CDM participants gloomy, regardless of Copenhagen outcome
11 December, 2009
Investment in new Clean Development Mechanism (CDM) projects is almost certain to fall in 2010 – for the third year in a row – almost regardless of the outcome of the Copenhagen climate talks, according to investors, developers and auditors.
Private sector participants in the CDM – which is designed to channel carbon finance to projects in developing countries which reduce greenhouse gas emissions – are sceptical that efforts at the climate talks to reform the CDM process will be successful in reversing the slowdown in project approval and credit issuance seen in recent years.
“I’m dubious that there’s the willingness and attention span of the proceedings here to deal with the comparatively detailed issues around today’s CDM,” Henry Derwent, president of the International Emissions Trading Association (IETA), told Carbon Finance halfway through the first week of the talks.
Indeed – despite an intervention in the plenary by China, which attacked the performance of the CDM Executive Board (EB) and accused it of “discrimination” in rejecting a number of Chinese wind energy projects – fears were growing that CDM reform would be pushed down the agenda, given that efforts are focused on a post-2012 climate change agreement and elaborating new mechanisms to reduce emissions.
“We’re on the right track with the reform proposals” that the EB set out at its 50th meeting, said Anna Lehmann, senior climate change officer at project developer Sindicatum Carbon Capital and a board member of the Carbon Markets & Investors Association. “However, they need to go further ... and there is less and less time for Parties to propose and agree more substantive reform.”
In late October, the EB tabled reforms to itself for the Conference of the Parties (COP), meeting in Copenhagen, to debate. However, even if the proposals are adopted, developers question whether they will be adequate to reinvigorate the CDM.
Alexander Sarac, legal counsel for UK-based project developer EcoSecurities, said that a more profound “separation of powers” was required, whereby the EB acts more as a legislative body, with the UN Framework Convention on Climate Change Secretariat taking more of an administrative function and with a fully elaborated appeals process. Participants have complained that the EB and the Secretariat often duplicate work done by CDM auditors, known as Designated Operational Entities (DOEs).
Sven Kolmetz, Munich-based head of carbon management services at TÜV SÜD – one of the leading DOEs – said there would “definitely not” be faster approval of CDM projects in 2010 than 2009. He said that, despite training more staff, increasingly onerous requirements by the EB and the Secretariat means his company is processing far fewer projects per staff member.
Leo Perkowski, co-vice chairman of the Project Developer Forum and director of regulatory affairs at the carbon trading arm of US energy company AES, said, “Where I’m pessimistic, is that it will take one to two years before anything is implemented.”
Lehmann cited a number of priorities for CDM reform: timelines to which the EB and the Secretariat would be required to stick in terms of the various stages of the CDM project approval process; making the EB chairman a permanent position; and longer-term, institutional overhaul to, among other things, improve communications between the EB, Secretariat and stakeholders, and create full time technical bodies.
IETA’s Derwent called for an urgent definition of a “materiality threshold”, in terms of the level of detail to which projects must be assessed.
Lex de Jonge, EB chairman, acknowledged a “concern” about delays to registration of projects and issuance of credits due to a backlog of projects faced by the Secretariat. “I can assure you that the message is understood by the Secretariat and they are working very hard to increase the number of their staff members,” he told Carbon Finance.
However, he also referred to a number of improvements to the CDM’s procedures that should show an improvement in project approval times in the months to come.
As Carbon Finance went to press on 9 December, negotiating positions were hardening around well-rehearsed issues such as emissions targets, finance for adaptation and the existence of the Kyoto Protocol after 2012.
However, veteran COP-watchers suggested that such negotiating tactics are typical of the first week of the two-week talks. The mood of delegates going into the conference was largely upbeat, given the announcement that more than 100 heads of state – including President Barack Obama – would attend the closing ministerial segment of the talks.
