New approaches to enhance mitigation action are currently being discussed in the context of the UNFCCC, in order to set the stage for the future of the Kyoto Protocol and for a larger involvement of all countries in emissions reduction policies. One of the key issues under discussion is the improvement of existing project-based mechanisms, in particular the Clean Development Mechanism (CDM). This mechanism, originally designed to enhance sustainable development and technology transfer in developing countries, has often been argued not to deliver on such objectives. Most project activities remain concentrated in few countries and few sectors, with the complexity of the project cycle and related transaction costs acting as a barrier to environmentally friendly investments.

A specific option, currently discussed in UNFCCC negotiations, is the use of standardized approaches for the determination of baselines and additionality. Determining the baseline (emission scenario that would occur in the absence of the proposed project activity) and demonstrating additionality (proving that the project generates real emission reductions beyond the baseline) are often the most complex phases of the project cycle, implying some level of subjectivity and less certainty on the generation of carbon credits.

The challenge is to set up methodologies applicable to multiple projects, regardless of project specific conditions. This may contribute to reduce transaction costs, increase transparency, ensure better predictability of emission reductions and allow a faster project cycle. Yet, their use may not be appropriate for all types of projects and could require significant upfront costs and efforts to be developed. Standardization is not a new concept under the CDM, however it has not been widely exploited, for reasons related to the origins of the mechanism itself. In fact, the CDM was conceived as a global mechanism encompassing any possible emission reduction activity for the six gases of the Kyoto Protocol. For such a mechanism, it was impossible to elaborate top-down methodologies for all eligible activities, both financially and within a reasonable timeframe. Therefore, in view of a quick start-up of the mechanism, it was decided to leave to project proponents the possibility to propose methodologies, that would be subject to approval by the “CDM Executive Board”. Therefore, the tendency was inevitably project-specific (none of the proponents had interest in developing methodologies applicable to other projects). On the contrary, in other offset schemes outside the UNFCCC, restricted geographical scope and limited eligible project categories allowed easier development of top-down methodologies. Offset schemes used in Australia, Canada and US make wide use of standardized approaches.

Following the recent Cancun decision on “further guidance relating to the clean development mechanism”, there is a stronger mandate for the CDM Executive Board to work on standardization. Yet, considering limited availability of financial resources, work needs to be concentrated on clear priorities. In this regard, the challenge of standardization should be considered within the wider exercise of streamlining methodologies and facilitating their applicability in under-represented regions, thus enhancing geographical distribution of the CDM. Across the different standardization approaches, some may be helpful in this direction. For instance, the development and use of “default values” may facilitate baseline calculation where project data are not available or would require very costly measurement campaigns. Some default values (e.g. IPCC values) are already used in UNFCCC methodologies and this approach should be further developed. While an important challenge remains the development of new methodologies, the potential of “hybrid” approaches, combining standardization and project specific elements, should be duly investigated, starting from existing methodologies.

A project scouting exercise carried out in the Northern African region highlighted several difficulties of application of UNFCCC methodologies to local technology practices. For instance, applying the UNFCCC methodology “AMS.III.H, Methane recovery in wastewater treatment” to some emission reduction projects, posed a number of issues where lagoon treatment was used. These issues were related to technical definitions, availability of historical data, application in conjunction with other methodologies (where energy production was also contemplated) and additionality tests. Provision of historical data represented one of the hardest barriers, both in the methodology itself and in the application of the “emission factor tool”, required to calculate the electricity delivery component in case of methane utilization for energy production. In this regard, uncommon grid delivery layouts (with onsite diesel generators, very frequent in rural areas) represented an additional barrier. Another major barrier was linked to monitoring and verification: a very high number of parameters are required by this methodology (e.g. methane content at different locations), with high risks of failure in the phases of verification and issuance of carbon credits. This is an aspect discouraging projects in regions where other kinds of investment risks already exist.

In general, methodologies are often too demanding in terms of baseline calculation and monitoring parameters, with a number of requirements that could imply, for small scale projects, a micro-difference in emission reductions. In these cases, minor differences in percentage of emission reductions should be deemed acceptable, if technology diffusion and other environmental benefits outweigh such difference. In general, for underrepresented regions, methodologies should become more manageable, with increased certainty on project registration and generation of credits.

Whatever the outcome of Kyoto negotiations, flexible mechanisms are likely to continue playing a role in mitigation policies. Their rules should be improved, with the aim of enhancing regional distribution, efficiency and environmental integrity. Standardization, although not applicable to all categories of projects, can be part of this exercise. The COP/MOP decision adopted in Cancun, while limited in its scope, is a good first move. The decision had the merit to set some priorities (especially for under-represented regions), include additionality within the scope of the baselines, give a mandate to the Executive Board for a top-down work and plan work for the refinement of other aspects over the next negotiating sessions. The Executive Board has a challenging work ahead and next UNFCCC sessions, including Durban, are expected to further pave the way to the improvement of the CDM. While being also a political issue, with potential effects on the carbon market, standardization should remain a tool to overcome current weaknesses of the CDM and improve investment in clean technologies.

References

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