Feedback from the Carbon market Insights conference to the Practitioner’s Network. Pascale Junker The future of CDM - from the point of view of developing.

Feedback from the Carbon market Insights conference

to the Practitioner’s Network.

Pascale Junker

The future of CDM - from the point of view of developing countries

Paris, 24 mars 2010

Carbon market insights 2011 - the setting

• A trader’s fair organised annually by Thomson Reuters Point carbon. (Amsterdam 1-2 mars 2011 )

• General feeling that international Climate Change conferences aiming at universally binding reduction legislation is not the way forward (contrary to emerging economies’ take off).

• Market based approaches are more accurate, if they guarantee real net reductions and environmental integrity

• End of old inter-governmental global diplomacy

Carbon market insights 2011 - the setting

• Rise of decentralised post-national powers: Companies, markets, banks, local communities, cities, religious groups, universities, R&D, mercenaries, NGOs, like in Middle Ages

• This incl Carbon markets, which might become larger than oil markets

• Emitting countries’ primary concern: energy supply before Climate change

• CDM seen as an immature, EU ETS as a mature market as well as more cost-effective than CDM

• Markets perceived as the cheapest way to mitigate

CDM in 2010, a reminder• In 5 years of operations, CDM boomed • 560 mio CERs issued• 2 900 registered projects, expecting 2 000 mio

CERs by 2012• 3 156 projects under validation, expecting 800

mio CERs until 2012• Total expected generated CERs by 2012:

3,3 billion CER (1 billion deemed realistic)• 157 DNAs notified• 103 Approved large-scale, 70 small-scale

baseline methodologies

CDM improved its process

• CDM cycle in UNFCCC got shorter, Issuance of credits faster, Number of projects registered increased

• New UNFCCC facilities for 50 LDCs: – simplified rules: on additionality, simple cost analysis

acceptable in some EE projects, 1 round of review only, less requirements for monitoring

– Simplified financing: Least Developed Countries Fund Special Climate Change Fund, (Adaptation Fund), Loan scheme to support the development of CDM projects in countries with less that 10 registered projects; PoAs

UNFCCC - Least developed countries fund• LDCF est. in 2001, managed by GEF, focused on

adaptation.• 44 NAPAS completed, 36 NAPA implementation

project proposals have been approved for $131 mio. • voluntary contributions amount to $287 mio for the

LDCF. • “The LDCs, despite their small economies and

limited institutional and technical capacities, are now among the most advanced in the world with respect to cutting edge actions to reduce vulnerability and increase adaptive capacity to the adverse impacts of climate change.” GEF

UNFCCC - Special Climate change Fund

• SCCF est. in 2001, managed by GEF.• finances projects relating to: adaptation;

technology transfer and capacity building; energy, transport, industry, agriculture, forestry and waste management; economic diversification.

• 22 SCCF implementation project proposals have been approved for $92 mio.

• voluntary contributions amount to $131 mio for the LDCF.

UNFCCC Loan scheme for LDCs• to support the development of CDM projects in countries with less that 10 registered projects

• To cover the costs: of the development of PDDs; of validation and the first verification for these project activities.

• Sources: interests from CDM Trust fund, voluntary contributions from donors

• Low LDCs emission Criteria: – Min 7,500 t CO2 eq annual average emission

reductions over the first crediting period

• Not operational yet

CDM at risk for effectiveness,rational aspects

• Unadequate geographic distribution remains• High prohibitive transactions costs + upfront

payments• CDM governance seen as bad: Environmental

integrity needs civil society involvement, Additionality check inherently impossible, Monitoring sustainability in the hands of host countries: no project ever rejected for sustainable dev. reasons, assessment and revision not transparent

• Need for a CDM court, judicial arm• CCS, supercritical coal and waste in CDM

CDM in LDCs

• Africa hosts only 57 CDM projects or 1.97% of all registered CDM projects

• LDCs account for 14% of all PoAs in pipeline• 7 PoAs registered, 73 under validation• 1 of the 7 registered PoAs is in Africa: "Uganda

