Session 10 A Clean Development Mechanism with Global Atmospheric Benefits for a Post 2012 Climate Regime.docx

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Department
Developmt &Sustainability
Course
DEVS 201
Professor
James Busumtwi- Sam
Semester
Fall

Description
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 emissions  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 Introduction  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 scemes  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 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 o responsibility and capability to take action to mitigate climate change  some countries are further developed and have a higher responsibility and capability  higher discount rates for more advanced developing countries could reflect this responsibility and capability o changing the geographical distribution of CDM projects  lower or no discount rates for least developed countries and/or African countries would provide economic incentives to develop more projects in these countries 2.4 what level of discounting is appropriate?  choice of the discount rate is arbitrary and depends on policy preference  discount rates can be derived from different perspectives  certain amount of free riding projects will always be apart of the CDM  discounting would address the issue of free riding projects on an aggregated level by compensating for mission reductions claimed from projects that would be implemented anyhow but nevertheless qualify under the CDM  one could try and arrive at estimates of the average fraction of free riding projects in the CDM and apply this fraction as a discount rate o difficult to determine and would not provide incentives to develop more truly additional projects o discounting cannot replace the testing of additionality but only compensate for the problem that additionality testing will never be perfect  if the rationale for introducing discounting is the removal of large windfall profits, the GHG abatement costs and range of plausible ER prices could be used to determine which discount rates still provide sufficient incentives to abate the GHG emission but reduce the windfall profits 2.5 Should discount rates be fixed or vary over time?  two rationales for variable discount rates o adjustments to the discount rate could serve as an instrument to regulate the supply and demand of CERs with the objective to achieve price stability in the carbon market o flexible discount rates is the adjustment to the
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