Open Collections

UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

The clean development mechanism : strengthening sustainable development? Knechtel, Anya Lise 2006

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
831-ubc_2006-0220.pdf [ 14.78MB ]
Metadata
JSON: 831-1.0092537.json
JSON-LD: 831-1.0092537-ld.json
RDF/XML (Pretty): 831-1.0092537-rdf.xml
RDF/JSON: 831-1.0092537-rdf.json
Turtle: 831-1.0092537-turtle.txt
N-Triples: 831-1.0092537-rdf-ntriples.txt
Original Record: 831-1.0092537-source.json
Full Text
831-1.0092537-fulltext.txt
Citation
831-1.0092537.ris

Full Text

THE CLEAN DEVELOPMENT MECHANISM: STRENGTHENING  SUSTAINABLE  DEVELOPMENT?  by  A N Y A LISE K N E C H T E L B . A . , Queen's University, 2000  A THESIS S U B M I T T E D IN P A R T I A L F U L F I L M E N T OF THE REQUIREMENTS FOR THE DEGREE OF  M A S T E R OF ARTS in THE F A C U L T Y OF G R A D U A T E STUDIES (Planning)  THE UNIVERSITY OF BRITISH C O L U M B I A A p r i l 2006 © A n y a Lise Knechtel, 2006  Abstract Climate change is a global challenge that is affecting opportunities for sustainable development, particularly in developing countries where vulnerability to the adverse impacts o f climate change is heightened by factors such as limited access to resources and greater exposure to extreme climate events. However, sustainable development also provides an opportunity to mitigate the impacts o f climate change by limiting greenhouse gas emissions and strengthening people's capacity to deal with its effects. The Clean Development Mechanism ( C D M ) is one o f three internationally-based mechanisms designated to assist i n international efforts to mitigate additional climate change under the 1997 K y o t o Protocol within the United Nations Framework Convention on Climate Change ( U N F C C C ) . The C D M is unique to the K y o t o Protocol i n that it is the only mechanism in which developing countries may participate and that has the stated objective o f supporting developing countries' efforts to achieve sustainable development. The C D M is designed to pursue this objective by channeling foreign direct investment into sustainable development projects i n host developing countries. Therefore, i n theory, the C D M provides an opportunity to support efforts to mitigate climate change through sustainable development. This thesis explores how the policies governing the C D M impact its capacity to support sustainable development, and how sustainable development is being operationalized in the context o f the C D M . It considers barriers and challenges that project developers are encountering in seeking to implement sustainable development projects under the C D M , and what could be done to assist in overcoming these barriers in order to strengthen the C D M ' s capacity to support sustainable development. This thesis finds that on an operational level the C D M ' s effectiveness in fostering sustainable development has been limited due to a number of institutional, regulatory, and financial barriers. However, it concludes that there are opportunities to overcome the barriers and strengthen the C D M ' s capacity to foster sustainable development, and that the C D M therefore remains a hopeful example o f how the issues o f climate change and sustainable development can be addressed through a constructive and synergistic approach.  n  Table of Contents  Abstract  ii  Table of Contents  iii  List of Tables  v  List of Figures  vi  List of Acronyms  vii  Glossary of CDM Terms  viii  Acknowledgements  xii  Dedication  xiii  1. Facilitating Sustainable Development through the Clean Development Mechanism (CDM)?  1  I. Climate Change and Sustainable Development  1  II. Research Objectives & Questions  3  III. Research Motives  4  IV. Research Methods  5  V. Keeping Pace  9  VI. Overview of Chapters  10  2. Essential Background: Defining the Climate Change-Sustainable Development Nexus  3.  12  I. Climate Change: An Overview  12  II. The Impacts of Climate Change  16  III. Planning for Climate Change  20  From the UNFCCC to the Kyoto Protocol: Understanding the Policy  Context of the Clean Development Mechanism  .  32  I. UNFCCC: A Framework for International Action on Climate Change II. Kyoto Protocol  33 ........36  III. Kyoto's Flexibility Mechanisms  39  IV. An Operational Framework for the CDM  48  4. Perspectives and Approaches to Sustainable Development in the Context of the Clean Development Mechanism  59  I. Operationalizing Sustainable Development through the CDM: Perspectives and Experiences  59  II. Project Scale, Type and Design  77  5.  6.  Exploring the Operational Reality of the C D M  93  I. Backlogs & Delays  94  II. Institutional Barriers  98  III. A Questionable Source of Emission Reductions  105  IV. Financial and Market Barriers to Sustainable Development  109  Conclusions  122  I. How do the policies governing the Clean Development Mechanism (CDM) impact its capacity to support sustainable development?  123  II. How is sustainable development being defined and operationalized in the context of the C D M ?  124  III. What barriers or challenges do project developers encounter in seeking to plan and implement C D M projects that will deliver sustainable development benefits?  126  IV. What could be done to assist project developers in overcoming these barriers in order to strengthen the C D M ' s capacity to support sustainable development?  128  Works Cited  131  Appendix A: Interview Protocol  147  Appendix B: Details of the CDM Project Activity Cycle  149  Appendix C: COP-11 Decisions on the C D M  155  Appendix D: A Brief History of Climate Research  157  List of Tables Table 1.1: K e y Informants  7  Table 2.1: Principal Greenhouse Gases & Anthropogenic Sources  14  Table 2.2: Exploring the Development, Energy and Climate Nexus  23  Table 3.1: Flexibility Mechanisms under the K y o t o Protocol  40  Table 3.2: Actors & Responsibilities  51  Table 3.3: Simplified Modalities & Procedures for Small Scale Projects  57  Table 4.1: Sustainable Development Appraisal and Ranking M a t r i x T o o l ( S S N M a t r i x Tool)  87  Table 4.2: Sutter's Multi-Criteria Assessment Framework  90  Table 5.1: C E R s Issued for C D M Projects  .  95  List of Figures Figure 2.1: G l o b a l Distribution o f C 0 Emissions (2002) 2  .  26  Figure 2.2: C 0 Emissions Per Capita (2002)  29  Figure 5.1: A n n u a l C E R s from C D M Projects (Registered & Proposed)  96  2  Figure 5.2: C D M Project Types & C E R s / Y e a r (% of Total Projects Under Development)  106  Figure Appendix B . l : Registered Project Activities by Host Party (% o f Total)  156  vi  List of Acronyms AAU: Assigned Amount Unit AM: Activities Implemented Jointly CDM: Clean Development Mechanism CER: Certified Emission Reductions COP: Conference of the Parties COP/MOP: Conference of the Parties/Meeting of the Parties DNA: Designated National Authority DOE: Designated Operational Entity ERU: Emission Reduction Unit GE.F: Global Environment Facility GWP: Global Warming Potential JI: Joint Implementation IPCC: Intergovernmental Panel on Climate Change LDC: Least Developed Country LULUCF: Land Use, Land-Use Change, and Forestry PDD: Project Design Document RMTJ: Removal Unit (generated by LULUCF activities that absorb carbon dioxide) UNFCCC: United Nations Framework Convention on Climate Change  Glossary of CDM Terms (Source: C D M E x e c u t i v e B o a r d 2003a; U N F C C C Secretariat 2006a)  Abatement: Refers to reducing the degree or intensity o f greenhouse-gas emissions.  Activities Implemented Jointly (ALT): Activities carried out to mitigate climate change through partnerships between an investor from a developed country and a counterpart i n a host country under a pilot phase that ended i n the year 2000.  Adaptation: Actions taken to help communities and ecosystems cope with changing climate conditions, such as the construction o f flood walls to protect property from stronger storms and heavier precipitation, or the planting o f agricultural crops and trees more suited to warmer temperatures and drier soil conditions.  Adaptation Fund: A fund to be managed by the G E F to finance practical adaptation projects once the K y o t o Protocol enters into force.  Adaptive capacity: The ability o f a system to adjust to climate change, to moderate potential damages, to take advantage o f opportunities, or to cope with the consequences ( I P C C 2001b).  Annex I Parties: The industrialized countries listed in this annex to the Convention sought to return their greenhousegas emissions to 1990 levels by the year 2000 as per Article 4.2 (a) and (b). They have also accepted emissions targets for the period 2008-12 as per Article 3 and Annex B of the K y o t o Protocol. They include the 24 original O E C D members, the European Union, and 14 countries with economies in transition. (Croatia, Liechtenstein, Monaco, and Slovenia joined Annex 1 at C O P - 3 , and the Czech Republic and Slovakia replaced Czechoslovakia.)  Anthropogenic emissions: Greenhouse-gas emissions resulting from human activities.  Baseline: The baseline for a C D M project activity is the scenario that reasonably represents the anthropogenic emissions by sources o f greenhouse gases ( G H G ) that would occur in the absence o f the proposed project activity.  Baseline approach: A baseline approach is the basis for a baseline methodology. The Executive Board agreed that the three approaches identified in sub-paragraphs 48 (a) to (c) o f the C D M modalities and procedures be the only ones applicable to C D M project activities. They are: • Existing actual or historical emissions, as applicable; or  viii  • •  Emissions from a technology that represents an economically attractive course o f action, taking into account barriers to investment; or The average emissions o f similar project activities undertaken i n the previous five years, in similar social, economic, environmental and technological circumstances, and whose performance is among the top 20 per cent o f their category.  Baseline methodology A methodology is an application o f an approach as defined in paragraph 48 o f the C D M modalities and procedures, to an individual project activity, reflecting aspects such as sector and region. N o methodology is excluded a priori so that project participants have the opportunity to propose a methodology.  Biomass fuels: Energy sources that are renewable as long as the vegetation producing them is maintained or replanted, such as firewood, alcohol fermented from sugar, and combustible oils extracted from soy beans. Their use i n place o f fossil fuels cuts greenhouse gas emissions because the plants that are their sources recapture carbon dioxide from the atmosphere.  Clean Development Mechanism (CDM): Article 12 of the K y o t o Protocol defines the clean development mechanism. "The purpose o f the clean development mechanism shall be to assist Parties not included in Annex I i n achieving sustainable development and in contributing to the ultimate objective o f the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under article 3".  Crediting period: The crediting period for a C D M project activity is the period for which reductions from the baseline are verified and certified by a designated operational entity for the purpose of issuance o f certified emission reductions ( C E R s ) .  Certification: Certification is the written assurance by the designated operational entity that, during a specified time period, a project activity achieved the reductions in anthropogenic emissions by sources o f greenhouse gases ( G H G ) as verified.  Certified Emission Reductions (CERs): A unit equal to one metric tonne o f carbon dioxide equivalent which may be used by Annex I countries towards meeting their binding emission reduction and limitation commitments under the K y o t o Protocol.  Designated National Authority (DNA): A n office, ministry, or other official entity appointed by a Party to the K y o t o Protocol to review and give national approval to projects proposed under the Clean Development Mechanism.  Designated Operational Entity (DOE): A n entity designated by the C O P / M O P , based on the recommendation by the Executive Board, as qualified to validate proposed C D M project activities as well as verify and certify reductions in anthropogenic emissions by sources o f greenhouse gases ( G H G ) .  Emission-Reduction Unit (ERU): A unit equal to one metric tonne o f carbon dioxide equivalent, applicable to binding emissionsreductions targets under the K y o t o Protocol, and generated through joint implementation projects.  ix  Global Warming Potential (GWP): An index representing the combined effect of the differing times greenhouse gases remain in the atmosphere and their relative effectiveness in absorbing outgoing infrared radiation. Greenhouse gases (GHGs): The atmospheric gases responsible for causing global warming and climate change. The major GHGs are carbon dioxide (C0 ), methane (CH4) and nitrous oxide (N 0). Less prevalent --but very powerful ~ greenhouse gases are hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF ). 2  2  6  Host Party: A Party not included in Annex I to the Convention on whose territory the CDM project activity is physically located. Intergovernmental Panel on Climate Change (IPCC): Established in 1988 by the World Meteorological Organization and the UN Environment Programme, the IPCC surveys world-wide scientific and technical literature and publishes assessment reports that are widely recognized as the most credible existing sources of information on climate change. Issuance of Certified Emission Reductions (CERs): Issuance of CERs refers to the instruction by the Executive Board to the CDM registry administrator to issue a specified quantity of CERs for a project activity into the pending account of the Executive Board in the CDM registry, in accordance with paragraph 66 and Appendix D of the CDM modalities and procedures. Kyoto Protocol: An international agreement standing on its own, and requiring separate ratification by governments, but linked to the UNFCCC. The Kyoto Protocol, among other things, sets binding targets for the reduction of greenhouse-gas emissions by industrialized countries. Leakage: Leakage is defined as the net change of anthropogenic emissions by sources of greenhouse gases (GHG) which occurs outside the project boundary, and which is measurable and attributable to the CDM project activity. Least Developed Country Fund: A fund set up under the Convention to enable the world's poorest nations to carry out national programmes of action to adapt to the effects of climate change. Mitigation: Actions to cut net emissions of greenhouse gases and so reduce climate change. Monitoring [of a CDM project activity]: Monitoring refers to the collection and archiving of all relevant data necessary for determining the baseline, measuring anthropogenic emissions by sources of greenhouse gases (GHG) within the project boundary of a CDM project activity and leakage, as applicable. Monitoring methodology:  x  A monitoring methodology refers to the method used by project participants for the collection and archiving o f all relevant data necessary for the implementation o f the monitoring plan.  Montreal Protocol: The Montreal Protocol on Substances that Deplete the Ozone Layer, and international agreement adopted i n Montreal i n 1987.  Operational lifetime of a CDM project activity: It is defined as the period during which the C D M project activity is in operation. N o crediting period shall end after the end o f the operational lifetime (calculated as from starting date).  Project activity: A project activity is a measure, operation or an action that aims at reducing greenhouse gases ( G H G ) emissions. The K y o t o Protocol and the C D M modalities and procedures use the term "project activity" as opposed to "project". A project activity could, therefore, be identical with or a component or aspect o f a project undertaken or planned.  Project boundary: The project boundary shall encompass all anthropogenic emissions by sources o f greenhouse gases ( G H G ) under the control o f the project participants that are significant and reasonably attributable to the C D M project activity.  