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.     

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.     

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.     

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.     

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.     

A spatial approach to baseline and leakage in CDM forest carbon sinks projects

Abstract

Forestry projects under the Clean Development Mechanism (CDM) face specific challenges with regard to determination of a baseline for carbon sequestration. We propose a semi-standardized approach called PARAPIA for calculation of a baseline that is built on the concept of a reference area around the project area whose land-use characteristics determine the baseline scenario. The land-use shares in the reference area are checked at each verification. Baseline carbon stocks are then derived ex post using the average carbon content of each land-use type. The reference area is between five and ten times larger than the project area. To determine indirect effects (the so-called ‘leakage’), a political influence area such as province or state is assessed with regards to migration flows due to the project and related emissions.     

Past as prologue: an innovation-diffusion approach to additionality

The ‘additionality’ criterion for the Clean Development Mechanism (CDM) (which is key to ensuring that CDM projects lead to real and additional emission reductions) has been a topic of much analysis and discussion. A number of different approaches, including those based on financial, barrier and market-penetration criteria, have been suggested as a test for additionality. A simple test for additionality is proposed that draws on the framework of the diffusion of innovations, especially the risk profile of adopters of new technologies or innovations. This approach has the potential to streamline the assessment for additionality, although it will require data on the rate of implementation of specific technologies or innovations.     

Linkages between climate change and sustainable development

Abstract

Climate change does not yet feature prominently within the environmental or economic policy agendas of developing countries. Yet evidence shows that some of the most adverse effects of climate change will be in developing countries, where populations are most vulnerable and least likely to easily adapt to climate change, and that climate change will affect the potential for development in these countries. Some synergies already exist between climate change policies and the sustainable development agenda in developing countries, such as energy efficiency, renewable energy, transport and sustainable land-use policies. Despite limited attention from policy-makers to date, climate change policies could have significant ancillary benefits for the local environment. The reverse is also true as local and national policies to address congestion, air quality, access to energy services and energy diversity may also limit GHG emissions. Nevertheless there could be significant trade-offs associated with deeper levels of mitigation in some countries, for example where developing countries are dependent on indigenous coal and may be required to switch to cleaner yet more expensive fuels to limit emissions. The distributional impacts of such policies are an important determinant of their feasibility and need to be considered up-front. It follows that future agreements on mitigation and adaptation under the convention will need to recognise the diverse situations of developing countries with respect to their level of economic development, their vulnerability to climate change and their ability to adapt or mitigate. Recognition of how climate change is likely to influence other development priorities may be a first step toward building cost-effective strategies and integrated, institutional capacity in developing countries to respond to climate change. Opportunities may also exist in developing countries to use regional economic organisations to assist in the design of integrated responses and to exploit synergies between climate change and other policies such as those designed to combat desertification and preserve biodiversity.

© 2002 Elsevier Science Ltd. All rights reserved.     

Future restrictions for sinks in the CDM How about a cap on supply?

Abstract

The first commitment period of the Kyoto Protocol is expected to result in only a small role for the Clean Development Mechanism (CDM), including afforestation and reforestation projects. Wide ranging concerns regarding sinks in the CDM have been reflected in the Marrakech Accords capping the total amount of emission offsets from sinks projects to be used by Annex I countries. Decisions about the second commitment period and beyond are likely to be of far greater importance for these projects.

This paper contributes to the discussion on how caps on sinks under the CDM could be used to obtain overall improved outcomes for developing countries. We examine two distinctive ways in which quantitative caps on sinks in the CDM can be implemented: one, restricting the use of sinks CERs to meet targets, as under the Marrakech Accords (a cap on demand); and two, restricting supply of sink CERs using a quota system. We argue in favour of a supply side cap, if Parties are to preserve the idea of limiting sinks in the CDM. Limiting the supply of credits could lead to better financial outcomes for developing countries as a whole, make higher-cost projects viable which may have better sustainability impacts, and provide an alternative to deal with equity concerns between developing countries.     

Synergies in addressing air quality and climate change

Air quality is a serious concern for the protection of human health and our natural environment. The pollutants contributing the most to both local and transboundary air pollution problems are SO₂, NO_x, NH₃, volatile organic compounds (VOCs), and fine particulate matter (PM), and mostly originate from the same sources as greenhouse gases. There are thus strong interactions between strategies designed to improve air quality and those addressing climate change. This article examines these interactions, and the benefits of combined strategies with greater attention to the overall environmental impacts, and finding the ‘win—win’ solutions. Illustrations are provided from the development of policy in Europe under the UN ECE Convention on Long-Range Transboundary Air Pollution, which is now inextricably linked with strategies to control greenhouse gases.