Guest Article #29

Development of the CDM over time and in the future

One of the most debated, whilst also most successful, instruments under the Kyoto Protocol is the Clean Development Mechanism (CDM). It is fascinating to look back at how we started, and consider how far we have come. Now, even more intriguing, is the question of how the CDM will look in the future.

The Marrakesh Accords, agreed in late 2001, provided the basic framework for the CDM. Since then, much work has had to be done by the CDM Executive Board to develop the mechanism's rules, procedures, guidance documents and, of course, methodologies. The year 2006 marked the start of a massive inflow of projects submitted for registration, starting with 438 projects in that year, rising to 553 projects in 2007 and 666 in 2008. The CDM is on track for continued growth in 2009.

A brief summary of the most remarkable developments:

In the early days a major challenge was – and to a certain extent still is – how to deal with additionality. Additionality is the cornerstone of any credible CDM project, basically answering the question whether a project is ‘additional', or would it proceed anyway, without the CDM. Additionality has been debated for a long time; some project developers have advocated that any greenhouse gas reduction should be considered additional (environmental additionality). That approach would completely ignore that the CDM, at its best, is a zero sum game, because its credits are used to offset reduction obligations of Annex 1 countries. Hence, the Board finally decided to release the Additionality Tool, which requires counterfactual evidence that the project – without the support of the CDM – faces serious barriers, either technical, logistical or financial. After its release, the Additionality Tool was heavily criticized by project developers as being too complex and labor intensive. Yet, in time these complaints stopped. Though the basic concept of the Additionality Tool seems to be sound, reality has shown that its application can be subject to gaming and manipulation. As a result, the Board, over the years, has developed more guidance to enforce correct application and invited the public to propose other approaches. Apart from a possible shift towards standardization (e.g. application of fixed benchmarks or deciding on a positive list of technologies for certain sectors or regions), not much progress has been made here. This is surprising, since several NGOs have been criticizing the credibility of the Tool, but so far have not come forward with detailed, better proposals.

The huge inflow of projects submitted for registration was another challenge for the Board. It forced the Board to considerably expand and professionalize its main support system, the UNFCCC Secretariat, up to a level of well over 100 staff members. This was the Board's response to those who felt that the Board itself should be transformed into a full time professional body.

Compounding the challenges posed by the high number of registration requests has been the high proportion of inadequate project design documents (PDDs) being submitted. This has led to many requests for review by the Board and quite a number of reviews, reaching a level that the Board considers unacceptably high.

However, the Board believes that environmental integrity is vital to the CDM. Thus, the Board was not, and still is not, prepared to accept any deviation from the official rules and procedures, unless properly addressed through separate procedures. There has been strong pressure from project developers to be less rigorous, which would leave the Board with the fundamental question “Where to draw the line?”, and remain credible and consistent.

In response, over the past two years the Board has done everything within its ability – without jeopardizing environmental integrity – to streamline and increase the efficiency of procedures, provide additional guidance, increase the number of available designated operational entities and increase transparency for project developers. As a result, the CDM playing field has changed considerably and the mechanism has improved. Though the workload of the UNFCCC Secretariat is quite high, causing some delays, by far most delays in the system are now caused by poor quality submissions from project developers. So, now it is time for project developers to take up the challenge of delivering better quality PDDs. Some project developers complain about this rigorous approach and express frustration, and threaten to leave the CDM scene. In as much as these project developers probably represent the group continuously trying to “stretch and bend” the rules – which in many cases results in rejection of their projects – the Board would only welcome their departure. It should be kept in mind that still 90-93% of all projects are finally registered, which clearly indicates that the Board is on the right track and the system is working well.

A final remark about the CDM's possible future. For sure the CDM has been a tremendous success. Yet, as part of the international negotiations, voices are heard calling for modification of the CDM, specifically a more sectoral approach applicable in certain countries, leaving a strong existing and “ready for the future” CDM for others. This is up to negotiators to decide, but there is an important point to bear in mind in this discussion. Negotiators must take into account the number of projects that the system is able to process. Though an increase to 700 or so projects should be possible, a further increase to 1000 or 2000 cases per year would not be feasible under the existing system, even after further improvements have been implemented. And, such a level of inflow may very well result from considerably increased reduction targets for existing Annex 1 Parties, let alone the impact of the US entering into the demand side of the CDM market. That's something for the negotiators to consider seriously.