Project participants: In accordance with the use o f the term project participant in the C D M modalities and procedures, a project participant is either a Party involved or, i n accordance with paragraph 33 o f the C D M modalities and procedures, a private and/or public entity authorized by a Party to participate, under the Party's responsibility, i n C D M project activities.  Stakeholders: Stakeholders mean the public, including individuals, groups or communities affected, or likely to be affected, by-the proposed C D M project activity or actions leading to the implementation o f such an activity.  Registration: Registration is the formal acceptance by the Executive Board o f a validated project activity as a C D M project activity. Registration is the prerequisite for the verification, certification and issuance of C E R s related to that project activity.  Validation: Validation is the process o f independent evaluation o f a project activity by a designated operational entity against the requirements o f the C D M as set out in decision 17/CP.7 its annex and relevant decisions o f the C O P / M O P , on the basis o f the project design document ( C D M - P D D ) .  Verification: Verification is the periodic independent review and ex post determination by a designated operational entity o f monitored reductions in anthropogenic emissions by sources o f greenhouse gases ( G H G ) that have occurred as a result o f a registered C D M project activity during the verification period. There is no prescribed length o f the verification period. It shall, however, not be longer than the crediting period.  xi  Acknowledgements I would like to thank my supervisor, D r . Leonora Angeles, for her ongoing encouragement, suggestions, and willingness to supervise a topic outside her usual area o f interest. I would also like to express my enormous gratitude to Carol Brunt, who has acted as a mentor to me at the Pembina Institute and provided me with the additional support and direction I required to complete m y research. Carol has since left the Pembina Institute to pursue new experiences in K e n y a ; I wish her all the best in this journey.  I am particularly grateful to the individuals who agreed to discuss their experiences and perspectives on the C D M with me. Without their generosity in sharing their time and openness, my research would not have been possible. I also consider myself extremely fortunate to have had the opportunity to continue learning from S.C. Rajshekar and T o m O w i n o as I enter the next phase o f m y involvement with the C D M .  xn  This thesis is dedicated to my family: to m y mother and sister for their love and unquestioning support, and to M a r i o for his persevering love and, i n the end, for not waiting.  xiii  1. Facilitating Sustainable Development through the Clean Development Mechanism (CDM)? Introduction Climate change is a global challenge that is affecting opportunities for sustainable development. Activities that result in greenhouse gas emissions, primarily those involving the combustion o f fossil fuels, have often been pursued i n developed and developing countries with the aim o f achieving economic growth and improved well-being. However, there is growing recognition that emission-intensive development paths are unsustainable. Anthropogenic emissions o f greenhouse gases are the primary driver o f climate change and unless global emissions are significantly reduced, climate-related risks to economic, social and environmental systems may undermine people's ability to achieve sustainable development.  I. Climate Change and Sustainable Development People in regions around the world are already experiencing the impacts o f climate change. Developing countries are particularly vulnerable to climate related-risks and impacts, largely because o f the governments and people's limited access to resources that would enable them to respond or adapt to the risks and adverse impacts o f climate change. Some development practitioners warn that these adverse impacts may limit opportunities to improve well-being or even unravel previously achieved development gains in such areas as poverty alleviation, health, and food security (Simms, Magrath, and R e i d 2004). Therefore, climate change presents a direct threat to sustainable development. However, i f sustainable development is pursued with the aim o f improving social, economic and environmental well-being, it w i l l help to mitigate additional climate change and strengthen people's ability to respond and adapt to climate related risks and impacts.  International efforts to address climate change have primarily focused on reducing global emissions with the aim o f stabilizing atmospheric concentrations o f greenhouse gases and thereby limiting additional climate change. While reducing global emissions is critical to limiting climate-related risks, which strategies are used to achieve this aim w i l l have additional implications for people's immediate and long term well-being. Policies and actions aimed at mitigating additional climate change through sustainable development, such as the Clean Development Mechanism ( C D M ) , are  1  important to reducing climate-related risks and expanding opportunities to improve well-being; both in the near- and long- term.  A. The Clean Development Mechanism (CDM) The Clean Development Mechanism ( C D M ) is one o f the three internationally-based mechanisms designated under the 1997 K y o t o Protocol to the U N Framework Convention on Climate Change to assist in international efforts to mitigate additional climate change. The C D M is unique i n that it is the only mechanism open for participation by both industrialized and developing countries. It has two stated objectives; to support sustainable development i n developing countries, and to assist industrialized countries i n achieving emission reductions. Industrialized countries are able to partially offset their domestic emissions through the C D M by investing i n emission reduction projects hosted by developing countries—provided these projects contribute to the host country's sustainable development. Therefore, the C D M is theoretically a " w i n - w i n " approach to addressing climate change; it assists industrialized countries i n meeting their emission reduction commitments under the K y o t o Protocol, while strengthening developing countries' capacity to respond and adapt to climate change by supporting their sustainable development.  B. The Problem Context: Sustainable Development & the CDM W h i l e the C D M is intended to support climate change mitigation through the implementation o f sustainable development projects, it remains questionable as to whether the C D M has been effective in creating an enabling environment for sustainable development. Several key issues contribute to this uncertainty. First, the modalities and procedures governing the C D M provide minimal guidance on the issue o f sustainable development. Instead, each developing country is responsible for defining sustainability criteria to use in assessing projects' potential contribution towards this objective ( U N 1997). W h i l e this approach maintains developing countries' sovereign right to direct their own development, many developing countries face constraints such as inadequate resources and lack of institutional capacity that limit their ability to effectively fulfill this role (Figueres 2002, 2004). The lack o f a consistent definition also makes it difficult to assess projects' relative contribution to sustainable development. These factors have led some investors and development practitioners to establish quality standards or supplementary sustainability criteria for use in assessing projects (i.e. Kenbar and Salter 2003; SouthSouthNorth 2003; W o r l d Bank 2003). Consequently, it is difficult to determine which definition or criteria are being used to guide the planning and implementation o f C D M projects, and therefore how to assess the C D M ' s potential or actual contribution to sustainable development. Second, while the C D M has been operational since  2  2001 and the number of proposed projects is increasing, only twenty-three CDM projects had been officially registered and only three projects had resulted in certified emission reductions as I complete my thesis research in November 2005 (Fenhann 2005). Therefore, there is little 1  substantive evidence of how CDM projects are contributing to sustainable development objectives (whether defined by developing countries, investors, or in terms of their contribution to achieving general development objectives such as those established by the Millennium Development Goals). This situation is concerning, as it indicates there are significant barriers to delivering CDM projects—and therefore limitations on the CDM's capacity to support sustainable development.  II. Research Objectives & Questions The main purpose of this research is to contribute to the analysis of how the Clean Development Mechanism (CDM) may be linked to sustainable development goals. More specifically, it first aims to explain the operationalization of sustainable development through the CDM within the broader context of climate change. Second, it aims to analyze the challenges faced by CDM project developers in meeting sustainable development goals, as well as to offer potential solutions in order to overcome these challenges and strengthen the CDM's capacity to support long term sustainable development.  In light of these objectives, this research is interested in addressing four key research questions:  •  How do the policies governing the Clean Development Mechanism (CDM) impact its capacity to support sustainable development?  •  How is sustainable development being defined and operationalized in the context of the CDM?  •  What barriers or challenges do project developers encounter in seeking to plan and implement CDM projects that will deliver sustainable development benefits?  •  What could be done to assist project developers in overcoming these barriers in order to strengthen the CDM's capacity to support sustainable development?  ' N o certified emission reductions ( C E R s ) had been issued by the C D M Executive B o a r d when I completed my research interviews in m i d - O c t o b e r 2005.  3  III. Research Motives My interest in the CDM was initially sparked by an opportunity to work with the Pembina Institute, a Canadian environmental NGO, on an international development project in Latin America related to energy and sustainable development. The project included a climate change component focused on the CDM. Entering the project with relatively little understanding of the CDM, I felt that completing my thesis research on the topic would be an opportunity to strengthen my understanding of the issues. The project also had a strong emphasis on promoting gender equity, an issue I consider important to achieving sustainable development. When I first drafted my research proposal, I sought to combine these two issues through a study of the gender dimensions of climate change and how the CDM may be strengthened in regards to addressing related gender issues. I had hoped to use a case study approach to explore the subject, preferably selecting a CDM project from within the climate change project in Latin America that would allow me to conduct participatory research. Unfortunately, due to delays in the project and other factors, this did not prove to be a viable option and it proved difficult to arrange for a case study with another project. Also, the limited resources available on the topic at that time did not provide an adequate basis for pursuing this line of inquiry.  As I continued my research, I became aware of a number of institutional and market barriers limiting project developers' ability to leverage the CDM, particularly at the community level. I therefore decided to refocus my research on how these barriers were affecting project developers' efforts to pursue sustainable development—if, indeed, this was their objective—and how these obstacles could be overcome. Rather than adopting a case study approach, I decided that assessing the experiences of a broad range of actors involved in the CDM would provide me with greater insight and understanding of the challenges project developers were encountering. This became more feasible as the number of proposed CDM projects under development gradually increased, and I was able to arrange interviews with a number of project developers, investors, and development practitioners involved in the CDM. Shifting the focus of my research has provided me with the opportunity to gain a broader understanding of how the CDM is being operationalized, and what barriers must be overcome if it is to support the sustainable development of host developing countries. As change in my research focus was also partially driven by my interest in gaining a solid grounding in the practical aspects of developing CDM projects. As my research comes to a close, I have a new opportunity to apply my knowledge and continue to gain experience working with CDM project developers in Africa on a CDM capacity building project in Nigeria.  4  IV. Research Methods The background research for my thesis included a literature review o f key academic and internetbased resources on the topics of the science o f climate change, climate change and development, and the Clean Development Mechanism ( C D M ) . F o r my primary research, I conducted a series o f in-depth interviews with key informants involved i n the C D M and analyzed the interview data to identify the interviewees' perspectives on sustainable development i n the context of the C D M and their practical C D M experiences. I also reviewed available documentation on C D M projects referred to, or provided by, the interviewees to clarify various points raised i n the interviews.  A. Literature Review Through my review o f academic and Internet-based resources, I sought to expand my understanding on how climate change is affecting opportunities for development and what implications this may have for planners engaged i n sustainable development activities. Being cognizant that Internet resources may provide inaccurate or unreliable information, I chose to use published reports from the official websites o f international organizations, N G O s and institutions with established climate change programs. Given that there is relatively little peer-reviewed literature available on sustainable development aspects o f the C D M , these resources proved critical in gaining access to 2  timely information on the C D M .  B. Interviews M y interviews with key informants ranged in duration from 45 to 90 minutes, and followed a semistructured format guided by an interview protocol (see Appendix A ) . In seeking to explore the issue o f sustainable development in the context o f the C D M , I adopted a qualitative, "active" approach to interviewing that embraces the interactive process o f knowledge building that occurs through the interview process (Holstein and Gubrium 2004). Holstein and Gubrium argue that rather than seeking to minimize conversation between the interviewer and interviewee out o f concern for the potential o f "bias, error, misunderstanding, or misdirection" (2004 p. 141), interviews should be recognized as an active process through which knowledge and meaning is constructed;  Interviewers are deeply and unavoidably implicated in creating meanings that ostensibly reside within respondents... Both parties to the interview are necessarily M a n y o f the early studies on the C D M discussed the results o f previously implemented projects that may have qualified for the C D M due to their emission reductions potential to illustrate the C D M ' s potential development benefits rather than actual C D M projects (e.g. B e g g and et al 2003a; Sutter 2001) 2  5  and unavoidably active. Meaning is not merely elicited by apt questioning, nor simply transported through respondent replies; it is actively and communicatively assembled in the interview encounter (2004 p. 141) This approach proved effective in exploring the issue of sustainable development in the context of the CDM. As a process, sustainable development is generally recognized as a multi-dimensional approach integrating economic, environmental, and social considerations into planning and decision-making. However, there continues to be contesting views on the nature, prioritization and interrelations between its dimensions. Even among members of the specific groups interviewed such as the development practitioners, no universally accepted definition of sustainable development emerged. An active approach to interviewing allowed me to explore people's understanding of sustainable development in the context of the CDM in more depth by pursuing further questions and testing my own assumptions on specific issues. Moreover, I found many of the interviewees challenged their own thinking on issues throughout the course of the discussion.  