Finding a path for REDD+ between ODA and the CDM

Abstract

Strategies to mitigate anthropogenic climate change recognize that carbon sequestration in the terrestrial biosphere can reduce the build-up of carbon dioxide in the Earth's atmosphere. However, climate mitigation policies do not generally incorporate the effects of these changes in the land surface on the surface albedo, the fluxes of sensible and latent heat to the atmosphere, and the distribution of energy within the climate system. Changes in these components of the surface energy budget can affect the local, regional, and global climate. Given the goal of mitigating climate change, it is important to consider all of the effects of changes in terrestrial vegetation and to work toward a better understanding of the full climate system. Acknowledging the importance of land surface change as a component of climate change makes it more challenging to create a system of credits and debits wherein emission or sequestration of carbon in the biosphere is equated with emission of carbon from fossil fuels. Recognition of the complexity of human-caused changes in climate does not, however, weaken the importance of actions that would seek to minimize our disturbance of the Earth's environmental system and that would reduce societal and ecological vulnerability to environmental change and variability.

© 2003 Elsevier Science Ltd. All rights reserved.     

Waste energy recovery CDM projects in China: status,challenges and suggestions

The recovery potential for waste energy from major Chinese industries is significant. For example, the estimated waste energy recovery potential is 40 million tons of coal equivalent in the iron and steel industry, accounting for ～10% of the total energy use in the industry. A detailed overview is presented of existing waste energy recovery Clean Development Mechanism (CDM) projects in China. These projects have been developed predominantly in large enterprises and rarely in small or medium-sized companies. The chance of waste energy projects being reviewed or rejected by the Executive Board is slightly higher and delivery rates of certified emission reductions are generally lower than other types of CDM projects. Several major barriers that inhibit project development are identified, such as the lack of CDM awareness or development capacity among many small or medium enterprises, low internal rates of return of the projects, increasing review risk and long delays in the registration process, the varying quality of intermediary buyers, a lack of local Chinese Designated Operational Entities, and policy implementation inconsistency at different levels. Suggestions are put forward to address these problems and such critical issues as additionality are also discussed.     

Assessing the additionality of CDM projects: practical experiences and lessons learned

The Clean Development Mechanism (CDM) under the Kyoto Protocol allows industrialized countries to use credits from greenhouse gas (GHG) abatement projects in developing countries. A key requirement of the CDM is that the emission reductions be real, measurable and additional. This article evaluates how the additionality of CDM projects has been assessed in practice. The analysis is mainly based on a systematic evaluation of 93 registered CDM projects and comes to the conclusion that the current tools for demonstrating additionality are in need of substantial improvement. In particular, the application of the barrier analysis is highly subjective and difficult to validate in an objective and transparent manner. Key assumptions regarding additionality are often not substantiated with credible, documented evidence. In a considerable number of cases it is questionable whether the emission reductions are actually additional. Based on these findings, practical recommendations for improving the assessment of additionality are provided.     

Can CDM monitoring requirements be reduced while maintaining environmental integrity?

Monitoring, reporting, and verification (MRV) requirements in the Clean Development Mechanism (CDM) are perceived to be of high quality, but also complex and stringent. Only one-third of the registered projects successfully managed initial verification and already received carbon credits. The time required to achieve first issuance remains high despite considerable improvements in other CDM project cycle steps. This leads to the question of whether MRV provisions in the CDM represent barriers that could be lowered while ensuring the CDM's integrity. The CDM requirements are compared with the MRV provisions of the EU Emission Trading System (EU ETS). The comparison shows that CDM–MRV provisions are often stricter and less flexible compared to similar provisions in the EU ETS. Due to structural differences between the EU ETS and the CDM, some different MRV approaches are justified and reflect the CDM's disparate objectives and complexity. It is found that some CDM provisions result in barriers which seem avoidable and do not contribute to the CDM's environmental integrity. Recommendations are made for CDM-specific improvements and general structural changes to improve cost-efficiency and reduce uncertainty with relevance to policy developments around future market mechanisms.     

