Not all projects initiated under the CDM actually make it to registration. While some fail in the initial phase, others are unable to meet the financial, political or regulatory criteria. This can be due to a lack of start capital, the lack of host country support or the fact that the CDM is a complex instrument which is subject to constant change.
Against this backdrop, the research project commissioned by the BMU looks at the question of what happened to the CDM projects that failed to make it into the CDM project cycle or left it prematurely.
As part of the research project, the consequences arising from the collapse of the carbon market were to be documented. In particular, the issue of whether and to what extent registered projects could not be continued due to the market crash was to be explored. The analysis was not, therefore, limited to studying specific cases, but instead aimed to draw significant conclusions for the CDM as a whole. In a second step, the aim was to find out how such stranded projects might be continued under alternative instruments, meaning without the carbon market. Here, the aim was to identify options and recommend action for continued international carbon market cooperation.
In the approach taken, the research project differed in key areas from existing CDM pipeline analyses:
By using the sampling method, project selection could be reduced to 1,311 projects overall.
The results of this study show that there is a huge demand for greater, more-targeted support to enable continuation of CDM mitigation projects. Support of this kind could have the biggest effect in the following areas: in most regions, project types with reversible investments and limited revenue accrued other than from CERs and cost savings face a heightened risk of being stalled. By way of contrast, the large number of capital-intensive projects which were continued shows that short and medium-term market-based finance can have a particularly long-term effect on these project types. Until such time as international mitigation ambition has been returned to a high level, continued cooperation between market players on the demand side is needed in order to significantly improve market conditions in the short and medium term, and regain potential project developers’ trust. The same coalition of market players could build on the efforts of existing purchase facilities, replicating and expanding them to provide short-term support for specific countries and technologies in a targeted way – including for technologies not yet deemed important in providing such support. Despite their huge potential, some projects – such as wind and hydropower activities – deemed less in need of support due to their success in other regions of Africa have been particularly unsuccessful.
International support could also target the continuation and expansion of activities conducted under existing PoAs. In project development, the PoA approach has served its purpose especially well in under-represented regions, but PoAs are still not mature enough in general to ensure that the aims of the approach are met. This is largely due to the slow progress made in integrating CPAs into PoAs: PoAs with multiple CPAs show a significantly lower level of burden with regard to transaction costs and a greater degree of robustness in the face of low market prices. Because a critical mass of PoAs exists in many countries, a more effective form of support could be provided with targeted promotion of reduction potential under these umbrella PoAs and the assignment of only the second-highest priority to the creation of new PoAs.