When possible, interviews were held in person. However, by necessity of the participants' varied geographic locations, the majority of the interviews were via telephone. Due to repeated technical problems attempting to contact a participant in Kenya, this interview was based on email correspondence and later followed up with an informal face-to-face discussion during an international climate change meeting (COP-11) in Montreal, Quebec. With the permission of each participant, the discussions were recorded and key points transcribed. With the exception of one individual who preferred to remain anonymous, all of the participants provided their written consent to be referenced by name and quoted from their interviews, conditioned on their review and approval of direct quotations prior to the submission of the final draft. Table 1.1 provides a list of the participants with whom interviews were conducted.  B.l. Interviews with Key Informants Key informants were selected from three groups to provide a diverse range of perspectives on the CDM, namely; project developers, development practitioners and investors. Potential interviewees from each group were identified on the basis of their involvement with CDM activities reviewed in the literature, or on another interviewee's recommendation using the 'snowball' sampling technique. 1 have treated the transcripts based on interview with these individuals as unpublished documents cited in the bibliography. Hence, I identify these documents using standard referencing style this and the succeeding chapters (e.g. Vickers 2005) instead of repetitious in-text reference to the interview (e.g. Interview with Vickers, Calgary, 18 August 2005).  6  Table 1.1: Key Informants  Investors  Developers Practitioners  Development  Project  iiiieiiliiiiiiiiili  Name of Interviewee  Tom Owino, Environmental Cost Management Centre S.C. Rajshekar, Symbiotec Research Associates Emily Tyler, SouthSouthNorth Christiana Figueres, Independent Consultant Helena Olivas, Helios Centre Roger Peters, Pembina Institute Michael Schlup, CDM Gold Standard Anonymous Wishart Robson, Nexen Inc. Paul Vickers, Natsource Asset Management Ltd.  Location  Date of Interview  Nairobi, Kenya Montreal, Q C  09/12/2005 11/29/2005  Bangalore, India  08/25/2005  Cape Town, South Africa  09/12/2005  Washington, DC  09/28/2005  Montreal, QC  09/13/2005  Calgary, AB Montreal, QC Basel, Switzerland  10/24/2005 11/28/2005 08/28/2005  n/a Calgary, AB  09/26/2005 10/17/2005  Calgary, AB  08/18/2005  3  The final selection of project developers included individuals directly involved in activities related to planning and implementing CDM activities that appeared to support sustainable development objectives, based on an initial review of the project documents. S.C. Rajshekar of Symbiotec Research Associates, India, and Tom Owino of the Environmental Cost Management Centre, Kenya, both have significant experience in developing small scale renewable energy or energy efficiency CDM projects, and are involved in training other small scale project developers. Emily Tyler has been involved in a range of CDM projects through her involvement with the South African office of SouthSouthNorth, a Southern NGO with extensive CDM programming.  The development practitioners included individuals seeking to strengthen opportunities for sustainable development through the CDM either through the development of sustainability planning tools, capacity building programs, or policy recommendations. Christiana Figueres is an independent consultant with extensive experience in the CDM. Figueres has been a senior-level advisor to energy and environment ministers in Latin America, and a lead negotiator of the UN  3  In the cases o f T o m O w i n o and R o g e r Peters, the initial interviews were followed up with personal  communications in Montreal, Quebec, during the 11th Conference o f the Parties ( C O P 1 1 ) .  7  Framework Convention on Climate Change. She is the founder and former director of the Center for Sustainable Development of the Americas (CSDA), and has written extensively on policy and institutional issues related to the CDM (e.g. Figueres 2002, 2004; Figueres 2005a, 2005c). Helena Olivas is the director of the Helios Centre's climate change program. Olivas has co-authored two publications to assist developing countries establish their Designated National Authorities (national CDM offices), one targeted to Latin America and another targeted to francophone countries, she is involved in developing CDM training programs and provides support to CDM project developers seeking to comply with CDM requirements. Roger Peters of the Pembina Institute for Appropriate Development developed the CDM Small Projects Facility, a capacity building model for project developers that has been successfully implemented in India, Kenya, and Nigeria. He has also served as an expert on the CDM Executive Board's methodological review panel and contributed to CDM feasibility studies in Latin America, India, and Africa. In addition, Peters is the co-author of a number of CDM publications (Peters 2003, 2005b; Peters and Brunt 2004; Peters, Robertson, and Brunt 2003). Micheal Schlup is the director of the Gold Standard, which is a non-profit organization aimed at supporting sustainable development through the CDM by providing project developers and investors with a "best practice" sustainable development methodology for designing or assessing CDM projects. Discussion with these individuals helped to strengthen my understanding of the context in which project developers operate, and explore possible options for strengthening the CDM's capacity to support sustainable development.  The investors selected included representatives from companies or agencies that were actively investing in the CDM or who had demonstrated a commitment to purchasing certified emission reduction credits through the CDM. Wishart Robson is the General Manager of Safety, Environment and Social Responsibility for Nexen Inc., which is an "independent global energy company" that undertakes exploration, development, production and marketing of crude oil and natural gas both in Canada and internationally (Nexen Inc. 2005). Nexen Inc. will be required to reduce the emissions of its Canadian operations during the first commitment period as part of the Government of Canada's Large Final Emitters (LFE) program, and is one of the few Canadian companies that have actively pursued CDM investments. While Robson has been involved in Nexen Inc.'s CDM activities, his comments represent his own views rather than those of Nexen Inc. Paul Vickers is the Managing Director of Natsource Asset Management Ltd., which specializes in carbon emissions asset management. Natsource manages the Greenhouse Gas Credit Aggregation Pool (GG-CAP), which is the world's largest private sector emission reduction purchasing fund in operation as of late November 2005 (Carbon Finance 2005h). A third individual involved in  8  facilitating CDM investments was also interviewed, but preferred to remain anonymous. No direct quotes from this individual are included in my thesis, although their input helped to broaden my understanding of the environment in which CDM investments occur. Given that the operation of the CDM ultimately depends on the investments from developed countries, gaining an understanding of investors' perspectives and approaches to the CDM was critical in recognizing the existing opportunities and limitations to supporting sustainable development.  V. Keeping Pace Throughout the course of conducting my thesis research, many factors influencing the CDM have evolved and changed. Unquestionably the most significant factor was the entry into force of the Kyoto Protocol in February 2005, which shifted participation in the CDM from essentially being a hypothetical exercise on how to operate in a carbon-constrained world to a global reality (with the exception of the United States and other nations that have yet to ratify the Kyoto Protocol). This dramatically altered the level of activity within the CDM, both in terms of project development and in the interest of investors—particularly those in the private sector seeking to meet emission reduction targets handed down from governments with legally-binding emission caps. The regulations governing the CDM also continue to evolve as operational definitions of additionality (i.e. proving emission reductions from projects would not occur in the absence of the CDM), allowable project types, and permitted methodologies for establishing emission reductions are clarified. The impacts of these changes have required me to substantially revise sections of my thesis to ensure it reflects current regulations and conditions. Yet evidently, in order to complete my research I must acknowledge that the environment in which the CDM is operating will continue to evolve, and my own work reflects my thinking at the time in which this paper was written. Significant changes were on the horizon even as I completed my research in November 2005. For example, at the 11" Conference of the Parties (COP-11) held in Montreal, Quebec, which I was 1  4  fortunate to attend in late November - December 2005, there were significant debates as to whether the definition of CDM activities should once again be altered to allow carbon-capture-and-storage (CCS) projects, and whether the definition of CDM activities should be expanded to allow policies and programs in addition to individual projects. Therefore, while I have attempted to provide a timely assessment of the CDM, some of the information and analysis is undoubtedly already dated  The Conference of the Parties is the annual meeting of Parties to the UN Framework Convention on Climate Change. The eleventh session was hosted by the Canadian Government. I attended as an NGO delegate representing the Pembina Institute.  4  9  as more recent debates, decisions and policy changes reshape the regulatory and political environment i n which the C D M operates.  VI. Overview of Chapters The structure o f my thesis is as follows:  Chapter 2 provides an overview o f the science o f climate change and the potential impacts o f additional changes in the climate system, granting particular attention to the increased risks and adverse effects projected for developing countries. The nexus between climate change and sustainable development is then explored, and the chapter closes with a discussion o f the need to address climate change as an aspect o f sustainable development.  Chapter 3 introduces the Clean Development Mechanism with the broader context o f international climate change policy, including the 1992 U N Framework Convention on Climate Change ( U N F C C C ) and the 1997 K y o t o Protocol. The discussion explores how the international community is addressing the relationship between climate change and sustainable development, with more in-depth discussion on the role o f the Clean Development Mechanism. The key motives driving developing and industrialized countries' participation in the C D M are considered, and the questions of how and to what extent the C D M should be used in addressing climate change are explored. Finally, an overview o f the C D M ' s operational framework is provided to set the stage for further discussions on the effectiveness o f the C D M i n supporting sustainable development i n subsequent chapters.  Chapters 4 draws extensively on the interviews with investors, project developers, and development practitioners to explore their motives for participating in the C D M and their perspectives on the C D M ' s potential for supporting sustainable development. The discussion reveals the actors' diverging interpretations o f sustainable development, and highlights challenges arising from efforts to pursue multiple interests through the C D M . Finally, consideration is given to which C D M activities and approaches offer the greatest opportunity to realize sustainable development through the C D M .  Chapters 5 provides an assessment o f the C D M ' s performance as o f late November 2005, focusing on its effectiveness in supporting sustainable development as defined in the previous chapter. The  10  discussion explores key issues and concerns raised by the interviewees regarding the practical implementation o f the C D M , and considers potential solutions for overcoming these challenges.  Finally, Chapter 6 concludes by returning to the four key research questions asked in the introduction. The discussion addresses each o f the four questions, drawing on the previous chapters' research findings, discussions and proposals for strengthening the C D M ' s capacity to support sustainable development.  11  2 . Essential Background: Defining the Climate ChangeSustainable Development Nexus Introduction This chapter explores the nexus between climate change and development in order to establish the broader context for international action on climate change. A n overview o f the science o f climate change is provided, highlighting the effect o f human activities on the climate system. The discussion then considers the potential impacts o f additional climate change, granting particular attention to the increased risks and adverse effects expected for developing countries. The nexus between climate change and sustainable development is then explored, and the chapter closes with a discussion o f the need to address climate change as an aspect o f sustainable development.  I. Climate Change: An Overview Simply stated, climate change is a significant change or variation i n the average climate resulting from natural or human-induced changes i n the climate system . However, climate change has 5  distinct connotations when used in scientific and policy contexts. The Intergovernmental Panel on Climate Change ( I P C C ) defines climate change as a "statistically significant variation in the mean 6  state of the climate, or in its variability, that persists for a period o f decades or longer". The I P C C recognizes that climate change may result from variations i n the climate system's internal processes, or due to external factors—both natural and anthropogenic—which persistently alter the nature or affect the interactions of the climate system's components ( I P C C 2001e, 2004a). The U N Framework Convention on Climate Change ( U N F C C C ) provides an alternative, policy-oriented definition o f climate change. Under the U N F C C C , the term is limited to human-induced changes in the climate resulting from activities that alter the composition o f the global atmosphere ( U N 1992b Article 1). For the purposes o f this paper, it is understood that while climate change is driven by  5  T h e earth's climate system consists o f the atmosphere, hydrosphere (snow and ice cover), cryosphere, land  surfaces and biosphere. 