cdm clean development mechanism

8/14/2019 CDM Clean Development Mechanism.

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S ince the 1980s human influence on global cli-mate through emissions of greenhouse gasessuch as carbon dioxide and methane has becomemore and more apparent.Due to their geographicaland economic situation,many developing countriesare particularly vulnerable to the impacts of climatechange.Against this background, in 1992 the UNConference on Environment and Development inRio de Janeiro took the first step towards a globalclimate policy.Almost all countries signed theUnited Nations Framework Convention on ClimateChange (UNFCCC).

Climate protection is a global challenge whosemain burden has to be borne by wealthy countries.These have contributed most to global warming,measured by per capita emissions. In the UNFCCC,industrialised countries agreed on voluntary measu-res to limit greenhouse gas emissions. However, itbecame clear very soon that voluntary targets

would be insufficient to stop the increase of green-house gas emissions. Binding commitments becamenecessary.

According to the Kyoto Protocol of 1997, indu-strialised countries and Eastern European countriesin transition have to reduce their emissions in theperiod from 2008 to 2012 by five percent (compa-red to the base year 1990). Each country has a diffe-rent target; Germany, for example, has to reduce itsemissions by 21 percent.The emissions covered by the Protocol are those of carbon dioxide, methaneand nitrous oxide,along with the release of long-lived hydrofluorocarbons and sulphur hexafluoride.

Developing countries have to report on thedevelopment of their emissions, but (so far) have

no emissions commitments. Nevertheless, they areto be integrated into global climate policy at anearly stage and be supported by industrialisedcountries.The Clean Development Mechanism(CDM) is one of the most important instruments toachieve this aim.

Joint Implementation (JI), another mechanism tomeet the commitments at minimum cost, coversproject-based climate cooperation between indu-strialised countries.

The Kyoto Protocol attempts to achieve global cli-mate protection and cost minimisation by introdu-cing an innovative mechanism for cooperation inclimate protection between industrialised and deve-loping countries: the Clean DevelopmentMechanism (CDM).This project-based mechanismaims to combine two targets of the Convention andthe Protocol:1. Industrialised countries are supported in rea-

ching their emissions targets2 At the same time, developing countries are sup-

ported in sustainable development

The second target can be achieved through theprovision of urgently needed additional capital,know-how and technologies, particularly in thefields of renewable energy and energy-efficiency improvement in developing countries.

Project-based cooperation betweenindustrialised and developing countriesto protect the climate

1a) Industrialised countries - either the state or pri- vate companies - invest in projects in develo-ping countries that contribute to the reductionof greenhouse gas emissions.

1b) Developing countries - either the state or pri- vate companies - are allowed to implementsuch projects on their own.

2) Through these projects, not only will therespective sector in this developing country bemodernised, but also a contribution will bemade to global climate protection.

3a) The investing industrialised country cancredit the emissions reductions achievedthrough its investment in the developing coun-try towards its own emissions commitment.

3b) The developing country can sell the emissionscredit generated to industrialised countries.

The basic idea of the CleanDevelopment Mechanism

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A promising quid pro quo -the Clean Development Mechanism

Clean Development Mechanism:


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What contribution can CDM make to sustai-nable development in the partner countriesof German development cooperation?The CDM opens up the opportunity of mobilisingadditional funding for investment in developingcountries, emphasizing renewable enegies andenergy efficiency. For this to take place, there mustbe an effective national institutional structure for the approval of CDM projects, framework contractsmust be negotiated and agreement must be rea-ched on which project types are to be given priori-ty. Public participation is also essential, as is theintegration of different interest groups.

When criteria are defined for sustainable deve-lopment, care should be taken that they are not toonarrow. Otherwise potential investors do not haveenough choices. Possible criteria may be in the fol-lowing categories:

Environmental (local environmental protection)

Social (employment, impacts on low-incomegroups, regional and sectoral integration,noresettlement and no destruction of the habitatof the local population)

Economic (balance of payments, cost efficiency,maximisation of positive effects on the hostcountry)

Technological (contribution to self-sufficiency,innovation and replicability)

As there will be strong competition for CDMinvestors, countries have to act now if they want toparticipate in the CDM from the outset. For exam-ple, the success of Latin American suppliers of pro-

jects for the World Bank's Prototype Carbon Fund

can be explained with the years of experience gai-ned during the pilot phase for joint climate protec-

