Market Mania

10 June 2013


Carbon markets are in the dumps and policy makers and market participants alike are scrambling to come to their rescue. This weekend, ECO spent two days with delegates to discuss the future of the Clean Development Mechanism (CDM) and what changes to its underlying modalities and procedures are needed to make the CDM fit for the future. The number of delegates that showed up on Sunday at 9 AM showed us that there is hope.

Let’s start with the good news. For the first time, human rights impacts of CDM projects and harmful impacts of large power supply projects in the CDM were discussed openly! Now dear delegates, it’s time to move into action mode: start by kicking coal out of the CDM, find a way to phase out large scale power projects, improve the stakeholder consultation process, establish a grievance mechanism and move the whole CDM far beyond offsetting!

But ECO is worried that certain Parties that host many CDM projects did not seem to like the proposed changes. Some of them posited that everything was all right with the mechanism and that people who raised doubts about additionality were only showing their ignorance. ECO suggests that a little less self-congratulation would be in order given the number of academic studies that have concluded that there are in fact substantial problems. If you want a future for the CDM you need to improve its reputation by addressing the problems, not ignoring them. This old-fashioned thinking will certainly not help the CDM to recover and scale up but will once and for all give it the lethal injection.

Joint Implementation has been in the shadow of the CDM for many years. Yet close to 800 million JI credits have been issued to date. Strong reforms are needed for JI. Almost all of them under track 1 have very limited transparency or integrity. Despite the poor quality of JI offsets, they are used extensively. Strong reforms are needed for JI. The experience with JI track 1 shows that a new, unified track needs to have strong international oversight. Also, issuance of JI credits for emissions reductions after 2012 should only be possible once the host country has issued its AAUs for the second commitment period. The future 2015 regime will require market mechanisms to work in a different world where many developed and developing countries will have mitigation commitments.

This issue is currently being discussed in SBSTA, where Parties are establishing a new market mechanism and a Framework for Various Approaches that should make emission reductions units that are achieved by various mitigation systems internationally tradable and eligible for meeting national emission reduction targets.

Some countries have put forward good proposals to avoid double counting. But ECO is missing support for centralised governance and international consistency of standards and how to achieve net mitigation benefits. And let’s not forget, before we can agree on anything, we need an international accounting framework and clearer and more ambitious pledges.

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