6  T h e Intergovernmental Panel on Climate Change ( I P C C ) was established in 1988 by the United Nations  Environmental Program ( U N E P ) and the W o r l d Meteorological Organization ( W M O ) to provide a comprehensive, objective and transparent assessment o f scientific, technical and socio-economic information regarding climate change. The I P C C does not conduct new research, but rather coordinates an extensive peer review o f existing studies in order to assess the risk and potential impacts o f climate change, as well as options for mitigation and adaptation ( I P C C 2004b).  12  natural and anthropogenic factors, climate change policies and strategies such as the K y o t o Protocol's Clean Development Mechanism are focused on limiting additional human-induced climate change by reducing the impact o f human activities on the climate system.  A. Evidence of a Changing Climate Since the late 1800s, the earth's average surface temperature has increased about 0 . 6  oC  (IPCC  2001e). Recent temperature records from around the world indicate this long-term trend o f global warming is continuing. Globally, the 1990s was the warmest decade on record since temperature measurements began in 1861 (Houghton et al. 2001a), while 2002 to 2004 were among the hottest years ever recorded ( W M O 2004a). Additional physical and biological changes observed in the climate system are consistent with the observed warming trend. A t a global level, average sea levels have risen between 0.1 to 0.2 metres over the past century. Sea level rise is resulting from the thermal expansion o f warming ocean waters, and from the accelerated melting o f glaciers and Arctic sea ice ( A C I A 2004; Houghton et al. 2001a; I P C C 200Id). Regional changes such as the increased frequency o f heavy precipitation events in the Northern Hemisphere; warmer winter temperatures i n the Arctic, and; an increase i n the frequency and intensity o f droughts in areas o f Africa and A s i a are also strong indicators o f climate change ( A C I A 2004; Houghton et al. 2001a; I P C C 200Id).  Natural variability within the climate and other natural factors acting on the climate system are likely contributing to the observed changes and varied impacts people are experiencing. However, the cumulative effect o f these factors is insufficient to account for the rate and extent o f changes observed in the climate over the past century (Houghton et al. 2001a). Instead, there is mounting evidence and growing consensus among the international scientific community that human activities have been the primary drivers or "forcing agents" o f climate change for at least the past fifty years (Ashton et al. 2005; Houghton et al. 2001a; I P C C 2001 e).  B. What is Driving Human-Induced Climate Change? Greenhouse gas emissions released through the burning o f fossil fuels, deforestation, industrial processes and other human activities are the primary forcing agent o f climate change (Houghton et al. 2001a; I P C C 200 l e ) . Since the advent o f the industrial age, the atmospheric concentration o f 1  Anthropogenic aerosols such as industrial emissions of sulphur dioxide (S0 ) and black carbon also act as climate forcing agents. In contrast to greenhouse gases, aerosols generally have a cooling effect on the earth's atmosphere because they reflect solar energy away from the surface. However, some aerosols such as black carbon and organic carbon that result from the combustion of fossil fuels can have a slight radiative  7  2  13  carbon dioxide  (CO2)—the  most abundant anthropogenic greenhouse gas—has risen from the pre-  industrial level o f 280 parts per million (ppm) to approximately 368 ppm (Houghton et al. 2001a; I P C C 2001d). Nearly three-quarters o f this increase has resulted from the combustion o f oil, coal 8  and natural gas to meet the energy demands from the industrial, residential, commercial and transportation sectors o f industrialized and developing countries ( E I A 2003, 2004b; I P C C 2001d). Deforestation and other land-use changes that result i n the release o f sequestrated carbon and decrease the potential for carbon uptake by terrestrial ecosystems through the carbon cycle also contributed significantly to the rise i n atmospheric concentrations o f C O 2 (Houghton et al. 2001a; I P C C 200If). Human-related emissions o f C 0  2  and other anthropogenic greenhouse gases (see  Table 2.1) alter the composition o f the atmosphere and subsequently affect the climate through a phenomenon known as the "enhanced greenhouse effect".  Table 2.1: Principal Greenhouse Gases & Anthropogenic Sources Greenhouse Gases (naturally occurring & anthropogenic sources) Name  Primary Anthropogenic Sources  carbon dioxide (CO2;  Combustion of fossil fuels Land-use changes, i.e.: Deforestation Agricultural land clearing Cement & lime production Waste incineration  methane (CH4)  Landfills (decomposing waste) Coal mining Leakage from natural gas distribution systems Agriculture, i.e.: Wet rice cultivation & Cattle / livestock raising  (warming) effect on the climate. Aerosols are thought to have a limited effect on the climate because they are relatively short-lived and do not disperse in the atmosphere to the same extent as greenhouse gases. H o w e v e r , while aerosols have less potential to affect climate change, they cause additional environmental problems including local air pollution and acid deposition (acid rain) (Houghton et al. 2001a).  8  T h e quantity o f C 0  2  in the atmosphere is increasing at approximately half the rate o f fossil fuel emissions  due to the uptake o f carbon b y the land and oceans through the carbon cycle. C a r b o n uptake occurs when carbon is dissolved in seawater and sequestrated through photosynthesis in terrestrial ecosystems such as forests, grasslands, shrublands, deserts, tundra, croplands, and wetlands.  Carbon is emitted back into the  atmosphere from carbon stocks because o f deforestation, land clearing, and other activities or natural processes that result in the decomposition or combustion o f organic materials. Increasing levels o f fossil fuel combustion and declining carbon stocks (primarily due to land use changes) have resulted in a positive imbalance between carbon emissions and absorption, leading to an increase in atmospheric concentrations o f C0  2  (Houghton et al. 2001a). F o r a detailed description o f the carbon cycle and its relationship to climate  change, see (Houghton et al. 2001a) online at: http://www.grida.no/climate/ipcc  tar/wg 1/095.htm .  14  Primary Anthropogenic Sources  ' Name  Agriculture (spreading of nitrogen fertilizers)  nitrous oxide (N 0) 2  Biomass combustion Coal combustion Specific industrial processes, i.e.: Production of adipic acid for nylon manufacturing, resins, plastics Synthetic Greenhouse Gases (anthropogenic sources only) Name  Primary Anthropogenic Sources  sulphur hexafluoride (SF )  Specific industrial processes, i.e.:  6  Magnesium production halocarbons /  Specific industrial processes, i.e.:  hydrofluorocarbons (HFCs)  Production of refrigeration & air conditioning units (i.e., HFC-152a, HFC-23) Productions of coolants & solvents (i.e., HFC-125) Specific industrial processes, i.e.:  perfluorocarbons (PFCs)  Aluminium production (i.e., CF4, C2F6) Sources: (Adger & Brown, 1992; Environment Canada, 2002; Houghton et al., 2001)  A.l. The Enhanced Greenhouse Effect The greenhouse effect is a natural process whereby greenhouse gases i n the lower atmosphere absorb thermal radiation (energy) emitted from the land and oceans and reradiated this energy towards the earth's surface. This creates an insulating effect that alters the balance o f energy entering and exiting the earth's climate system, ultimately causing the earth's average surface temperature to rise (Houghton et al. 2001a). In the pre-industrial period, the greenhouse effect resulted mainly from naturally occurring greenhouse gases in the atmosphere such as carbon dioxide, water vapour, ozone, methane and nitrous oxide. Because the atmospheric concentration o f these gases remained relatively stable, the greenhouse effect maintained the earth's average surface temperature at approximately 1 4  o C  (Houghton et al. 2001a).  9  However, anthropogenic emissions  have led to an increase in atmospheric concentrations o f greenhouse gases at a rate unprecedented in the last 20 000 years ( I P C C 200Id). The accumulation o f greenhouse gases i n the atmosphere amplifies or "enhances" the greenhouse effect, causing further warming o f the earth's surface and lower atmosphere. In turn, rising average surface temperatures trigger responses and feedback loops in other components o f the climate system such as the thermal expansion o f the ocean waters that results in sea-level rise (Houghton et al. 2001a; I P C C 200Id). Anthropogenic emissions can  In the absence of the natural greenhouse effect, the earth would maintain an inhospitable average surface temperature of approximately -19 (Houghton et al. 2001a). 9  oC  15  have long-term effects on the climate system because greenhouse gases can persist i n the atmosphere for periods extending from hundreds to thousands o f years (Houghton et al. 2001a) . 10  Consequently, both historic and current emissions contribute to ongoing changes in climate system. These changes i n the climate system result i n a range o f impacts.  II. The Impacts of Climate Change The Intergovernmental Panel on Climate Change warns that atmospheric concentrations o f C 0  2  could rise within the range o f 540 to 970 parts per million (ppm) by 2100. This could result i n an additional rise i n average global surface temperatures o f 1.4 to 5.8 , a rate o f global warming oC  oC  that would be unprecedented during the last 10 000 years (Houghton et al. 2001a; I P C C 2001e). These projections are based on long-term emissions scenarios that are derived from a number o f assumptions regarding technological change, socio-economic development, demographic change, as well as the continuing effect o f past emissions on the climate system. Each scenario illustrates the long term outcomes o f alternative development paths, based on analysts' best understanding o f the impacts of socio-economic trends and resulting emissions levels on the climate system.  However, climate modeling is not a precise science. While scientists' knowledge o f the climate system is improving, even the most advanced climate models cannot yet simulate a l l o f the variables that may influence future changes (Houghton et al. 2001b). Uncertainties remain as to the sensitivity of the climate system to changing emissions levels, the complex interactions that may occur between the various components o f the climate system, and the potential for non-linear reactions or even abrupt climate change (see A l l e y 2003; Easterling et al. 2000; Houghton et al. 2001a; Meehl et al. 2005; Stott and Kettleborough 2002; W i g l e y 2005). In addition, accurately predicting future development paths and resulting emissions levels is extremely difficult given the numerous social, economic, political, cultural and environmental factors that w i l l contribute to determining these trends (Adger et al. 2003; Swart, Robinson, and Cohen 2003). Climate change projections o f future climate change therefore serve to assist in considering the possible implications o f people's actions, or inactions, related to climate change.  Carbon dioxide ( C 0 ) may persist in the atmosphere for 5 to 200 years depending on its uptake through the carbon cycle and other removal processes. However, some greenhouse gases are even more persistent. Sulphur hexafluoride ( S F ) , a synthetic gases produced exclusively through industrial activities, may persist in the atmosphere for up to 3200 years (Houghton et al. 2001a). Sulphur hexafluoride ( S F ) is a potent greenhouse gas because its greenhouse warming potential (one measure o f the relative effects o f different gases on the climate) is 22200 greater than C 0 over a 100-year period ( I P C C 2001 e). 2  6  6  2  16  A. Intensifying Climate-Related Risks & Adverse Impacts W h i l e the exact magnitude, timing and rate o f future climate change remain uncertain, analysts caution that an additional increase i n average global surface temperatures within the projected range of 1.4 to 5.8 oC  oC  is likely to intensify climate-related risks and increase the severity o f adverse  impacts resulting from climate change ( I P C C 200Id). Climate change impacts may be direct, such as a change in crop yields due to declining precipitation, or; indirect such as costs incurred repairing infrastructure damaged as a result o f climate change ( I P C C 2001a). The I P C C (200Id) warns that while limited climate change may have beneficial impacts on some environmental and socioeconomic systems, adverse impacts w i l l likely predominate i n both developed and developing countries as the magnitude and rate o f climate change increases. W h i l e people have historically adapted and coped with variation i n the climate, there are concerns that increasingly adverse impacts may push the limits or even exceed people's existing capacity to deal with changing conditions ( A C I A 2004; Adger et al. 2003). A survey o f predicted impacts within the projected range o f global warming indicates that developing countries w i l l certainly experience a heightened level o f risk and vulnerability  A.l. Sea Level Rise A n increase i n average global surface temperatures within the project range is likely to cause additional sea level rise ( I P C C 2001a). The W o r l d Health Organization ( W H O 2003) warns that rising sea levels would enhance the risk o f flooding, infrastructure and property damage, injury, and water-bome disease i n coastal areas. Small island states such as the Pacific islands and low-lying coastal areas throughout Africa, A s i a and Latin America are particularly vulnerable to the effects o f seal level rise ( I P C C 2001a).  A.2. Extreme Weather Events Extreme weather events such as droughts, heat waves and typhoons are also expected to increase i n frequency and severity ( I P C C 2001a). F o r example, i n Latin America and A s i a increasingly intense tropical cyclones are expected to place ecosystems, property and human lives at risk due to heavy winds, intense rain, storm surges and flooding ( I P C C 2 0 0 l e ; W H O 2003). Such events w i l l likely j cause economic disruptions and dislocation o f people from affected communities (Baumert and Kete 2002; Byers et al. 2005; I P C C 2001e; W H O 2003). Cannon (2002) and M i r z a (2003) warn that repeated exposure to extreme weather events is likely to weaken the resiliency o f vulnerable communities and reduce their ability to recover from natural disasters, particularly i f disaster preparedness planning does not occur.  17  A3. Food Security In many areas o f Latin America, Africa, A s i a and the Pacific islands, agricultural productivity w i l l likely decrease due to a combination o f factors such as increased water shortages, changes i n soil moisture and temperature, flooding o f agricultural lands due to sea-level rise and tropical storms, and heat stress ( I P C C 2001e; W H O 2003). Decreased agricultural productivity w i l l diminish food security for local populations and affect cash crop exports. Food security and malnutrition w i l l likely become critical issues i n many regions due to declining crop yields, particularly among subsistence farmers who lack access to resources that may enable them to adapt their agricultural practices ( W H O 2003).  A.4. Health Issues Shifting temperature and climatic zones may spawn the spread o f vector bome diseases such as malaria and rift valley fever into previously unexposed populations. Flooding or storm damage to water infrastructure could also result in outbreaks o f food- and waterbome diseases including cholera, typhoid and giardia ( I P C C 2 0 0 l e ; W H O 2003).  Such incidences could exacerbate existing  health problems such as H I V / A I D S by further extending the limited health resources o f developing countries ( W H O 2003).  