What can Cancun spell for CDM?

COP 16 in Cancun is in full swing and one of the daunting questions is what will happen to CDM post 2012. Here’s what negotiations so far have meant for the CDM mechanism and some thoughts and expectations from the players in the Indian CDM market.

We are almost halfway through the 16th edition of Conference of Parties (COP 16) of the United Nations Framework Convention on Climate Change (UNFCCC) that kick started this Monday. While hundreds of delegates and ministers try and negotiate a FAB (read Fair, Ambitious and Binding) deal at Cancun, thousands watch with bated breath about the outcome of the negotiations back home.

One such group would be the CDM (Clean Development Mechanism) fraternity of the world!

A Quick Recap
The Kyoto Protocol of 1997 required the developed nations to cut their emissions by 5% from the 1990 levels by 2012 (the first commitment period), though hardly any targets have been met. This first commitment period ends in 2012, and the countries are now pressed to come up with a deal to decide emission reduction targets post 2012 (the second commitment period).

Most of the time since last year has been spent with developed and developing countries being at loggerheads- while US demands emission cuts from the developing economies (like India and China), these nations in turn refuse legally binding cuts owing to non historical responsibility. Yes, seems like a tug of war!

At COP 15 in Copenhagen last year, US and the BASIC countries (Brazil, South Africa, India and China) did come up with the Copenhagen Accord however since it does not entail legally binding cuts and as such is not a successor to Kyoto Protocol. Meanwhile, India is being praised by Mexico for its proposal of reducing emissions by 20-25% (on a voluntary basis) and also European Union now supports India's proposal for an International Consultation and Analysis (ICA).

Where does CDM fit in this?
Under the Kyoto Protocol, CDM was proposed as a flexibility mechanism to enable Annex I (developed countries) to meet their emission reduction targets by setting up projects in developing (non Annex I) countries. These projects that are set up in the developing countries help in sustainable development and in turn can be quantified in the form of carbon offsets that can then be bought by developed countries to meet their emission cut targets.

While CDM is a part of the long term mechanism under the Kyoto Protocol, its future is often considered uncertain as yet since the emission targets for only the first commitment period were decided upon. 

Based on the Cancun negotiations so far, here are three things that can happen post 2012 and what it might mean for CDM:

1. Kyoto Protocol- Jai Ho!

Ashutosh Pandey, Global CEO of Carbon Advisory Business at EVI, says that “if not a complete deal, we expect progress regarding CDM reforms in Cancun negotiations”.  However other experts seem less than confident on that front. As Christiana Figueres, Secretary General UNFCCC  stated ‘'a meeting in Cancun, Mexico, wouldn’t be able to agree how to limit emissions after the current obligations under the pact expire in 2012'’. This would obviously mean no clear progress on CDM front will be achieved at the Cancun deliberations.

But there may still be hope as various contact groups on CDM and carbon offsets are convening in Cancun. Ashutosh adds “it may be possible that final decision is not reached in Cancun, however in case we could forge a deal on MRV of developing countries, commitments and tougher targets by main developed countries such as EU/Japan we could consider it as a great success and a path for moving ahead.”

Jai Kumar Gaurav, a CDM officer with a leading consultancy, puts it nicely “I believe that hope is a good thing and we should not let it die”. He also says “It is very important that the sincere group of countries show the defaulters that they can do well economically, socially and politically inspite of allocating resources for climate change mitigation and adaptation”.

India (along with China) is clearly rooting for the Kyoto Protocol to live on, and is demanding specific targets post 2012 from the developed countries while offering voluntary targets of its own. If things pan out as they are seeking, it would be a welcome breather for the CDM fraternity and CDM will stayon as a market based mechanism under the protocol.

2. Goodbye Kyoto Protocol
Ironically, countries like Japan- the motherland of the Kyoto Protocol- seem to be hell-bent on moving away from the Kyoto track. The reason cited is that while forming Kyoto, the Annex I countries accounted for the major emitters (excluding US which never ratified the treaty), but now considering the sporadic growth in China, the Annex I countries are now accounting for only 27% of the emissions. According to Japan, this warrants the need for replacing the Kyoto Protocol with fresh agreement keeping in mind the composition and location of present emitters.  This rigid stance has so far been a key hurdle in the negotiation pathway, thus putting the future of CDM in jeopardy too. 

“It is still possible to keep the organ alive even if the body dies”, that’s how Eduardo Calvo of Peru, Co- Chair of the Contact Group meeting on CDM issues, quipped during the negotiations in response to interventions by countries who refused to support CDM as a mechanism in absence of a second commitment period (like Brazil, Saudi Arabia, China and Bolivia to name a few).

The CDM market was worth $2.7 Billion in 2009, and is world’s second biggest emission trading market. It is also a steady source of funding for renewable energy/sustainable development projects in India. In case CDM collapses as a market based mechanism, it will be a great blow to the way in which funding was being channeled from the developed to the developing nations.

3. Pseudo could be ‘in’
Another question to ask is will it really matter so much if option 2 prevails and CDM dies? Well, maybe not.

As Ashutosh Pandey puts it, EVI is optimistic about carbon markets as “even if there is no international carbon deal then also various local carbon markets will keep on performing such as EU-ETS, Japan etc. Carbon has now become integral part of emission reduction regime and there is no alternative to achieve results fast with low cost without market based mechanism for carbon”. EVI’s optimism is backed by the fact that they are actually expanding their reach in carbon markets by venturing into other countries in Asia and Africa, with 300 projects in 15 countries.

Jai Kumar Gaurav adds that “there would be a carbon market post 2012 for good quality CERs (excluding HFC and N2O ) in EU-ETS and VERs by many responsible companies and individuals who want to offset their emissions”. He also envisages many “pseudo carbon markets emerging like the REC, the Energy efficiency credits and the low carbon footprint markets”.

Then there are also companies like Gensol who are reinventing the projects and markets they are venturing into. Gensol plans to set up a Renewable Energy Fund and have set up two other companies on renewable energy projects and manufacturing solar modules. As Anmol Singh Jaggi, founder of Gensol, stated “the carbon business positioned us to be in all shades of green like renewable energy and energy efficiency. The key is to leverage our experience and harness the emerging opportunities.”

It seems CDM consultants are bracing themselves for any outcome that may emerge and are taking necessary steps to continue growing their businesses.

To put it in simple words:
Decide the emissions --> Kyoto lives and CDM stays
Kill Kyoto --> New agreement --> CDM (in present form) dies.
No How does it matter --> we have alternate markets
Our Environment Minister, Jairam Ramesh, too headed to Cancun on Friday. While Copenhagen Summit, held in freezing environs, didn’t provide the hope and fillip to the negotiation process as one would have desired, whether the much brighter environs of Cancun can motivate the negotiators sufficiently to provide the fresh rays of light and brightness to the process remains to be seen. Will holding mechanisms like CDM ‘to ransom’ lead to a second commitment period under Kyoto? And like COP1 5 will the last two days of the negotiation be the game changers? We’ll just have to wait and watch. 


Image(s) Courtesy
El_ Enigma
UN Climate Talks


Author: Roselin Dey