Stabilisation Fund Won’t Save the CDM

30 November 2012

It is no secret that the future of the CDM looks grim. According to the High Level Panel on the CDM Policy Dialogue, the CDM will produce an excess of roughly 1.25 billion offset credits because of low ambition by developed countries. This has driven the prices in the cellar and stirred creativity on how to keep the market flourishing. In the CMP opening plenary, India suggested setting up a stabilisation fund to buy up excess offset credits – something that has also been recommended by the High Level Panel on the CDM. A large chunk of the excess offset credits will come from HFC-23 destruction facilities in India and China. Credits form such HFC-23 projects have been banned by major buyers (EU, Australia and New Zealand) for their lack of environmental integrity and sustainable development benefits. With a lack of buyers, such a fund would provide a convenient new source of money!

Even if HFC-23 credits were not allowed in such a fund, there is more to worry about. New findings from the CDM Policy research team show that large-scale power supply CDM projects, which are expected to generate the majority of CDM credits until 2020, are rarely additional and therefore increase global emissions. This means that such a stabilization fund would largely buy up excess credits from industrial gas projects and from projects that are unlikely to be additional. This seems like a terribly bad use of scarce climate finance. Certainly there are much more effective ways to spend mitigation money, such as directly supporting the implementation of renewable feed-in-tariffs and other proven policy measures.
Furthermore, if the CDM wants to be fit for the future it needs to get rid of its excess baggage of business-as-usual projects that inflate its supply. Banning credits from project types that are highly unlikely to be additional after 2012 would get rid of 1.6 billion offset credits between now and 2020. Stopping such projects from renewing their crediting period and not allowing the registration of new projects would also go a long way. 
Instead of putting money into the CDM stabilization fund, developed countries should raise ambition and put money on the table to help developing countries take actions that transform their economies to low-carbon development path. It’s as easy as that.

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