A.5. Hazarding Abrupt Climate Change Climate change is generally a gradual process, but there are concerns that additional global warming within the projected range o f 1.4  oC  to 5.8  oC  may trigger an abrupt change in climate (Alley  2003; Easterling et al. 2000; I P C C 2001d). Abrupt climate change is a relatively rapid [occurring over a period o f years] and irreversible transition to a new or unusual state that occurs when an ecological threshold is crossed ( A C I A 2004; I P C C 2001a). Notable examples o f projected threshold crossings include the initial slowing o f the North Atlantic thermohaline circulation (North Atlantic current), the onset of melting in the Greenland Ice Sheet ( I P C C 200 Id), and the conversion o f the A m a z o n Basin from tropical rainforest to dry savanna (Millennium Ecosystem Assessment Board 2005). Due to the unprecedented and non-linear nature o f abrupt climate change, scientists have an incomplete understanding o f the exact conditions that would trigger threshold crossings; the consequences for the climate system, and; the potential impacts on people and the ecological systems upon which we depend ( A C I A 2004; I P C C 200Id). However, existing modelling scenarios indicate that the resulting impacts could be devastating. A rapid shift in conditions resulting from  18  abrupt climate change would likely exceed the ability o f many ecosystems, communities and economies to cope or adapt ( A C I A 2004; A l l e y 2003; I P C C 2001a).  B. Heightened Vulnerabilities The actual impacts o f future climate change w i l l differ between and within regions due to the varying effects o f climate change on local ecosystems, and disparities in people's capacity to manage the resulting risks and adapt to the changing conditions (Adger et al. 2003; D o w n i n g et al. 2000; M c C a r t h y et al. 2001). However, several general assumptions can be made i n regards to vulnerability.  B.l. Exposure and Sensitivity First, the more exposed and sensitive a local ecosystem is to changing climatic conditions, the greater the risks and challenges w i l l be for individuals or communities who rely upon the affected systems for their livelihoods or survival (Clark et al. 2000; M c C a r t h y et al. 2001; Olmos 2001). F o r example, people in low-lying coastal areas such as Bangladesh's delta region are particularly exposed to flooding and salt water intrusion resulting from rising sea levels and extreme weather events such as cyclones ( I P C C 2001a; W W F 2004a). In the African Sahel, arid conditions and existing water shortages heighten the region's vulnerability to prolonged droughts resulting from climate change ( I P C C 2001a). Herders and farmers i n the Sahel have already been hard-hit by the increasingly severe and prolonged droughts; there have been devastating losses o f livestock and harvests that have left millions of people i n the region dependent on aid (Oxfam 2005; Simms, Magrath, and R e i d 2004).  A s these examples suggest, people who depend on climate-sensitive  activities such as fisheries and agriculture for their livelihood or rely on natural resources for their subsistence w i l l be more exposed to the environmental effects o f climate change, and therefore more vulnerable to its impacts (McCarthy et al. 2001).  B.2. Coping and Adaptive Capacity Second, the weaker the individual, community or society's coping and adaptive capacity, the more adversely they w i l l be impacted (Beg et al. 2002; I P C C 2001a; Simms, Magrath, and R e i d 2004). For example, female-headed households i n Bangladesh are particularly vulnerable to the effect o f cyclones, which are expected to increase in frequency and intensity as a result o f climate change.  19  Female-headed households tend to have fewer resources or assets than other households to start , 11  w h i c h limits their ability to protect themselves from the effects o f the cyclones by building on higher ground and storing emergency food reserves, or to recover from cyclone related-damages to crops and property. In addition, evidence from past cyclones suggests women may be reluctant to use public cyclone shelters or seek assistance because o f socially-based restrictions on women interacting with men (Cannon 2002). A s suggested by this example, women's vulnerability to climate change is likely to be heightened by existing gender inequities in entitlement or access to resources, responsibilities or decision-making power that inhibit women from adapting to, or coping with, climate change.  B.3. Layered Vulnerabilities Overall, the greatest risks and challenges resulting from climate change are likely to arise in developing countries where factors o f geographic vulnerability, poverty, limited infrastructure, weak institutional capacity, existing inequities, and other development challenges combine to limit people's ability to cope or adapt to changing conditions ( I P C C 2001a, 200Id; Simms, Magrath, and R e i d 2004; Sperling 2003; W W F 2004b). However, as highlighted by the examples given above, there w i l l also be disparities among vulnerable populations in terms o f their capacity to cope or adapt to climate change. Failure to consider social and economic disparities when planning for climate change may further erode the resilience o f vulnerable groups and exacerbate existing conditions o f poverty and inequity. A s Denton (2002) cautions, " i f climate change policy is about ensuring a sustainable future by combining development and environment issues, it must take into account the interests o f all stakeholders."  III. Planning for Climate Change W h i l e uncertainties remain regarding the magnitude, rate, and impacts o f future climate change, modeling scenarios indicate that changes to climate - i n addition to those already observed - are inevitable. The inertia o f the climate system, particularly the oceans, means that it may require centuries for the climate system to fully respond to increases in the atmospheric concentration o f greenhouse gases that have occurred since the advent o f the industrial age (IPCC 2001c; W i g l e y 2005). Climate modeling studies indicate that even i f atmospheric concentrations o f greenhouse gases could be stabilized at current- or year 2000-levels, additional global warming and sea-level  ' Cannon (2002) notes that a recent Asian Development Bank report assumes female-headed households account for 20-30% of all households in Bangladesh, and that at least 95% of these female-headed households are below the poverty line. 1  20  rise would still occur i n response to earlier anthropogenic interference in the climate system (Meehl et al. 2005; W i g l e y 2005). E v e n i f mitigation activities prove highly successful i n limiting future emissions, planners must be prepared to contend with what Wigley (2005) terms our "long-term climate warming commitment" resulting from past and current emissions.  A. Addressing Our Climate Change Commitment The knowledge that past development patterns and current greenhouse gas emissions have already committed us to dealing with a level (albeit uncertain) o f climate change may reduce people's willingness to undertake climate change mitigation measures. In essence, climate change mitigation may become an even harder " s e l l " to countries, companies and individuals who find value in current practices or have concerns as to the trade-offs o f addressing climate change. A m o n g developed countries, perceived benefits o f an individual's carbon-intensive lifestyle or potential profits to be gained by continuing business-as-usual practices may weaken people's resolve to act (Bramley 2005; Michaelis 2003). F o r developing countries, climate change mitigation is generally considered a less urgent issue than addressing immediate development needs such as providing access to energy or expanding livelihood opportunities i n order to reduce poverty. Consequently, some governments express a preference for allocating their limited resources to meeting national development objectives rather than attempting to combat global climate change, which is perceived as being a problem predominantly caused by industrialized nations (Gupta 2000; Markandya and Halsnaes 2002). However, our climate change commitment should not be taken as a reason to delay our response to climate change. Rather, it makes it imperative that we address climate change within our planning frameworks in order to limit further human interference with the climate system, and build on potential synergies between climate change and development strategies.  A.l. The Urgency to Address Climate Change Efforts to reduce emissions and stabilize atmospheric concentrations o f greenhouse gases are critical i n limiting climate change beyond our existing commitment and the adverse impacts experienced at the global and local levels. Slowing the pace o f climate change is particularly important because it w i l l afford people, economies and ecosystems more time to adapt to the changing conditions ( A C I A 2004; I P C C 2001c). There is a high level o f confidence that the greater the reduction i n anthropogenic emissions, and the earlier these reductions occur, the more successful we w i l l be i n slowing the rate o f change and reducing the severity o f potential impacts ( I P C C 2001c; Meehl et al. 2005). Delaying action w i l l likely require even greater emissions reductions at a later stage to maintain atmospheric concentrations and average temperatures below a  21  critical threshold that will allow for natural and human systems to adapt (Ashton et al. 2005). Consequently, the need to take action on climate change is urgent; policy makers and planners must identify immediate strategies that will help to reduce emissions and strengthen people's capacity to deal with climate-related risks and impacts. A.2. Climate Change as a Development Issue  Awareness of the urgent need to address climate change is growing; as is the need to approach it as a development issue. In 2004, eighteen development organizations issued a warning of the 12  devastating impacts climate change may have on human development (Simms, Magrath, and Reid 2004). The organizations called attention to the negative effects climate change is already having on developing countries in areas such as health, food security, water and sanitation, and sustainable livelihoods. They cautioned that development gains achieved over the past decades may begin to unravel under new climate-induced pressures, and efforts to achieve targets such as the Millennium Development Goals (MDGs) may prove futile unless we shift our development approaches to integrate planning for climate-related risks and seek to reduce vulnerabilities . The Millennium 13  Ecosystem Assessment, an extensive study of the health of the global ecosystem and its implications for human development, resulted in a similar conclusion; .. .people lacking these minimum standards of human well-being are generally those most vulnerable to the deterioration of natural systems. Addressing the threat to the planet's natural assets therefore must be seen as part of the fight against poverty. To put it the other way around, development policies aimed at reducing poverty that ignore the impact of our current behavior on the natural environment may well be doomed to failure (Millennium Ecosystem Assessment Board 2005 16). Ultimately, the choice of development paths will shape future vulnerabilities to climate change and; in turn, the impacts of climate change along with other stresses such as poverty, inequities and unsustainable resource use will affect opportunities for sustainable development. As McCarthy et al. (2001) state;  The 18 organizations are: ActionAid International, Christian Aid, Columban Faith and Justice, Institute of Development Studies (IDS), Intermediate Technology Development Group (ITDG), International Institute for Environment and Development (IIED), Friends of the Earth, Greenpeace, new economics foundation (nef), Operation Noah, Oxfam, People & Planet, RSPB, Tearfund, TERJ Europe, WWF, WaterAid, and World Vision. 12  See Table 2.2 for further details on how climate change may impede the achievement of the Millennium Development Goals (MDGs) and similar development objectives. 13  22  The severity of many of these stresses will be determined in part by the development paths followed by human societies; paths that generate lesser stresses are expected to lessen the vulnerability of human and natural systems to climate change. Development also can influence future vulnerability by enhancing adaptive capacity through accumulation of wealth, technology, information, skills, and appropriate infrastructure; development of effective institutions; and advancement of equity (2001 63). Understanding the nexus between climate change and development will help to enable us to chart a more sustainable development path—one in which efforts to achieve well-being are undertaken in a manner that reduces climate-related risks and thereby allows for development gains to be maintained for current and future generations. See Table 2.2 for further details on these linkages.  Table 2.2: Exploring the Development, Energy and Climate Nexus llennium opment* (MDGs)  Contributions of Energy Services to K Climate Related Threats: Impeding the Achieving Millennium Development Achievement of the Millennium Development Goals / Responding to Climate " Goals . - Related Threats ' '  1)xtreEm radeciate •fP rioevcd ioep onand and P•acifIicn isalarenadss,ofagLra , lAsia and ptniogpnig oaontid E lorooPdvd nutrm opu lm m iforpforoirrvig eirarigtfio icutinlturA almperorcidau,cA tivitfyricawi P tyr and •pprorEodxdupucacto to indnn nd esstiesstotofornnuutrtiriotionn.. facliktoersly sduecchreaa ses n du e toedawcaotem bsn ihaotoirta ngeosf, in aan Houvnegre igo opdpopra oacnrctuticeen i c r e a s r E x p a n d i g p t u s f o r esoinf asoi lum osiltua rendasndduetem pesraetuare-le,vel a nra:tive nicome generato i n, fco lrishoeadnn ig& g g r i c l t u r a l t o elittehre torra m sp,ro& htiveityatwistlress. directly through ownershp i of local Decreasedtropaicgariclusltu l d u c energy services, or ibsn isisitehntfofa ordmesrescuarn itydfopreo lopce al inpopdu a lutg o ih nts; tohtrhoeurghacth eitiesapi.pelic.atiorunnnn ogf energy ind spurm l r o t i v i ltubre en pcau rtd icu la rly vulnerable. m aincgh,n ieligryh,tinfogodbepyoroncdessdn iagyligohrt Pohnyesicaalreinafsraswi t r u c i l n i g d r y tdraan sps,orbtautiod nn ,gen ed rgyottrhaenrsm sisco itunressysm tem s,be hours m l i i a n s t r u a y R e d u c e t m i e o r n i c o m e s p e n t o n a gged b yupstn togrmasc,ceco astto al m andarkertsiverand b stciinge,nheergaytn ser(vpicoeosr fp oarycom okon ireg,fofdrloaom d i n , d s i r i s s lb iga h i g economci activity. asci energy services) IanreassmtahlrouisglahnodutsA taftreicsa,aA ndsialoa wn-ld yingLactinoastal A m esrciviae, rdisainm gage seatolecvo ea lsstawil linflrikaestlyrucctuaruese e x t e n a noddepcroopaesrttlin y,esd,isru pstultprio duscatvitlw eaa crtivinititeruss,ion e r r e n t e im ntoilonfresshow ree l ce fapteerop ls.ources, and dsipa 2)unA ch e iavle m ilducaeteore la tertduntierissksforaneddudca isato sntersbymay m I provn ig e larnn i g conditons, i.e.: C i v e r s r e p p o i l i g h t i n g f o r s c h o o s l a n d h o m e s pd rm iucaaryto isplacing piegope lh,oudsaem g ho oo ildeinagnss., access to n iformato in or distant d e in hoad lnisg' livseclih oldbu m educato in through n iformato in and and destroyn communciao tin technoo lge is equpiment for teaching, (computers, printers, sce ince equp iment)  23  Millennium Development finale / M n R c l  .uUdlb ^IVILSUo^  Climate Related Threats: Impeding the Contributions of Energy Services to . Achieving Millennium Development; . A c h i e v e m e n t of the Millennium Development r^nalc / P a c n n n r l i n r i trt Olimato 1  \JUCll9 1 w\XS9\J\Jt lull ly, l\J V/lll 1 Idle i .  '  V,.-'  •  ... .';., •. r  finale  .