Offers recommendations to make carbon market effective tool to combat climate change

The independent panel established to take stock of the Kyoto Protocol’s Clean Development Mechanism (CDM) has released its recommendations by urging nations to intervene forcefully to address the crisis in the carbon market and substantially increase their level of ambition when it comes to reducing greenhouse gas emissions.

Conveying this in its news release, CDM, that allows emission-reduction projects in developing countries to earn certified emission reductions (CERs), each equivalent to one tonne of CO2, added that the ability under it to earn a saleable credit for each tonne of GHG emissions reduced has initiated more than 4,500 projects in 75 developing countries, which include everything from wind energy and efficient cook-stove projects to land-fill gas and large industrial projects. However, CDM, credited with creating the first global environmental currency, revealed that it is now under threat due to the current low prices paid for credits – the result of low demand and uncertainty over the timing and level of future demand – which is tied to countries’ emission-reduction commitments.

According to the high-level panel, if nations permit the CDM mechanism to disintegrate, the political consensus for truly global carbon markets may evaporate. Therefore, the panel calls on nations to increase their mitigation ambition by strengthening the pledges that have been made under the United Nations Framework Convention on Climate Change and by adopting corresponding domestic policies and measures.

“Nations must, as a high priority, restore faith in global carbon markets generally and in the CDM specifically,” said the panel’s Chair, Valli Moosa. “Although the CDM has been the subject of extensive criticism, it has improved markedly in recent years and has helped combat climate change by mobilising the private sector through markets.”

The CDM, on its part, emphasised that it was set up to do two things: give countries with a commitment under the Kyoto Protocol some flexibility in how they meet their commitments, and assist countries to achieve their sustainable development goals. It pointed out that the mechanism has been criticised by some stakeholders for being too stringent and slow, and by others for not being stringent enough in ensuring that the emission reductions produced are additional, and would not have happened anyway, even without the CDM.

To address shortcomings and improve the mechanism’s reputation and performance, CDM has recommended fundamental reforms of its operating procedures. More specifically, the panel calls for:

More systematic reporting, monitoring and verification of sustainable development impacts

Greater access for under-represented regions through simplified procedures

Revised criteria for the composition of the CDM Executive Board (CDM EB) to reflect not only regional distribution but also professional knowledge and experience

Implementation of standardised methods, such as performance benchmarks and positive lists, for assessing additionality

In addition, the Panel urges nations to take measures to enhance the CDM’s role so that it adapts to new political and market conditions.

The wide-ranging research programme commissioned by the panel claimed that it had found that over the past decade, the CDM alone had helped nations mitigate approximately one billion tonnes of GHG emissions in a manner that realised US$3.6 billion in savings for developed countries. Over this same period, the CDM has mobilised more than US$215 billion in investments in developing countries, thereby accelerating economic growth and poverty alleviation, it said.

“New market-based mechanisms will take years to design and make operational, said the vice-chair of the panel, Joan MacNaughton. “For the balance of this decade, the CDM is likely to remain the world’s foremost means of gaining the benefits of a truly global carbon market. The panel believes that a strong and robust CDM is necessary to support the political consensus and bring the benefits of carbon markets to developing countries.”

To make the CDM more effective, the panel recommends 51 actions across 12 areas. Its recommendations cover issues, such as the crisis of demand, mitigation impact, linking of carbon markets, sustainable development, regional distribution and governance structure, additionality and stakeholder and public engagement as well as mechanisms for appeals and grievances.

The panel, which officially presented its report at the 69th meeting of the CDM Executive Board in Bangkok, urges that its recommendations be implemented fully and without delay with a timetable agreed, that will bring them into effect by the United Nations Climate Change Conference, scheduled for December 2013.