (e.g. because of signal-to noise ratio issues) should be excluded.

Change Rules (E+/E-) to avoid perverse incentives on other GHG policies

  • E-policies should be considered when setting the baseline. This would lead to more conservative baselines while the risk of perverse incentives is likely to be low for most sectors.
  • E+ policies that have considerable impact on GHG emissions and which have high risks for perverse incentives, such as fossil fuel subsidies, should not be included in the baseline, irrespective of when they were adopted.

Ensure that all CDM Projects uphold human rights

  • All project activities registered, or seeking registration, under the CDM must be undertaken in a manner that respect human rights.
  • Project activities must be suspended if they are found not to meet human rights obligations and standards until the relevant concerns have been fully addressed.

Improve the CDM’s contribution to sustainable development

  • A minimum global standard for CDM projects on sustainability and “no harm” requirements should be defined.
  • Mandatory requirements for monitoring, reporting, and verification of sustainability benefits during the entire project cycle should be established.
  • Project types that support technologies or practices with high GHG emissions and that are associated with other high environmental and social costs (e.g. projects that support the extraction and use of coal) should be excluded from the CDM.

Strengthened Civil Society Participation in the CDM process

  • The requirements for stakeholder involvement  should be strengthened and clarified.
  • A communication channel for case specific matters and a grievance mechanism to address the social and environmental impacts of specific CDM projects should be established.

Set-up a Grievance Mechanism

  • The appeals procedure must be implemented swiftly and provide for broad legal standing;
  • Complementary grievance mechanism should be established to address the social and environmental impacts of CDM projects during implementation of CDM project activity, e.g. when sustainable development co-benefit criteria are not realised as described in the PDD and to consider and address concerns about human rights impacts of a CDM project raised by or on behalf of individuals or communities.

Improve the constitution and conduct of the CDM Executive Board and supporting bodies

  • Robust codes of conduct should be implemented for all members of the CDM governance structure, including the CDM Executive Board, working groups or teams assisting the Board, and members of the UNFCCC Secretariat.
  • Nominations from representatives with vested interest in the CDM should be prohibited in order to prevent potential conflicts of interests.
  • Quota rules on the composition of the Board should be established to ensure that members from environmental and academic organisations are represented.
  • Term limits for Board member should be such that board members are limited to serve a maximum of two terms of two or three years. 

Downloads

PDF (English)