Municipal Waste Compost Programme”• 2 sub-regional West-African PoA are under prior

consideration/validation: – Energy Efficient Lighting (Senegal, Mali) 

– Promoting Efficient Stove Dissemination and Use (BKF, Gambia, Senegal,Togo)

CDM in emerging economies

• Advanced dev. countries are reluctant to pledge because of the existence of CDM: once they adopt a legally binding emission reduction target, they exclude themselves from CDM revenues

• CDM revenues provide only minor part of project financial needs (on average less than 5%)

Why invest in LDCs and PoAs?1. Eligibility: projects in LDCs and advanced dev.

countries expected to be EU_ETS eligible. There will be a market.

2. Scale: aggregated significant emission reductions through PoAs

3. Beyond carbon: co-benefits, contribution to sustainable development

4. For a 2°C pathway, need for 50% reduction by 2050, from 56Gtons now to 44Gt by 2020. 7,5 Gt need to happen in dev. countries, financed by OECD countries : est. $60 billion/yr for mitigation, green growth in dev. countries

Post-2012, phasing out CDM?

• Compliance in EU ETS. Imports of CERs in EU ETS III (2013-2020) expected to derive mainly from developing countries, incl LDCs (40%)

• Competition from New crediting mechanisms (beyond CDM/JI) (sectoral, )

• While CER are eligible under EU ETS, new mechanisms are not (yet)

• Interest of the private sector ?• Many uncertainties• Future: Pledge and review ?

Competition from New crediting mechanisms (other than UN)

• Sectoral credits, instead of project emission targets, without sanctions (No-lose target). Potential overlap with CDM

• Sectoral trading by firms on the carbon market has potential to replace CDM

• NAMAs: NAMA support (policy, standards) and CDM credits (project, PoA) could be complementary

• Standardised baselines, a (UK) gvt initiative• REDD++ Credits• Uncertainty/realism about what new mec. can really

deliver in medium term

What are new mechanisms?

Institute for Global Environmental Strategies, NagisaISHINABE

CDM will continue being the dominant mechanism in this decade

Example of NAMA and CDM credit complementarty

Are new mechanisms going to provide any benefits to developing countries?YES, if :

• credits generated from new mechanisms are “additional” • the volume is greater than current CDM, and an increase

in volume surpasses a reduction in price, • Funding is additional • they do not damage domestic industries by an escalated

volume of technologies and products flowing into developing countries from developed countries.

NO, if :• they just increase “non-additional” emissions credits and

crowd out current CDM,• they do not come with an additional funding.

Institute for Global Environmental Strategies, NagisaISHINABE

Conclusion• Political will to continue (enhanced) CDM, No major calls

to abolish CDM, but rather to keep enhancing, complementing it

• CCS in CDM allowed• EU ETS held in higher regard than CDM• CDM: LDCs volume is the big question• Make old and new mechanisms fungible, create (UN, EU,

national?) clearing house for harmonising standards, cross-compliances, converting different credit units

• Need for clear policy incentives (tax emeptions for imports of technoloy, feed in tarrifs, ..)

Conclusion• Better guarantee of transparence, env integrity and

sustainable development• Scalable multi-country mechanisms, abandon project by

project • Clarify combination of ODA and other public and private

investments• Enhance financial predictability, CDM long, 3-5 yrs before

cash-flow. 15 yrs horizon needed, ODA= 3-5 yrs project lifespan, tax on airline ticket is more predictable source

• Standardise financing cooperation with development banks, Bankability: should CER allow to mobilise cash ?

Perspective for dev countries• Triple counting ?:

– Annex 1 finances green growth in LDCs– Annex 1 finances CDM credits– Annex 1 finances its domestic reductions targets

• Annex 1 not able to pay for whole adaptation/mitigation in the South. Need to mobilise private, corporate, bank funding

• CDM is another N-S financial flow (FDI, ODA, loans, Climate finance …)

• Carbon finance has to stop being a specialised, parallel field, but should become part of all project development/management

• Make ourselves obsolete