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A Clean Development Mechanism with global atmospheric benefits for a post-2012 climate regime

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Abstract

The Clean Development Mechanism (CDM) under the Kyoto Protocol allows the crediting of emission reductions from greenhouse gas (GHG) abatement projects in developing countries. The CDM is an offsetting mechanism and, in principle, a zero game to the atmosphere: emission reductions achieved from CDM projects allow industrialised countries to increase their emissions, respectively. The article explores how the CDM could be moved beyond a pure offsetting mechanism in a post-2012 climate regime by crediting only a fraction of the emission reductions from CDM projects, thereby providing a net atmospheric benefit. Potential implications on the carbon market are assessed in a qualitative manner and different design options for such a reform to the CDM are discussed. An important conclusion is that the effects on carbon market depend considerably on whether the use of the CDM is limited through caps or not.

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Notes

  1. Article 12 of the Kyoto Protocol.

  2. For example, the “Tool to determine methane emissions avoided from disposal of waste at a solid waste disposal site” applies a factor of 0.9 to the baseline emissions in order to account for model uncertainties. The methodology ACM0006 for use of biomass residues for power generation applies different conservativeness factors to methane emissions from burning or decay of biomass residues. The level of the conservativeness factors depends on the uncertainty of the emission factors used: the higher the uncertainty, the more stringent the conservativeness factor.

  3. Discounting could be introduced to all CDM projects by simply issuing only a fraction of the achieved emission reductions. In the case of benchmarks, the collection of data could be challenging in developing countries and the definition of benchmarks could be difficult for some industries or sectors with highly varying products.

  4. See option M in UNFCCC (2008b, p. 8) and option 3.14 in UNFCCC (2008c, pp. 24–25).

  5. This depends on constraints for the demand of CERs (supplementarity) and constraints for the supply of CERs due to various factors, including, inter alia, the eligibility of host countries to use the CDM (see option J in UNFCCC 2008b, p. 6), the potential of the CDM and the available of baseline and monitoring methodologies.

  6. The actual cost effects depend significantly on the shape and slope of the marginal abatement cost curves in developing and industrialised countries. In Fig. 2, the costs increase by the DPMA area.

  7. The value of the CDM market without discounting of CERs corresponds to the 0CAE area. The value of the CDM market with discounting corresponds to the 0QMR area. In the example, both areas have approximately the same size.

  8. The price spread between EUAs and CERs may also depend on other factors, such as demand for CERs from other markets (e.g. governmental purchase programmes).

  9. The rents of the CER suppliers decrease by the KCAI area.

  10. In the examples, the following cost changes are observed: In a carbon market without any limitation on the use of the CDM, the global mitigation costs increase by the DPMA area in Fig. 2. In the case of a carbon market with a limit on the use of the CDM, the costs changes in the analysed examples as follows: In the case of 50% crediting, the global mitigation costs increase by the DMPGI area in Fig. 4. In case of 60% crediting this corresponds to the DPGI area in Fig. 5 and in case of 70% crediting to the DPVI area in Fig. 6.

  11. In the case of 50% crediting, the rents of the CER suppliers increase from the DIK area to the KMQ area in Fig. 4. In the case of 60% crediting, they increase from the DKI area to the PJG area Fig. 5. In the case of 70% crediting, they increase from the DKI to the PWV area Fig. 6.

  12. In the case of a carbon market without any limitation on the use of the CDM, the value of the CDM market without discounting of CERs corresponds to the 0CAE area in Fig. 1; the value of the CDM market under a CDM with atmospheric benefits corresponds to the 0QMR area in Fig. 2. Both areas have approximately the same size. The volume of the CDM market is thus not affected significantly. In the case of a carbon market with a limit on the use of the CDM, the value of the CDM market without discounting of CERs corresponds to the 0KIL area in Fig. 3; the value of the CDM market under a CDM with atmospheric benefits corresponds to the 0QMR area in Fig. 4, to the 0JGL area in Fig. 5 and the 0WVL area in Fig. 6. In all three analysed cases, the volume of the CDM market is larger under a CDM with atmospheric benefits than under the current CDM.

  13. See options K and L in UNFCCC (2008b, pp. 6–7).

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  1. Öko-Institut, Novalisstrasse 10, 10115, Berlin, Germany

    Lambert Schneider

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Schneider, L. A Clean Development Mechanism with global atmospheric benefits for a post-2012 climate regime. Int Environ Agreements 9, 95–111 (2009). https://doi.org/10.1007/s10784-009-9095-9

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