Technology transfer in the CDM: the role of host-country characteristics

Technology transfer is not an explicit objective of the Clean Development Mechanism (CDM). However, it constitutes a potential co-benefit by helping to improve living conditions in developing countries. Understanding the drivers and barriers of technology transfer in CDM projects is therefore essential to direct investment flows in host countries and enhance the current CDM framework. In this respect, the contribution of this article is twofold. First, it identifies stepping stones and stumbling blocks to technology transfer in the CDM. Higher applied tariff rates on environmental goods and services as well as burdensome administrative procedures to start a new business are found to be negatively associated with the likelihood of a technology transfer. The results are robust to the exclusion of large host countries such as China and India from the sample. Second, as an extension, the article analyses the correspondence of these supporting factors and barriers with the likelihood of a transfer of the different types of technology (equipment, knowledge, or both). The article concludes with policy recommendations for non-Annex I governments, and suggestions for improvements to the CDM to better assess technology transfer in offsetting projects.     

Time to market in the CDM: variation over project characteristics and time

Not only is the carbon market inundated with Certified Emissions Reductions (CERs) issued by successful projects, it is also littered with failed projects, that is, projects that either fail to be registered under the Clean Development Mechanism (CDM) or projects that have been successfully registered but fail to issue CERs. By relying on a novel application of survival analysis in the context of the CDM, this article shows that half of all projects that start the Global Stakeholder Process fail to issue CERs, while the other half have a median time to market of four years. Furthermore, it is shown that some of the best projects, in terms of being additional, are those that are least likely to make it to market, whereas some of the worst projects, in terms of not being additional, are the ones that are most likely to make it to market. This presents a fundamental challenge for the CDM and future offset schemes that rely on the same design as the CDM. In contrast with previous studies, it is shown that, when project characteristics are controlled for, not all durations measured along the CDM project cycle have increased over time.

Policy relevance

This article develops a novel method for analysing durations measured along the CDM project cycle that avoids the biases of previous studies, and corrects for some misconceptions of what the delays faced by CDM projects are and how these delays have changed over time. Developing an understanding of the delays is important in order not to draw the wrong lessons from the CDM experience. As the leading example of an offset scheme, both in terms of geographical scope and sectoral coverage, and some would say institutional complexity, the CDM serves as a benchmark and reference for all future offset schemes, among others, for the New Market Mechanisms (NMMs) and the Chinese domestic offset programme. While the NMMs are still very much in development, China has announced that it will rely on the methodologies and procedures developed under the CDM for generating offsets for their regional carbon trading schemes.     

Combining cap-and-trade with offsets: lessons from the EU-ETS

Linking a cap-and-trade with an offset mechanism has many theoretical advantages: it reduces compliance costs, extends the price signal outside the cap-and-trade, and triggers technology transfer. However, it is feared that such linking will induce outsourcing of emissions reduction at a low price and undermine the price incentive in the cap-and-trade. The EU Emissions Trading Scheme (EU ETS) is the first full-scale example of a cap-and-trade system linked to project-based mechanisms such that offsets have effectively been used by industrial installations. This article is an ex post analysis of EU ETS data for the years 2008 and 2009, and the characteristics of the link and its efficiency are evaluated. Although offsets have been much used, their use is concentrated and not very intense or frequent, which allays the fear that offsets will flood the market. Although the majority of surrendered CERs effectively come from the largest and oldest projects, the credits surrendered are similar to those available on the market. Possible factors that contribute towards inefficiency are the rules for using offsets, transaction costs affecting the participation of small installations, awareness and openness to market-based instruments, and uncertainties regarding CERs offer and demand from other markets. However, the impact on EUA equilibrium price still needs to be quantified.     

Learning from CDM SD tool experience for Article 6.4 of the Paris Agreement

The Paris Agreement (PA) emphasizes the intrinsic relationship between climate change and sustainable development (SD) and welcomes the 2030 agenda for the global Sustainable Development Goals (SDGs). Yet, there is a lack of assessment approaches to ensure that climate and development goals are achieved in an integrated fashion and trade-offs avoided. Article 6.4 of the PA introduces a new Sustainable Mitigation Mechanism (SMM) with the dual aim to contribute to the mitigation of greenhouse gas emissions and foster SD. The Kyoto Protocol’s Clean Development Mechanism (CDM) has a similar objective and in 2014, the CDM SD tool was launched by the Executive Board of the CDM to highlight the SD benefits of CDM activities. This article analyses the usefulness of the CDM SD tool for stakeholders and compares the SD tool’s SD reporting requirements against other flexible mechanisms and multilateral standards to provide recommendations for improvement. A key conclusion is that the Paris Agreement’s SMM has a stronger political mandate than the CDM to measure that SD impacts are ‘real, measurable and long-term’. Recommendations for an improved CDM SD tool are a relevant starting point to develop rules, modalities, and procedures for SD assessment in Article 6.4 as well as for other cooperative mitigation approaches.