•;„;'. ' UUdla  3)en Pdroem oetequatily •(wa Pte rorvd ipn iugmm o,dem rnaecn eergryyfoserrvice• sgen Cd m ilerateinecqhuain gse; w m ayenthearereforedsiprerosp uoltrto innagtereylater g r p n i g h n i t i e o m i a ndpow weorm meennts' processn iagncfruoeplss, fo an dcoaofkoinrdga,bh e leatina regre p,reseexn teecdtedam ongbethtehepom ore stt voufn thra ebe poto r, th weho em a n d c e l r p t o o s l e l o a nhdysiclig h te infgo)rttoreqru erd udcebythewotm i eena nddviteed rseam icepsa ctstoofrescom ilurcaetes cahnadngeadadp uetvieto their p a l i e m l i m c s and girls to meet basci energy neceadpsacity. • Ao lws tm i e for girls to atend• scphho W oso lm enenearn d gnirlsm meaeyn exp eenirdhm o re ehotm id e and y i c a l g y o t i g t h o u s l s ' •engCarega t e s o p p o r t u n t i e s f o r w o m e n t o b ciasn ng eedsscaifrcitciem ilsaotef fu cheaw nogo ede la dds tw oater hdersnioco i gn ir,ea csrse i l a n educaeto ininal oatn cm ialeacgtiveitnieesratn ources. •poR etiodnucn ia gndexpreolasu red tohean itlh doom r paair• W orm en m ayadevexp e re inw ce heergihetevenn etds & other l u t e i c t s vcm u l n e a b i l t y t o r s e e a t h tfh r o u g h t h e u s e o f c e l a n c o o k n i g ateaccre eslastedtodreissaosutercrsesifag uels thrilbeairn ne dn /odrerseinrveicqeusite . s limit •arem Iaspro v n i g s a f e t y f o r w o m e n i n u ened erabbailtryierstotoidep a rticipthaetioirnnem ayolim it by provd in i g street lighting •woG m n s ' n t i f y e d s r indtearepstatsto pd a lnnm n igitgafotiornc.m il ate change a ininan •wiW om ens'n reeasp onasisbiltieas re assultprm iofacrym caatere-greive rtsed l l i k e l y i c r s e i l l a h wtca.)ter- & vectorb - orne disease, ne aa tutlhral pdroisbaelsm terss (e 4)chR uceortatily • m ipgumapcnicgessand to pce luarifcnatiownate•r (See next box for heatlh related m ildedm throIugphrovn i pacts) •cauRse d u c n i g r e s p i r a t o r y i n f e c t i o n s etiodnbfroymexpcoosoukren town itihdoor air p o l u i g traditional boimass •cooPkron vgd i,n i gboiln agfordw aa btle ,r, che leaantn fuewlhcfiohr i e i g contrb i utes to beter heatlh •nuAtrito low n igcofookredthefoopd rosv,isiosp nace of u s heating, and boe li d water 5)mm Iatep r o v e siesno ignueo frifvtecvtaolreb -yornfeevedr)sieinatsoespre (i.veo .usyl • m I p r o v n i g m e d cial facilities and•cm areTaralanrias,m r n a l d , i b y a o l w n i g for: heatlh n ecxip po se dn p& opuw a lta o irm nsnigduematyo en ie cvreaatesedthe risk of • Refrigeration of medcin ie and u p r e i t a t i o l v a c c n i e s f o r t h e p r e v e n t o i n a n d d iemcis. 6)HV C/oA m bSa,t treatment of dsieases and infection•sepO I D I urtb re atykpshooid f,fogoiadr-dia&) m waayterbn ocrnreeasedsieaassesa (i.e. • S t e r i l z a t i o n o f e q u p i m e n t m a a l r a i a n d c h o l e a , i • o p e r a t o i n o f m e d c i a l e q u p i m e n t o riesult offo w atn ergsh orrtasg erm s odram waatgeer cto ontaw m n irato in safe disposal of used hypodermcd dstiheearsem s aojr •syrin l o d i o t o a t e ges by incineration (prevents inufreasttro cture. re-use / exposure to HV I/AD I S • Moru e t hth ea twa vem sbearreoflikheelyatt-ro reedsult in a contamn iated syringes) nth ifcsanintfrerqisdueeevn ien e n u e l a t • Deveo lpment, manufacturn ig, andsdigea o ln pn igpocooru ntries, particularly distribution of drugs, medcin ies andamong the urba . vaccn i es Euxtg reh m ewiwleaethscea ra eteventhtse(i.neu.m cbyecrlonoefsc,m floa otde-s, •m I proved heatlh educato in throu• gh d r o t s ) l i l medai / n iformato in and rpeslaytcehdoo dgecia tlhsin,juarie ss— wpealrta slap hyin sicadlea nse dyl communciao tins technoo lge is l a i c u r l y n popua lted coastal regions. Related Threats  24  Contributions of Energy Services to Achieving Millennium Development Goals / Responding to Climate Related Threats  7) Ensure environmental sustainability  Improving the management of biomass resources (i.e. biomass crops, woodlands) will support more sustainable energy use by helping to reduce erosion, maintain soil fertility, and reduce desertification associated with over use or poor management. Using efficient fuels and technologies will reduce the energy and emissions intensity of activities, helping to reduce the consumption of energy resources and greenhouse gas emissions  Climate Related Threats: Impeding the Achievement of the Millennium Development Goals  Changing environmental conditions may adversely affect energy supplies (i.e. changes in wind patterns may affect existing wind turbine installations) or energy production may exacerbate resources shortages (i.e. hydroelectric energy generation in Asia may further deplete water resources in several major rivers). Changes in climate and the rapid melting of glaciers will adversely affect water resources in most regions, and combined with increased water demands from agriculture, industry and growing urban centers, climate change will likely lead to further shortages - especially in areas already experiencing water stress such as arid areas of Asia & Africa. Climate change will result in the increased frequency & intensity of extreme weather events such as droughts, tropical cyclones, forest fires in most regions, placing ecosystems, property & human lives at risk In Africa, increased & prolonged droughts would likely contribute to desertification, while coastal areas will be at risk of flooding due to cyclones and storm surges.  (Sources: DFID 2002; IPCC 2001a; Reid and Alam 2005; Simms, Magrath, and Reid 2004; WHO 2003)  B. Charting a Path of Development—and Climate Change W h i l e all countries contribute to the accumulation o f greenhouse gases in the atmosphere and related climate change, emissions levels—and therefore responsibility for climate change—vary significantly between countries. National emissions levels tend to be strongly correlated with levels of economic growth. This is because economic growth has generally been a function o f energyintensive industrialization, increased fossil fuel consumption, and land use changes that result in rising emissions ( E I A 2004c; Goldemberg et al. 2001; U N 2001). Unfortunately, emissionsintensive growth has charted an unsustainable course o f development that jeopardizes the wellbeing o f both current and future generations due to the impacts o f climate change. Moreover, conventional development strategies that tend to favor emissions intensive activities have failed to provide over 2 billion people worldwide with adequate access to resources and services that may enable them to improve their well-being and resiliency to climate change.  25  B.l. Industrialized Countries: A History of Unsustainable Growth The emissions intensity o f economic growth is beginning to weaken i n some industrialized 14  countries as improved energy efficiency, an increased uptake o f low- and zero- emissions technologies, expanding use o f renewable energy, and a shift from industrial to service-based activities reduce the rate o f emissions growth in relation to economic gains  15  ( E I A 2004c).  However, industrialized countries have a long history o f energy-intensive growth and a heavy reliance on fossil fuels (coal, o i l , gas) resulting from this unsustainable development path. Their cumulative emissions account for the majority o f emissions that are driving human-induced climate change. Between 1900 and 1999, industrialized countries contributed approximately 63 percent o f the net C 0 emissions resulting from fossil fuel burning and land use changes (Baumert and Kete 2  2001).  Figure 2.1: Global Distribution of CQ Emissions (2002) 2  Transitional Econome is 13%  Total C 0 Emsiso i ns (2002): 24 409 Milon Tonnes 2  Data Source: (EIA, 2005) The United States is the world's largest emitter in terms o f its cumulative, annual and per capita C0  1 4  2  emissions. W h i l e the United States represents only 5 percent o f the world's population, it  T h e E I A defines emissions intensity as the amount o f carbon dioxide or other greenhouse gases emitted per  dollar o f G D P ( E I A 2004c). 1 5  E c o n o m i c growth is still used by the U S Department o f Energy and others to predict changes in energy  consumption and emissions over time ( E I A 2004c).  26  produced 23.6 percent (5 751 million metric tonnes) o f world's annual C O 2 emissions i n 2 0 0 2 ; a 16  staggering average o f 20 tonnes o f C O 2 emissions per capita. The Bush Administration is attempting to reduce the emissions intensity o f the U S economy through programs such as the Clear Skies Initiative, which promotes the use o f energy efficiency and low-emissions technologies. However, while the U S Department o f Energy reports that the U S economy's emissions intensity fell by 2.3 percent between 2002 and 2003, its annual C 0 emissions grew by 0.8 percent i n 2 0 0 3  17  2  ( E I A 2004a). Projected levels o f economic growth and fossil fuel consumption indicate that unless further measures are undertaken, the United State's annual emissions w i l l continue to rise ( E I A 2004c; U N 2001).  18  Despite the reductions i n the emissions intensity o f their economies, industrialized countries—led by the United States—continue to contribute the majority o f the world's annual emissions. In 2002, mature market economies  19  and transitional economies including Russia and other former Soviet  states respectively contributed 47.2 percent (11 515 million metric tonnes) and 12.8 percent (3 124 million metric tonnes) o f the world's annual C 0 emissions ( E I A 2005). 2  20  This represents a slight  decrease in relative emissions compared to historic levels (60% compared to the historic rate o f 64%), but this is primarily due to rising emission levels among select developing countries as opposed to significant reduction by industrialized countries.  B.2. Shifting the Course: An Alternative Energy Path Global success in reducing greenhouse gas emissions while pursuing sustainable development w i l l depend on our ability to rapidly reduce the carbon intensity o f both industrialized and developing countries' economies (Ashton et al. 2005). A key component o f this is to shift policy and planning away from the emphasis on increasing energy consumption, w h i c h has been pursued through conventional development strategies, to considering how to meet the demand for the end-use  The most recent emissions statistics available across countries are for 2002, although somefiguresare estimates due to the lack of accurate emissions data for many developing countries (EIA 2004c; UNDP 2005). 16  17  The US' annual emissions of all greenhouse gases increased 0.7% in 2003 from 2002 levels.  Despite its historic and current standing as the largest emitter of greenhouse gases, the United States has not committed to emissions reduction targets under the Kyoto Protocol (EIA 2004c). 18  Including the United States, Canada, Western European nations, Japan, Australia and New Zealand, which are identified as Annex II Parties under the UN Framework Convention on Climate Change (UNFCCC). 19  Mature market economies represent only 13.8% of the world's population, while transitional economies account for only 6.5% (EIA 2004c).  20  27  services o f energy more sustainably (Goldemberg et al. 2001). The technology and policy tools already exist for the United States and other industrialized countries to undertake significant emissions reductions—what is required is the commitment by governments, industries, municipalities and others to undertake initiatives that w i l l complete the shift to a low-carbon economy (Ashton et al. 2005; Bramley 2005). In terms o f developing countries, shifting away from conventional perspectives w i l l help to clarify the role o f energy i n supporting development objectives—in other words, how energy can be used to support well-being and sustainable development ( D F I D 2002; Goldemberg et al. 2001; Reddy 2000). Hopefully, this approach w i l l succeed where conventional strategies have failed; namely, in meeting the energy and development needs of people i n developing countries in a manner that reduces vulnerabilities and provides for lasting development impacts.  B.3. Developing Countries: In Critical Need of a Sustainable Course of Development W h i l e industrialized countries bear the primary responsibility for human-induced climate change to date, the contribution o f developing countries is increasing. Developing countries  21  contributed  nearly 40 percent (9 771 million tonnes) o f the world's annual C O 2 emissions in 2002 ( E I A 2005). Analysts expect the upward trend in emissions levels to continue i n the coming decades primarily due to increasing energy demands. Between 2001 and 2025, global consumption o f commercial energy  22  is projected to increase 58 percent ( E I A 2003). The majority o f this increase is expected to  occur i n developing nations as efforts are made to meet the basic needs o f growing populations, improve living standards and support economic and industrial expansion through the provision o f modern energy services (Goldemberg et al. 2001; Sawin 2003). A s s u m i n g a "business as usual" scenario, analysts from the U S Department o f Energy ( D O E 2003) project that the rising demand for commercial energy w i l l primarily be met through the increased use o f fossil fuels; an outcome that would run counter to efforts to achieve sustainable development as rising emissions levels would increase climate-related risks and vulnerabilities (Sawin 2003).  The bulk of developing countries' greenhouse gas emissions arise from China and India, which respectively contributed about 13.6 and 4.2 percent o f C O 2 emissions i n 2002 ( E I A 2005). Rapid expansion o f energy-intensive industries, fast growing populations, urbanization, rising incomes,  21  Including non-Annex I Parties as defined under the U N F C C C .  C o m m e r c i a l energy includes o i l , natural gas, refined coal, nuclear, hydropower, w i n d , solar, biogas and geothermal energy that is attributed an economic value and included in the market system. It does not include traditional biomass, which does not carry a market value when consumed for subsistence use. 2 2  28  and increased consumerism are among the key factors fueling these nations' increasing demand for energy—and rising emissions levels ( E I A 2004c). However, despite the increasing rate o f emissions growth, per capita emissions in China (2.6 tonnes of C 0 ) and India (1.7 tonnes o f C 0 ) are still 2  2  significantly lower than those o f the industrialized countries. Y e t even per capita emissions figures fail to reflect the inequities i n energy use within these countries. In India, an estimated 80 000 villages lack access to electricity and related energy services, while industries consume large quantities o f energy and produce high levels o f emissions due to inefficient technologies and practices (IT Power Carbon and E C N 2005). Consequently, while rising emissions levels indicate increasing energy consumption at the national level, they do not automatically correlate with improved well-being for all people within the country.  Figure 2.2: C 0 Emissions Per Capita (2002) 2  T o n n e s of C 0 per capita  2  Mature Market Economies  Transitional  Emerging  Economies  Economies  (Data Source: EIA 2005) In contrast to India and China's escalating emissions, least developed countries' ( L D C s ) contribution to climate change remains relatively minimal—especially on a per capita basis ( I P C C 2001e). Africa, for example, represents 13.5 percent o f the world's population, yet the entire region produced only 3.5 percent (854 million metric tonnes) o f global C 0 emissions in 2002; an average 2  o f one tonne o f C 0 emissions per capita ( E I A 2005). This figure again obscures intra-regional 2  disparities, as emissions levels among Africa's least developed countries ranged as l o w as 0.1 tonnes of C 0 per capita ( U N D P 2005). Unfortunately, l o w emissions levels among African L D C s 2  29  are anchored by insufficient access to energy. In sub-Saharan Africa, per capita energy consumption has increased only slightly since 1970, and traditional biomass  23  still accounts for  approximately 70 percent o f the total energy consumed ( D F I D 2002). L o w levels o f energy consumption i n Africa and other regions (including among India and China's rural and urban poor) are concerning because o f its correlation with a lack o f access to adequate energy services, or energy poverty.  