How does the CDM work?Generally, industrialised countries use advanced

and efficient technologies for electricity generationand industrial production. However, in many deve-loping countries obsolete processes prevail that

waste resources. For example, many developingcountries operate coal-fired power stations with efficiencies of below 30 percent, whereas new coalpower plants in industrialised countries operatemore than a third more efficiently. Improvingadvanced technology, though, costs much morethan replacing obsolete plants, and therefore thecost of reducing one tonne of greenhouse gases indeveloping countries is much less than that inindustrialised countries.

As it is irrelevant to the world climate wherethe greenhouse gas abatement takes place, theCDM generates advantages for all participants asthe achieved emissions reduction is measured andcredited towards the emissions commitments of investing countries through emissions credits(CERs).Thus both the investor and the host coun-try profit from the CDM through cost reductionand support for economically, socially and ecologi-cally sustainable development.A few examples canillustrate this:

In Zimba bwe we analysed how much electricity

could be produced by power plants using waste wood from timber plantations and sawmills.Whilecurrently more than 90 percent of wood waste issimply burned, power stations fired with thisresource would not only cover the electricity needs of the sawmills,but could also feed electrici-ty into the public grid. Depending on the baselinecalculation,each power plant would reduce CO 2by between 7,000 and 24,000 tonnes per year.Further benefits would be job creation and theintroduction of a new method of electricity genera-tion.

The national strategy study on the CDM inIndonesia estimated the technical potential andcosts of greenhouse gas reduction projects.Theselection criteria were compatibility with nationalenergy policy, financial outlays, and acceptability among decision-makers.The study assessedIndonesia's CDM potential up to 2012 at 125 mil-lion tonnes of CO 2, made recommendations onconcrete CDM implementation, and suggested tenspecific projects.

What is this? How does it work?


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The CDM:a challenging instrumentThe principle of CDM is fascinating. CDM projectshave to fulfil several important criteria, though.The environmental integrity of the Kyoto Protocolmust not be damaged by the creation of emissionscredits that do not reflect real emissions reductions.Moreover, public participation is essential. On theother hand, this must not have an overly strongimpact on cost efficiency. Some critical details such as baseline determination or the integration of fore-stry projects remain to be negotiated internationally.

A CDM project usually starts with the idea of manu-facturing a product in a developing country - for example electricity - using a minimum-cost techno-logy. The project idea can be developed by a poten-

tial investor, an economic actor, the host country government, or by third parties (service providers,consultants).Existing technology in many cases willbe comparatively inefficient and lead to unnecessa-rily high greenhouse gas emissions.The CDM now allows the creation of another product - the emis-sions credits - by introducing a more efficient , oftenmore expensive technology. Generally, in the initialphase of CDM, investors will use existing ideas andmodify them slightly. Projects developed specifical-ly for the CDM will remain an exception. Since1996 a pilot phase (Activities Implemented Jointly,

AIJ) has been running that is intended to lead toconcrete projects and improvement of their design.

The host country has to have ratified the Kyoto Protocol, has to have identified a national CDM authority, is not to be listed in Annex B of the Kyoto

Protocol (Annex B lists all industrialised coun-tries that have taken emissions commitments).

A CDM project has to pass through the follo- wing stages until emissions credits are created(see hypothetical case study at

www.gtz.de/climate/english/cdm.htm):

Project idea

Project Design Document by project participants

Approval by host and investor countries

Validation by independent certifier

Registration by CDM Executive Board

Implementation and monitoring of the

CDM project by project participants

Recurrent verification by independent certifier

Certification by certifier

Issuance of emissions credits by CDM Executive Board

If the host country fulfils the criteria for partici-pation (see Box 2), the investor has to apply for approv al of the project by the host country. Prior to this step, the investor, the "local" partner in thehost country and participating governments willhave informal discussions.

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Criteria for CDM hostcountry participation

Coalpower station

40%efficiency

Power stations with equal electricity production

Baseline CDM project

Total coststhroughoutCDM lifetime

CDM costsRevenues from

sales of

emissions credits

(CERs)

cdm clean development mechanism

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