August 2013 - The Conference of the Parties to the Kyoto Protocol had requested the Subsidiary Body for Implementation (SBI) to draw up a list of possible amendments to the CDM modalities and procedures (M&P). However, the SBI meeting in Bonn last June was completely blocked by Russia and other states. Following the contentious outcome of the Doha Conference, they had called for a debate on the UNFCCC decision-making process to be included in the Bonn agenda, but this was rejected by other parties. As a result, all that was left was a workshop on CDM reform which had been planned as a separate event, independent of the SBI agenda. This issue of Carbon Mechanisms Review summarises the issues discussed at that workshop.
By way of introduction, a panel discussion highlighted the fact that the CDM has been in a constant state of reform. Almost all reforms demanded by the European Union (EU) in 2008 have now been implemented. However, new requirements have since evolved. For example, that the flexible mechanisms should not only be used for offsetting activities, but to make a net contribution to climate change mitigation. There is also the risk of fragmentation due to the emergence of new schemes.
The workshop focused on three main issues:
While opportunities for reform were discussed, no firm requirements were agreed. Uncertainty was also expressed as to whether the necessary political will to enact reform actually exists. Apart from Brazil, none of the large emerging economies was present at the workshop. Brazil took the standpoint that the only real area in need of reform involved the emission reduction targets of the industrialised nations.
A range of issues were discussed concerning the CDM project lifecycle and methodologies. With regard to the length of the crediting periods, it was proposed to move away from the existing general approach by making them dependent on project type. The proposers’ reasoning was that in some cases, the actual lifecycle of facilities deviates greatly from the current allowable crediting period length. The discussion also took in the concept of applying the concept of materiality to validation and PoAs, as up to now it has only been used in verification. In respect of PoAs, some participants suggested that the rules be further simplified. For example, with regard to the monitoring process and that of including CPAs. DOE liability was also addressed.
On the subject of standardised baselines (SBLs), it was noted that further analysis was needed in connection with their revision. There was a heated debate on making the use of approved SBLs mandatory. While some saw this as a way to improve a project’s environmental integrity, others preferred to allow project participants an element of flexibility. Consideration was also given to combining validation for SBL projects with the first verification phase. Workshop attendees also pointed to the increased responsibility assigned to DNAs in relation to SBL activities and the associated capacity issues.
When it came to additionality, the general consensus was that the work performed in relation to current practice, ‘first of its kind’ and technology penetration should continue. Participants also discussed whether CER revenue should be included in the additionality test and how project types should be treated if these have only marginal influence on economic efficiency. A number of people proposed excluding certain project types from the CDM altogether. This would apply for projects whose additionality is questionable, such as large-scale hydropower and infrastructure projects (see CMR 01/2013).
The treatment of host country climate change policies (E+/E-) when determining additionality was also addressed. In its previous meeting, the CDM Executive Board had decided that these will not be taken into account for the first seven years following their implementation. However, during the workshop, the question arose as to whether the CDM has provided an adverse incentive to refrain from implementing new policy.
Finally, workshop participants proposed that controversial project types such as HFC, N2O and coal activities should be excluded from the CDM. There was general agreement as regards HFC and N2O projects, although objections were raised at the idea of excluding coal.
On the issue of stakeholder consultation and the contribution projects make to sustainable development, the age-old standpoints were again put forward. Non-government organisations pointed to the fact that several CDM projects were linked to a breach of human rights, and that in many cases, stakeholder consultation did not really take place. Host country representatives insisted that these were issues of national sovereignty and could not be regulated by international agreement.
With regard to governance, many expressed what has already been said on several occasions in the past: That the Executive Board should restrict its work to strategic and general policy issues. How it interacts with its supporting bodies must be more clearly defined.
Board composition attracted both criticism and suggestions. Some proposed making the Chair and Deputy Chair full-time positions. And there were calls for the nomination process to be made more transparent – up to now it has taken place behind the closed doors of the individual country groups. In addition, the suggestion was made to appoint private industry and civil society representatives to the Board.
In another proposal, calls were made to do away with differentiating between ‘full’ and ‘alternate’ members, or to introduce a maximum period of tenure. Up to now, tenureship has often been extended by people switching between full and alternate membership. Representation of women and men on the Board must also be better balanced.
The role of the DNAs in project approval and implementation must be defined more clearly. In particular, the minimal content and period of validity of the Letter of Approval must be prescribed. Workshop participants also recommended establishing a procedure for withdrawing project approvals.
In the case of accreditation, participants discussed the idea of defining only very general principles for the CDM modalities and procedures in the future and deleting more detailed entries from the existing version to give the Executive Board greater decision-making freedom. They also looked at the liability rules that apply should significant deficits arise in the work performed by the DOEs. Proposals included differentiating between the reasons for those deficits (negligence or fraud) and the consequences that ensue, making liability risk quantifiable, and creating reserve pools and other options to compensate for over-issuance of CERs.
Many had hoped that M&P reform could be agreed in the lead up to the Warsaw meeting. That now appears questionable given that the SBI in Bonn was blocked. The SBI will now have to complete three-and-a-half weeks’ work in one-and-a-half when it meets in Warsaw. How much time will be afforded to CDM reform remains to be seen. The workshop only explored topics at this stage and no clear way forward emerged. Actual negotiations are still to take place.
This article was published first in Carbon Mechanisms Review 2-2013