Energy poverty is essentially the lack o f opportunity to make decisions regarding energy use that support sustainable development and sustainable livelihoods (Reddy 2000). A s a result o f the energy poverty, women and men are often unable to undertake additional activities that would allow them to generate an income, develop new skills, or build social networks that may enable them to move their families out o f poverty or improve their ability to cope with risks such as those imposed by climate change. W o m e n i n poor rural households are particularly affected by energy poverty because they are generally responsible for completing tasks such as gathering wood or traditional fuels , hauling water, cooking, grinding grains and other food preparation (Cecelski 2000, 2002; 24  Clancy, Skutsch, and Batchelor 2003; M i s a n a and Karlsson 2001).  B.4. Shifting the Course: Sustainable Energy and Development Improving access to clean, reliable and affordable energy and the services it provides has been identified as a critical factor in achieving development objectives such as the M i l l e n n i u m  Traditional biomass (i.e. wood, dung, unrefined charcoal and agricultural residues) is a critical source of energy for many low-income households in sub-Saharan Africa and other developing regions; an estimated 2.4 billion people in developing countries rely on traditional biomass to meet, or partially meet, their energy needs (IEA 2002). However, its use does have significant drawbacks. First, its uses are generally limited to cooking, heating homes and a narrow range of income generating activities such as food drying and brick firing, which limits people's livelihood options. Indoor air pollution from poorly ventilated cooking stoves is linked to chronic respiratory problems, especially among women (and their young children), who tend to be the primary users of biomass. In addition, women and children from poor households expend significant time and physical energy on collecting fuel wood, dung and other biomass fuels (Masera, Saatkamp, and Kammen 2000; Cecelski 2002). Yet despite their efforts, many fail to gather sufficient supplies to meet their needs due to scarcities caused by overgrazing, deforestation and unsustainable resource use, urban growth and other factors (Rogner and Popescu 2000; Cecelski 2000; Reddy 2000). While energy strategies should not exclude biomass as an energy source, introducing modern biomass fuels, providing more efficient technologies, and providing access to alternative energy sources including electricity and clean cooking fuels may reduce demands on women's time and create conditions for better health, education, and income generating opportunities (UN 2004; Misana and Karlsson 2001; Clancy, Skutsch, and Batchelor 2003). 23  Traditional biomass includes fuels such as wood, dung, unrefined charcoal and agricultural residues. In many areas, clearing for agricultural expansion (particularly for industrial agriculture), overgrazing, the encroachment of urban areas on previously forested areas, poor resource management among users and other factors have led to increasing biomass scarcities (Cecelski 2000; Marks 1996; Reddy 2000; Rogner and Popescu 2000). 24  30  Development Goals ( D F I D 2002; U N 2004), as well as for strengthening people's capacity to cope or adapt to the risks and impacts o f climate change (Simms 2005; Simms, Magrath, and R e i d 2004). For example, providing poor rural and urban households with access to alternative energy sources including electricity and clean cooking fuels may reduce demands on women's time and create conditions for better health, education, and income generating opportunities (Clancy, Skutsch, and Batchelor 2003; M i s a n a and Karlsson 2001; U N 2004). W h i l e improved access to energy services is not a solution to poverty or climate change vulnerability on its own, it can be an effective entry point for supporting sustainable livelihoods and strengthening people's resiliency to climate change.  Conclusion Climate change presents a serious threat to development; its adverse impacts are already affecting vulnerable groups within developing countries, and projected levels o f future climate change indicate that people w i l l continue to experience heightened levels o f risks and vulnerability. Ultimately, which development paths are accessible w i l l have implications in terms o f people's ability to respond and adapt to the additional environmental changes and socio-economic challenges that may occur or be intensified as a result o f climate change. Efforts to limit additional climate change and reduce its adverse impacts provide an opportunity to build on the potential synergies between climate change mitigation and sustainable development. The Clean Development Mechanism, explored in the next chapter, provides one potential means for developing countries to pursue sustainable development while helping to mitigate additional climate change by contributing to the reduction o f global greenhouse gas emissions.  31  3. From the UNFCCC to the Kyoto Protocol: Understanding the Policy Context of the Clean Development Mechanism Introduction The Clean Development Mechanism (CDM) is one of the three internationally-based mechanisms designated under the 1997 Kyoto Protocol to assist in international efforts to mitigate additional climate change. The C D M is unique in that it is the only mitigation mechanism open for participation by both industrialized and developing countries under the Kyoto Protocol, and it has a dual objective of assisting developing countries in achieving sustainable development. Specifically, the C D M presents an opportunity to support the decarbonization of developing countries' economies while expanding access to the clean, reliable energy that can contribute to poverty reduction and improved well-being. As such, the C D M is theoretically a "win-win" approach to addressing climate change; it creates an opportunity to assist developing countries in achieving sustainable development while providing industrialized countries with a cost-effective mechanism to pursue global emission reductions as agreed to under the Kyoto Protocol.  The Clean Development Mechanism functions within a broader, long-term strategy initiated by United Nations to address climate change. To understand the C D M and its potential for supporting sustainable development, it is therefore necessary to define its role within the broader policy context of the UN's climate change strategy, the U N Framework Convention on Climate Change (UNFCCC), and its supporting agreement, the Kyoto Protocol. Consequently, the discussion first examines how the international community is addressing the relationship between climate change and sustainable development through the U N F C C C . Next, it reviews the commitments set out in the U N F C C C and the Kyoto Protocol, highlighting the different responsibilities of industrialized and developing countries in mitigating climate change. A n overview of the mechanisms designated under the Kyoto Protocol is then provided as a means of locating the C D M within the broader context of international mitigation activities. Next, the discussion analyzes the key motives driving developing and industrialized countries' participation in the C D M , and questions to what extent and how the C D M should be used in meeting mitigation targets. Finally, an overview of the C D M ' s  32  operational framework is provided i n order to set the stage for further discussions on the effectiveness o f the C D M in supporting sustainable development i n the next chapter.  I. UNFCCC: A Framework for International Action on Climate Change The United Nations Framework Convention on Climate Change ( U N F C C C ) provides a policy framework for intergovernmental action on human-induced climate change. Adopted at the 1992 Earth Summit and ratified in 1994, the U N F C C C or "the Convention" is now one o f the most widely supported international environmental agreements with 188 nation states and the European Economic Community acting as Parties to the Convention ( U N F C C C 2004f; U N F C C C Secretariat 2004b). The U N F C C C serves as the legal and conceptual basis for subsequent international agreements on climate change, including the 1997 K y o t o Protocol.  A. The Ultimate Objective of the UNFCCC The ultimate objective o f the U N F C C C is;  ... [to achieve the] stabilization o f greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner ( U N 1992b Article 2). The U N F C C C remains ambiguous in terms o f defining a temperature range or atmospheric concentration o f C 0 that would entail "dangerous anthropogenic interference", but does suggest 2  that timely actions should be undertaken that w i l l ensure the climate system's ecological functions continue to support the well-being o f current and future generations.  B. Guiding Principles for Action on Climate Change Article 3 o f the U N F C C C includes a set o f principles to guide the Parties' efforts to achieve the objective under the U N F C C C and subsequent protocols. These principles are not unique to the U N F C C C , but rather are drawn from the general guiding principles for international agreements set out under the 1992 R i o Declaration to support sustainable development (Matsui 2002; U N 1992a). The U N F C C C calls on the Parties to respect countries' specific needs, circumstances and development priorities, while underscoring the importance o f supporting sustainable development as a means o f increasing countries' capacity to address the adverse impacts and underlying causes o f climate change ( U N 1992b). This emphasizes the need to address climate change within the  33  broader context of development issues so that climate change strategies contribute to meeting development objectives such as poverty reduction, sustainable resource management, increased equity in access to resources and services, and other factors that will help to strengthen people's ability to cope and adapt to the adverse impacts of climate change. In addition, it implies that sustainable development is an important strategy in mitigating climate change because pursuing less emissions-intensive development paths will reduce the extent of human-interference in the climate system. The U N F C C C guides Parties to undertake precautionary measures when confronted with uncertainty regarding the possible ecological, social or economic impacts of climate change, but encourages Parties to find cost-effective approaches so as to "ensure global benefits at the lowest possible cost" (UN 1992b Article 3.3). In addressing the issue of equity, the U N F C C C directs Parties to conduct their actions from a basis of intra- and inter-generational equity, and in accordance with their "common but differentiated responsibilities and respective capabilities" (UN 1992b Article 3). The principle of "common but differentiated responsibilities" is the core tenet of the U N F C C C ' s framework for action. The general notion of common but differentiated responsibilities is expressed in Principle 7 of the Rio Declaration as follows,  States shall cooperate in a spirit of global partnership to conserve, protect and restore the health and integrity of the Earth's ecosystem. In view of the different contributions to global environmental degradation, States have common but differentiated responsibilities. The developed countries acknowledge the responsibility that they bear in the international pursuit to sustainable development in view of the pressures their societies place on the global environment and of the technologies and financial resources they command (UN 1992a) In the context of the U N F C C C , the notion of "common responsibilities" confirms the importance of a coordinated international response to climate change. The notion of "differentiated responsibilities" provides a rational for assigning different responsibilities to developed and developing countries based on their relative contribution to climate change and access to resources with which to pursue mitigation and adaptation measures (UN 1992b; U N F C C C Secretariat 2002a). On this basis, the U N F C C C calls on developed countries to "take the lead in combating climate change and the adverse effects thereof (UN 1992bArticle 3.1). These guiding principles form the U N F C C C ' s core tenets for action, essentially grounding efforts to address climate change in a framework for sustainable development. C. Parties to the Convention In keeping with the principle of common but differentiated responsibilities, the Convention distinguishes between Parties on the basis of their historic G H G emissions as well as their current 34  financial and technical capacities to address climate change. The division is roughly drawn between industrialized and developing countries, grouping the former as Annex I Parties and the later as non-Annex I Parties.  C.l. Annex I Parties Annex I Parties include most members of the Organization for Economic Cooperation and Development (OECD), as well as the Russian Federation, the Baltic States, and several Central and Eastern European nations with economies-in-transition ( U N F C C C Secretariat 2002a). The Annex I Parties are assigned the task of leading on measures to mitigate climate change under Article 4.2 of the Convention (UN 1992b). The Convention further divides Annex I Parties by assigning the O E C D members to an Annex II sub-group. Annex II Parties are expected to undertake the additional responsibilities of assisting developing countries in adapting to the adverse effects of climate change, as well as promoting sustainable development among economies-in-transition and developing countries via financing, capacity building and the transfer of environmentally sound technologies (UN 1992b Article 4).  C.2. non-Annex I Parties The remaining nations that have ratified the Convention are referred to as non-Annex I Parties, (UNFCCC Secretariat 2002a). These Parties are collectively characterized by their low levels of historic G H G emissions, per capita emissions that remain a fraction of those of industrialized countries, and relatively limited institutional and technological capabilities to mitigate or adapt to the adverse effects of climate change (Baumert and Kete 2001; Grubb, Hope, and Fouquet 2002). The non-Annex I Parties are all members of the "Group of 77 and China", a negotiating coalition that advocates for developing countries' interests in the U N F C C C and other U N negotiations . Its 25  members' interests and circumstances are diverse. For example, small island developing states are focused on addressing their extreme vulnerability to the immediate threats of sea level rise, while African countries are preoccupied by the potential impacts of droughts and desertification, as well as their urgent need for assistance with adaptation measures. Their level of involvement in the negotiations is also varied due to disparities in available resources to staff delegations, conduct policy analysis and establish positions, which means that some non-Annex I Parties such as China,  N o n - A n n e x I Parties have also formed additional negotiating coalitions to represent specific interest.  These  include the A l l i a n c e o f Small Island States ( A O S I S ) ; S m a l l Island D e v e l o p i n g States (SIDS); the A f r i c a n G r o u p ; Least Developed Countries; the Organization o f Petroleum Exporting Countries ( O P E C ) ; and the Central A s i a , Caucasus, A l b a n i a and M o l d o v a G r o u p . Parties negotiate within different coalitions depending on the issue and their specific interests ( Y a m i n and Depledge 2004).  35  India, and B r a z i l are able to leverage greater influence during the negotiations (Gupta 2000; Y a m i n and Depledge 2004). However, from a negotiating stance they share an interest i n supporting sustainable development to reduce inequities between industrialized and developing countries, and they share a concern regarding the slow progress most industrialized countries have made to date on reducing their emissions ( Y a m i n and Depledge 2004).  