DEVS 201 Chapter Notes -Clean Development Mechanism, Windfall Gain, Certified Emission Reduction

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Published on 12 Apr 2013
Simon Fraser University
Developmt &Sustainability
DEVS 201
A Clean Development Mechanism with Global Atmospheric Benefits for a Post 2012 Climate Regime
The Clean Development Mechanism (CDM) allows the crediting of emission reductions from greenhouse
gas (GHG) abatement projects in developing countries
emission reductions achieved from CDM projects allow industrialized countries to increase their
could be moved beyond a pure offsetting mechanism by crediting only a fraction of the emission
reductions from CDM projects
the effects on carbon market depend on whether the use of CDM is limited through caps or not
Certified Emission Reduction Units (CERs) can be used by governments of industrialized countries to
meet their Kyoto reduction commitments and by companies covered under emissions trading
CDM has 2 purposes
o 1. assist developing countries in achieving sustainable development
o 2. help industrialized countries reduce the costs of GHG abatement
Reforms to CDM currently being debated
o intro of a CDM with atmospheric benefits
fewer CERS issued or used is comparision to those achieved through a CDM project
the CDM could be not just a pure offsetting mechanism
if fewer emission reductions are credited than are achieved, the CDM could
contribute to lowering global GHG emissions
main rationale for proposing CDm with atmospheric benefits is global climate change beyond given
targets by industrialized countries
o could also take away concerns with regard to the lack of additionality of some CDM projects
seen as applying a conservativeness factor
Several stakeholders have called for a CDM with atmospheric benefits in a future climate regime
Options to implement a CDM with Atmospheric Benefits
Introducing a CDM with atmospheric benefits mean that fewer CERS are issued and used
compared to the level of emission reductions achieved through CDM projects
can be implemented by
o discounting of emission reductions
o ambitious baselines that are set below the level of business as usual emissions
o shorter crediting periods compared with the lifetime of the project
2.1 Discounting at the Supply or Demand Side?
Discounting can be implemented on the supply or demand side
o supply side: only a certain percentage of the calculated emission reductions are
issued as CERs
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o demand side: only a certain percentage of the CERs can be used for compliance
purposes and the rest are retired to the atmosphere
on the supply side, the discounting would automatically apply to the whole CDM market
o would require an agreement by all parties
advantage of everyone agreeing and supporting and avoiding distortion
between markets
discounting on the demand side, different users could choose different discount rates
o would complicate linkings
o discounting on the demand side for some parties would affect other parties
discounting on the supply side easier to implement
o on the demand side would require tech adjustments to registries, to the
international transaction log, and accounting and compilation databases
2.2 Should Discount Rates be Varied by Project Type?
One discount rate could be applied to all CDM projects or the level of discounting could
vary between project types
main advantage of one single discount rate is its simplicity and the avoidance of any
market distortion between project types
o also the idea of a market mech that searches for the mitigation opportunities
with the lowest costs is largely maintained
a variation of discount rates between project types would have the benefit that some
project types could be politically favoured over others
o lower discount rate have larger CER revenues and it becomes more
economically attractive to develop them
will increase their market share
o different rationales used to determine which project should be favored
favouring projects with large benefits for sustainable development
favouring projects that use innovative tech
disfavouring projects that have large windfall profits
it could be hard to agree upon a set of discount rates
o it is the prerogative of the host country to determine
which projects contribute to sustainable development
o host countries have different priorities therefore
different opinions on which project should be favoured
2.3 Should Discount Rates be Varied Between Countries?
lower discount rates for some countries would provide enhanced economic incentives
to develop projects in these countries
the cost effectiveness of the CDM would be reduced if the values of emission reductions
differ between countries
different rationales to differentiate between countries
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