POLICY RELEVANCE

Research findings are relevant for developing the rulebook of modalities and procedures for Article 6.4 of the Paris Agreement, which introduces a new mechanism for mitigation of greenhouse gas emissions and sustainable development. Lessons learnt from the CDM SD tool and recommendations for enhanced SD assessment are discussed in context of Article 6 cooperative approaches, and make a timely contribution to inform negotiations on the rulebook agreed by the Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement.     

Standardization of baseline and additionality determination under the CDM

Clean Development Mechanism (CDM) project developers have long complained about the complexities of project-specific baseline setting and the vagaries of additionality determination. In response to this, the CDM Executive Board took bold steps towards the standardization of CDM methodologies, culminating in the approval of guidelines for the establishment of performance standards in November 2011. The guidelines specify a performance standard stringency level for both baseline and additionality of 80% for several priority sectors and 90% for all other sectors. However, an analysis of 14 large-scale CDM methodologies that use performance standard approaches challenges this top-down approach to the performance standard design. An appropriate performance standard stringency level strongly depends on sector and technology characteristics. A single stringency level for baseline and additionality determination is appropriate only for greenfield projects, but not for retrofit ones. Overly simple, highly aggregated performance standards are unlikely to ensure high environmental integrity, and difficult questions regarding stringency and updating frequency will eventually have to be addressed on a rather disaggregated level. A careful balance between data requirements and the practicability of performance standards is essential because the heavy data requirements of the existing performance standard methodologies have been the key barrier to their actual implementation.

Policy relevance

CDM regulators have been pushed by many stakeholders to standardize baseline setting and eliminate project-specific additionality determination. At first glance, performance standards seem to provide the perfect solution for both tasks. However, a one-size-fits-all political decision – e.g. the average of the top 20% performers as enshrined in the Marrakech Accords – is inappropriate. Substantial disaggregation of performance standards is required both technologically and geographically in order to limit over- and under-crediting and close loopholes for non-additional projects. As a lack of reliable and complete data has been and will be a key bottleneck for the development of performance standards, international support for data collection will be indispensable, but costly, and time-consuming. Empirically driven, techno-economic assessments of performance standard stringency levels must be the central task of the future work on standardized methodologies, and should not be sidelined by perceived needs of policy makers to take bold decisions under time pressures.     

Determinants of technology transfer through the CDM: a within-country analysis for China

Technology transfer (TT) is not mandatory for Clean Development Mechanism (CDM) projects, yet proponents of CDM argue that TT in CDM can bring new technologies to developing countries and thus not only reduce emissions but also foster development. We review the quantitative literature on determinants of TT in CDM and estimate determinants for CDM projects in China. China is by far the largest host country of CDM projects and it is therefore crucial to understand the factors that drive TT there. To gain better interpretation, we focus on heterogeneity within a single country and results can thus be linked to specific policies of the country. Our probit estimations confirm previous international cross-country studies, indicating that larger projects and more advanced technologies are more likely to involve TT. In addition, we find evidence that agglomeration effects are more pronounced at the province level rather than larger regions. We also find a positive effect of foreign direct investment (FDI) on TT, and academic research and development (R&D) is complementary to TT.

Policy relevance

Technology transfer (TT) is a goal of Chinese CDM legislation, but it is not a prerequisite for project approval. Our estimations show the project specific, technological and region-specific features that encourage more TT among CDM projects. Some variables analysed such as R&D spending and FDI (both are found to have positive effects on TT) can be, to some extent, influenced by the policy-makers. Moreover, we find some evidence for the presence of negative agglomeration effects on the provincial level: the likelihood of TT is decreasing in the number of previous projects operating in the same technology and province. This finding needs to be interpreted with great caution. It may suggest the existence of a learning externality, which could serve as a justification for policy intervention. Any policy intervention requires however careful analysis of potential positive or negative externalities resulting from the agglomeration of CDM projects and a comparison of possible benefits with the costs of TT.     

