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Stabilising the CDM Market

Expert Discussion Session: An Analysis

July 2013 - Against the backdrop of dwindling prices for emission certificates from CDM projects and the risk of destabilisation of the global carbon market, the Federal German Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), with support from the Wuppertal Institute, held an expert discussion session on 20 June 2013 on the subject of Approaches to Stabilise the CDM Market. The main focus of the discussion was to identify the options available to safeguard and maintain CDM institutions and expertise in order to enhance the CDM and establish new market-based mechanisms for use in a climate change regime beyond 2020. The Wuppertal Institute summarized the main results of the debate in a workshop evaluation, which is presented here.

The debate on measures to rescue the CDM has shown that of the numerous theoretical options put forward, only few have the potential to stabilise prices in the short term. These options include the tightening of Annex I reduction targets, discounting certificates (either at the time of their issuance or on the part of the buyer or host country), and the use of international climate funds to purchase excess CERs via the Green Climate Fund or other organisations. However, if these options are to be implemented, far greater political will is needed than is currently available, which is why it is only possible to work on the basis of a ‘residual’ market.

Session participants analysed various options for structuring the foreseen residual market. Targeted use of the funds for a limited number of projects was identified as the preferred alternative to across-the-board support.

In structuring this market, two possible approaches were discussed: To prevent the stoppage of projects which would have no other source of revenue apart from CERs, CERS from those projects should be bought up (these include nitric acid and HFC projects). However, this is only seen as a short-term emergency initiative designed to prevent what would otherwise be the release of significant amounts of greenhouse gases. In the medium term, these emissions ought to be transferred to a regulated instrument outside the carbon market. In the case of HFCs, as part of the Montreal Protocol. In addition, importance would be placed on preventing the stoppage of projects without allowing the operators further windfall revenue. Only the actual abatement costs are to be financed.

The second model would support new ‘good’ projects in order to boost the expertise of project developers and consultants in the host countries. To identify ‘good’ projects, a list of criteria needs to be drawn up. This could include additionality, co-benefits achieved, contribution to transformative effects in the host country, and integration into sectoral/national strategies. In addition, innovative approaches such as standardised baselines (SBLs) and Programmes of Activities (PoAs) should be promoted, including with a view to the transition to new (sectoral) market mechanisms.