CDM reform on governance

9 December 2009

Reform of the Clean Development Mechanism (CDM) will focus on crucial amendments such as regional distribution, efficiency of the operation and inclusion of forests in exhaustion, and carbon, capture and storage (CCS) as CDM project activities. While every one of these topics deserves to be addressed here, ECO will only review the amendments related to governance.

Claiming to improve governance of the current CDM, the reform agenda includes the possibility of revising procedures for registration and issuance requests of CDM project activities as well as the initiation of an appeal procedure against Executive Board (EB) decisions. Nice, but is this really governance? The World Bank refers to governance as follows: “Good governance is epitomised by predictable, open and enlightened policy-making, a bureaucracy imbued with a professional ethos acting in furtherance of the public good, the rule of law, transparent processes, and a strong civil society participating in public affairs. Poor governance is characterised by arbitrary policy making, unaccountable bureaucracies, unenforced or unjust legal systems, the abuse of executive power, a civil society unengaged in public life, and widespread corruption.”

ECO is uncertain whether the EB has understood the concept of (good) governance. To make this clear, members of the EB often take on multiple roles at the same time. They include UNFCCC negotiators representing their countries’ designated national authority (DNA) or managers of large government CDM purchasing programmes. Although members should act in their personal capacity, there are severe concerns about their conflicts of interest. Recently, the New York Times (NYT, April 7, 2009) had reported that some Board members abused their role and aggressively promoted projects that benefitted their home countries. To address this critique, the Board has recently adopted a code of conduct that suggests each Board member will “exercise personal discretion in deciding whether s/he has a real or perceived conflict.” Wait, doesn’t this mean that everyone can make up their own definition of a conflict of interest?

The operation of the CDM in this current biased form is unacceptable. Furthermore, should the CDM EB rule over CDM projects and even sectors and critical technologies such as CCS in the future? The current institutional set-up would especially be inappropriate to assess and approve reference levels for sectors under a potential sectoral crediting mechanism or to act as an appeal body against EB decisions. It should go without saying that these tasks can only be conducted by an independent authority under the CoP.

Good governance is the key for the creation and implementation of public policy. A lot of work needs to be done: the independence and immunity of Board members need to be guaranteed. The highest level of transparency in decision making needs to be established involving clarity about reasons for all decisions and abolishing the culture of secrecy of closed Board meetings. Ultimately, the overall participation of civil society needs to be strengthened in the process. In the industry dominated stakeholder environment of the CDM, environmental integrity and good governance can only be guaranteed by granting an active role to civil society, equal to that of project participants.