Accounting methods for carbon credits: impacts on the minimum area of forestry projects under the Clean Development Mechanism

Abstract

The Ninth Conference of the Parties (COP-9) decided to adopt an accounting system based on expiring carbon credits to address the problem of non-permanent carbon storage in forests established under the Clean Development Mechanism (CDM). This article reviews and discusses carbon accounting methods that were under consideration before COP-9 and presents a model which calculates the minimum area that forest plantation projects should reach to be able to compensate CDM transaction costs with the revenues from carbon credits. The model compares different accounting methods under various sets of parameters on project management, transaction costs, and carbon prices. Model results show that under current carbon price and average transaction costs, projects with an area of less than 500 ha are excluded from the CDM, whatever accounting method is used. Temporary crediting appears to be the most favorable approach to account for non-permanent carbon removal in forests and also for the feasibility of smaller projects. However, lower prices for credits with finite lifetimes may prevent the establishment of CDM forestry projects. Also, plantation projects with low risk of unexpected carbon loss and sufficient capacity for insuring or buffering the risk of carbon re-emission would benefit from equivalence-adjusted average carbon storage accounting rather than from temporary crediting.     

Earth System Model FGOALS-s2: Coupling a dynamic global vegetation and terrestrial carbon model with the physical climate system model

Earth System Models （ESMs） are fundamental tools for understanding climate-carbon feedback. An ESM version of the Flexible Global Ocean-Atmosphere-Land System model （FGOALS） was recently developed within the IPCC AR5 Coupled Model Intercomparison Project Phase 5 （CMIP5） modeling framework, and we describe the development of this model through the coupling of a dynamic global vegetation and terrestrial carbon model with FGOALS-s2. The performance of the coupled model is evaluated as follows. The simulated global total terrestrial gross primary production （GPP） is 124.4 PgC yr-I and net pri- mary production （NPP） is 50.9 PgC yr-1. The entire terrestrial carbon pools contain about 2009.9 PgC, comprising 628.2 PgC and 1381.6 PgC in vegetation and soil pools, respectively. Spatially, in the tropics, the seasonal cycle of NPP and net ecosystem production （NEP） exhibits a dipole mode across the equator due to migration of the monsoon rainbelt, while the seasonal cycle is not so significant in Leaf Area Index （LAI）. In the subtropics, especially in the East Asian monsoon region, the seasonal cycle is obvious due to changes in temperature and precipitation from boreal winter to summer. Vegetation productivity in the northern mid-high latitudes is too low, possibly due to low soil moisture there. On the interannual timescale, the terrestrial ecosystem shows a strong response to ENSO. The model- simulated Nifio3.4 index and total terrestrial NEP are both characterized by a broad spectral peak in the range of 2-7 years. Further analysis indicates their correlation coefficient reaches -0.7 when NEP lags the Nifio3.4 index for about 1-2 months.     

The role of climate finance beyond renewables: demand-side management and carbon capture,usage and storage

Mobilizing climate finance for climate change mitigation is a crucial part of meeting the ‘well-below’ 2°C goal of the Paris Agreement. Climate finance refers to investments specifically in climate change mitigation and adaptation activities, which involve public finance and the leveraging of private finance. A large proportion of climate finance is Official Development Assistance (ODA) from OECD countries to ODA-eligible countries. The evidence shows that the largest proportion of climate finance for climate change mitigation has been channelled to the development of renewable energy, with a much smaller proportion flowing to other crucial forms of clean energy-related measures, such as demand-side management (DSM) (particularly sustainable cooling) and carbon capture, usage and storage (CCUS). This forms the rationale and aim of this synthesis paper: to review the role of climate finance to develop clean energy beyond renewables. In doing so, the paper draws on practical policy and programme experiences of some donor countries, such as the UK, and Development Finance Institutions (DFIs). This paper argues that a greater amount of climate finance from OECD countries to ODA-eligible fossil fuel-intensive emerging economies and developing countries is required for sustainable cooling and CCUS, particularly in the form of technical assistance and clean energy innovation.

Key policy insights

• Demand-side management (DSM) and carbon capture, usage and storage (CCUS) are underfunded in climate finance compared with the promotion of renewables.

• Climate finance for sustainable cooling, in particular, represents just 0.04% of total ODA, despite cooling projected to represent 13% of global emissions by 2030.

• Public investment in CCUS is limited at US $28 billion since 2007, despite the costs of meeting the Paris Agreement estimated to be 40-128% more expensive without CCUS.

• Additional climate finance for these sectors should not come at the expense of funding for renewables but should be complementary to it.