No Need to Re-Invent the Wheel

At today’s side event forum, hosted by the Executive Board of the Clean Development Mechanism (CDM), panel members called for governments to stand behind the CDM. Comprised of Executive Board members of the CDM, renowned representatives from the Parties and the private sector, World Bank and Green Climate Fund (GCF) the message was clear, there is no need to reinvent the wheel. “We need to work with what we have,” said Phillip Hauser of the GCF.

Despite current funding issues, panelists made the case that governments already have a powerful tool in the CDM that they can use now. Following the central message from the 81st meeting of the CDM Executive Board, panelists urged governments to release the full potential of CDM for strong climate action. “We urge countries in Lima [ ]and in Paris next year to renew their commitment to the CDM,” said CDM Executive Board Chair Hugh Sealy. “This is one of the most effective instruments governments have created under the United Nations Climate Change Convention. It drives and encourages emission reductions, climate finance, technology transfer, capacity building, sustainable development, and adaptation—everything that countries themselves are asking for from the new Paris agreement,” he said. Countries need to set a strong market signal to ensure the stability of the CDM. “They can do this by increasing their demand for Certified Emission Credits (CERs) before 2020, by recognizing the value that the CDM can add to emerging emission trading systems, and by recognizing the mechanism’s obvious value in the international response to climate change after the new agreement takes force in 2020,” he said.

Acknowledging that the CDM is far from perfect, Sealy said that the “learning by doing” mantra has provided valuable insight into building on the success of the market mechanism. As the largest, most widely recognized baseline and crediting mechanism in the world, the CDM has the potential to reduce 2.8 billion tonnes of carbon dioxide equivalent by the end of 2020. Over the past nine years, the CDM has reduced over 1.5 gigatonnes of emissions and saved $3.6 billion in Kyoto Protocol compliance costs. In addition, the CDM has encouraged $138 billion in climate finance, leveraging privately 10 times the amount of public investment. Compatibility---Wind-And-Agricultural-Farming450px copy

However, despite the success of the CDM, the demand for CDM is plummeting. This year saw a continuing decline in the size of the CDM program, which had about a tenth of the number of registered projects in the preceding reporting periods, said Dirk Forrister, President of International Trading Association.  As Sealy explained, the demand from traditional markets (especially the European Union Emission Trading System) has contracted severely, with the spot price of a secondary CDM CER crashing from over 30 USD in 2008 to around USD 0.30 in 2014. Investment in new CDM projects is almost non-existent and significant hemorrhaging in the private sector is occurring. The price drop in CERs has lead to a decreased incentive to continue projects and develop capacity. Ultimately, “all this jeopardized the long-term partnerships of the UNFCCC Parties and the private sector, in the midst of a growing need for global climate action.

Increased demand is the key to addressing the CDM’s current challenge, said Sealy. The CDM is too valuable to discard, especially now that we have figured out most of the kinks, said Forrister.