As the Kyoto Protocol nears its expiration date, the sometimes controversial Clean Development Mechanism (CDM) is experiencing some dramatic shifts, making its future seem quite different than its past.
The CDM was established under the Kyoto Protocol as a way in which developed nations could reduce their carbon emissions to meet the Kyoto targets by reducing emissions in developing countries, with the addition of a sustainable development component. The United Nations issues certified emissions reductions (CERs) to CDM projects, and companies in the European Union can then buy those credits to meet caps under the EU’s Emissions Trading Scheme (ETS).
According to United Nations Framework Convention on Climate Change (UNFCCC) statistics, the majority of CDM projects are registered in China (45.63 percent) and India (20.97 percent), in rapidly developing economies. There is a lack of projects in places that may greatly need development, such as Africa (1.89 percent) and places recovering from conflict.
Since 2005, 400 million CERs have been issued to Chinese CDM projects. However, China is now directing its energy and climate policy inward, looking at domestic emissions reductions, and this could mean a different mix of projects for the CDM.
First, China is placing a cap on CO2 emissions from industrial sources, a possible first step in implementing a national emissions trading scheme. Also, the EU has said that after 2013, it will focus on projects in Least Developed Countries (LDCs), and China, a rapidly emerging economy, is not on that list.
Second, China may withdraw from CDM projects in 2015 in order to focus on reducing domestic emissions. Since 37 percent of the CDM projects originate in China, a large hole will emerge in the CER scheme. LDCs could fill in the gap, but China is still the most attractive place to invest a project since it is the cheaper option without the worry about governance issues.
Finally, the fate of the Kyoto Protocol is still yet to be determined. UNFCCC chief Christiana Figueres insists there are no plans to end the CDM.
"What we hear from countries is their interest in expanding, further improving and enhancing the market mechanisms available to them under the next chapter of the regime, whatever that is going to be," she said.
Still, market mechanisms, including the CDM, will be shaped by whatever new type of agreement is going to emerge after the Kyoto Protocol. With this new deal, the absence of China, and more LDC involvement, the CDM will look different than the market mechanism we’ve come to recognize.