C.3. Conference of the Parties (COP) Since 1995, nations that have ratified or acceded to the Convention have met annually for the Conference o f the Parties ( C O P ) . The purpose o f the C O P meetings is to allow the Parties to review their progress on achieving the Convention's objective and to provide a forum for amending the Convention or negotiating protocols to undertake additional commitments as required ( U N E P and U N F C C C 2002).  D. Initial Commitments and Further Action A s an initial effort to address global climate change through the U N F C C C , the Parties tasked developed nations to lead international efforts to reduce anthropogenic G H G emissions by adopting "policies and measures with the aim o f returning their greenhouse gas emissions to 1990 levels by 2000" ( U N 1992b). However, the U N F C C C ' s language was legally ambiguous and did not obligate or bind the Parties to achieving the targeted emission reduction. During the first Conference o f the Parties ( C O P - 1 ) , held in Berlin during 1995, the Parties acknowledged this weakness and generally agreed that voluntary efforts undertaken by the Parties would not be sufficient for reducing and stabilizing G H G concentrations in the atmosphere. The Parties therefore adopted the " B e r l i n Mandate", which framed the concept o f a Protocol to the Convention that would establish legallybinding, quantified emission reduction commitments for the post-2000 period (Eyzaguirre and Kalas 2002; Matsui 2002). The timely release o f the Second Assessment Report o f the International Panel on Climate Change ( I P C C 1995) reinforced the importance o f undertaking additional commitments. The report provided evidence that the extent and impacts o f human induced climate change were greater than previously reported, and stated that "the balance o f evidence... suggests a discernible human influence on global climate" ( I P C C 1995 5). A t the third Conference o f the Parties (COP-3), the Parties fulfilled the Berlin Mandate with the adoption o f the K y o t o Protocol.  II.  Kyoto Protocol  Under the 1997 K y o t o Protocol, the Parties to the U N Framework Convention on Climate Change ( U N F C C C ) agreed to set quantified emission reduction and limitation targets for Annex I Parties for  36  the first commitment period o f 2008-2012. Annex I Parties that have ratified the Protocol (listed in Annex B of the Protocol)  26  are committed to reducing their emissions o f six greenhouse gases, on  average, 5.2% below 1990 levels. The targeted greenhouse gases include carbon dioxide (CO2), methane (CH4), nitrous oxide ( N 0 ) , hydrofluorocarbons ( H F C s ) , perfluorocarbons (PFCs), sulphur 2  hexafluoride (SF ) (Lee 2004; U N 1997). The K y o t o Protocol does not require developing countries 6  to undertake additional commitments to those established under the U N F C C C . Rather, it reaffirms that A n n e x I Parties must demonstrate leadership in mitigating climate change in keeping with the principles of equity and common but differentiated responsibility.  A. Assigned Amounts In order to achieve the targeted 5.2% emission reduction, the K y o t o Protocol establishes a quantified emissions limitation and reduction commitment for each Annex I Party that ratifies the Protocol. Article 3 of the Protocol lists each o f these commitments as an "assigned amount", which defines the total emissions a Party may emit between 2008 and 2012 and still meet its emissions target. Assigned amounts do not represent a right or entitlement to emit, but rather set a limit or cap on the total emissions each Annex I Party is permitted during the first commitment period ( U N F C C C 2002; U N F C C C Secretariat 2002a) . Assigned amounts are important to a successful 27  mitigation regime because emissions projections based on a "business as usual" scenario indicate that the majority o f Annex I Parties would otherwise fall short of their targeted emission reduction 28  (Langrock and Sterk 2004). The difference between a Party's business-as-usual projection and its assigned amount is referred to as a "compliance gap" (Langrock and Sterk 2004).  A n n e x B o f the K y o t o Protocol contains the list o f countries that have accepted Quantified Emissions Limitation and Reduction Commitments under the K y o t o Protocol. The list is essentially the same as those countries listed in A n n e x I o f the U N F C C C with the following exceptions; it does not include Belarus or Turkey, w h i c h are listed in A n n e x I o f the U N F C C C ; it includes and assigns amounts to Croatia, Liechtenstein, M o n a c o and Slovenia, w h i c h are not A n n e x I Parties; and, it excludes the United States and Australia because they have not ratified the Protocol. Despite these exceptions, the labels A n n e x I and A n n e x B are often used interchangeably to refer to countries with assigned amounts under the K y o t o Protocol. W h i l e it is technically inaccurate, A n n e x I is used to refer to industrialized countries with assigned amounts under the Protocol for the sake o f simplicity throughout this thesis. 2 6  The Marrakesh Accords clearly state: "[The] K y o t o Protocol has not created or bestowed any right, title or entitlement to emissions o f any kind on Parties included in A n n e x I" ( U N F C C C 2002).  2 7  Notable exceptions o f Russia and other former members o f the Soviet U n i o n , whose current emissions are substantially lower than 1990 levels due to reduced industrial production in the past decade. The countries have negative compliance gaps, w h i c h means they may sell emission units to other A n n e x I Parties and still remain K y o t o compliant (Langrock and Sterk 2004). 2 8  37  In order to comply with their commitments under the K y o t o Protocol, A n n e x I Parties must undertake greenhouse gas emission reduction measures to close their compliance gap by 2012. Canada, for example, has committed to reducing its G H G emissions 6% below its 1990 levels during the first commitment period (Government o f Canada 2002). This w o u l d require Canada to take measures to reduce its emissions from its 1990 level o f 607 M t per year to 571 M t per year, on average, between 2008 and 2012 (Peters, Robertson, and Brunt 2003). The total emissions generated by an Annex I Party and any entities operating within its borders during the first commitment period (2008-2012) cannot exceed the Party's assigned amount. However, as w i l l be discussed below, Parties can choose to offset domestic emissions by investing i n emission reductions outside o f their borders through mechanisms designated under the K y o t o Protocol.  B. Entry into Force of the Kyoto Protocol The Parties' commitments became legally binding with the official entry into force o f the K y o t o Protocol on February 16, 2005 following the Russian Federation' ratification o f the Protocol on 18 November 2004 ( U N F C C C 2004g). The Protocol required that 55 Parties to the Convention ratify, approve, accept, or accede to the Protocol, and that at least 5 5 % o f developed countries combined 1990 emissions be accounted for by ratifying Annex I Parties  29  ( U N E P 2004; U N F C C C 2004d). B y  ratifying the Protocol, the Russian Federation raised the total number o f ratifying countries to 141 and the emissions covered by the Protocol to 61.6%, thereby allowing for the Protocol's entry into force ( U N F C C C 2005a; U N F C C C Secretariat 2004a). Although many countries had signed the Protocol several years prior to Russia's ratification, substantive action on meeting their targets was delayed due to uncertainties as to whether the K y o t o Protocol would officially entered into force (Point Carbon 2004). February 16, 2005 therefore ended a period o f uncertainty, as Parties may now engage i n emission reduction activities knowing they must comply with their K y o t o commitments by 2012.  B.l. United States: Outside the Protocol The Protocol's entry into force occurred without the participation o f the United States, the world's single largest emitter. President Bush labeled the Protocol "fatally flawed in fundamental ways" (quoted in U S Government 2001 13), and withdrew the United States from further discussions on the K y o t o Protocol in 2001. The Bush Administration identified a number o f key concerns,  The Government o f Canada ratified the K y o t o Protocol in 2002, thereby committing Canadians to reducing their total G H G emissions to 6 % below 1990 emissions levels during the first commitment period o f 2008 2012.  38  including the lack o f targeted emission reductions for developing countries, which the Bush Administration believed would encourage developing countries to "continue business as usual under the K y o t o Protocol, despite their rapidly growing emissions" ( U S Government 2001 13). Baumert and Kete (2001) suggest that the U S decision disregards the consideration that by taking an initial leadership role i n addressing climate change, the United States could have helped establish the conditions that would encourage and enable developing countries to participate more effectively in subsequent agreements. F o r example, the United States could have contributed to lowering the emissions intensity o f developing countries' economic growth through investments i n the Clean Development M e c h a n i s m ( C D M ) , which is discussed below. The United States' withdrawal also decreased the total quantity o f emission reductions that can be achieved through the K y o t o Protocol from 17 percent below the 1990 baseline level to only 5 percent. This significantly weakens the Protocol's environmental effectiveness and limits the potential investments in the C D M that would contribute to sustainable development i n developing countries (den Elzen and de M o o r 2002). However, despite United States' lack o f participation, the K y o t o Protocol is still important i n terms o f establishing mechanisms to support global emission reductions and support both Annex I and developing countries to chart a more sustainable development path.  III.  Kyoto's Flexibility Mechanisms  The K y o t o Protocol includes three mechanisms designed to assist Annex I Parties in meeting their K y o t o commitments cost-effectively by providing greater flexibility in terms o f how emission reductions can be achieved. The K y o t o mechanisms include Joint Implementation (JF), Emissions Trading ( E T ) , and the Clean Development Mechanism ( C D M ) ( U N 1997). Rather than requiring Annex I Parties to reduce their emissions exclusively through domestic measures, the mechanisms provide governments, companies and other entities from Annex I Parties with several options for obtaining emissions units from parties that are able to reduce emissions at a lower marginal cost. The marginal cost o f reducing emissions varies widely between sources due to differences in a range o f factors such as the transaction costs related to implementing projects, the quantity o f emissions that can be reduced i n single project, the technology required to achieve emission reductions and, ultimately, the market price at which Parties can obtain emissions units (Lecocq 2004; Point Carbon 2004). The K y o t o mechanisms allow Annex I parties to purchase emission reduction units through emissions trading (ET); invest in international emission reduction projects to generate additional credits (JI or C D M ) , or; use a combination o f these approaches to help comply with their assigned amounts ( U N 1997).  39  Table 3.1: Flexibility Mechanisms under the Kyoto Protocol Kyoto Mechanism  Protocol Article  Involved Parties  Market Unit  Description of Transaction  Emissions Trading  Article 17  Annex I (Annex B)  Assigned Amount Units (AAUs) / CERs/ERUs  Purchase or sale of tradable emissions units through national, regional or international emissions trading systems.  Article 6  Annex I / II (Annex B)  Emission Reduction Units (ERUs)  Investment in emission reduction projects in other Annex I countries (mainly economies-in-transition) to generate ERUs  Article 12  Annex I (Annex B) & developing countries  Certified Emission Reductions (CERs)  Investment in emission reduction project activities in non-Annex I countries to generate CERs and support host country's sustainable development.  (ET) Joint Implementation (JI) Clean Development Mechanism (CDM)  W h i l e the emission reductions achieved through the K y o t o mechanisms occur outside the boundaries o f the Annex I county , the investing party still maintains responsibility for (or a legal 30  right to) the resulting emission reductions under the K y o t o Protocol ( U N F C C C 2004b). This is justified from a global environmental perspective because regardless o f the political or physical jurisdiction in which emission reductions occur, the impact on stabilizing atmospheric concentrations o f greenhouse gases is equal as emissions disperse relatively evenly throughout the atmosphere (Lecocq 2004; U N F C C C 2004b). The use o f the K y o t o mechanisms therefore contributes to the U N F C C C ' s ultimate objective o f stabilizing atmospheric concentration o f greenhouse gases, while also supporting more cost-effective emission reductions.  A. Emission Trading Emission trading allows companies, governments and other stakeholders from A n n e x I Parties that have met their emission reduction targets to sell excess emissions units to other Annex I parties. Emission trading is based on a "cap and trade" system, which has been used in the United States to successfully reduce sulfur dioxide (SO2) emissions under the U S A c i d Rain Program and other emission reduction initiatives ( E P A 2005a, 2005b; Y a m i n and Depledge 2004). The strength o f the cap and trade system as a policy tool is that it is both economically and environmentally effective. It increases the likelihood that participants w i l l comply with their emissions "cap" by providing  3 0  In the case o f emissions trading ( E T ) , this only refers to international emissions trading as designated under  Article 17 o f the K y o t o Protocol. However, national emissions trading schemes also allow for emission reduction units generated through domestic abatement activities to be traded with another company or entity from the same country.  40  flexibility on how they achieve their targeted emission reduction, and it encourages parties to continue improving their efficiency and finding innovative means to reduce or avoid emissions because excess credits can be sold to other parties ( E P A 2005a, 2005b; O k o Institut 2005). Under the Protocol, Annex I Parties' assigned amounts act as the overall cap on allowable emission trading. Accounting for emissions within the trading system is made possible by the K y o t o Protocol requirement that each A n n e x I Party must establish a national emissions registry and accounting system prior to using the K y o t o mechanisms ( Y a m i n and Depledge 2004).  International emission trading between A n n e x I Parties is the official emission trading mechanism designated under Article 17 o f the K y o t o Protocol to facilitate K y o t o compliance. The Protocol mandates that Annex I Parties must establish an international emission trading system by 2008 to allow for the international transfer o f emissions units during the first commitment period ( U N 1997). However, a number o f emission trading systems have already been established at the regional and national level to support cost-effective emission reductions among large industrial emitters and other entities that have been issued reduction targets by their respective governments. The European U n i o n ' s Greenhouse Gas Emission Trading Scheme ( E U E T S ) is the largest K y o t o related emission trading program i n operation. The E U E T S was initiated in January 2005 as a regional trading scheme to facilitate emission reductions among the European U n i o n ' s big industrial emitters (European Commission 2004; Point Carbon 2004). The European U n i o n ( E U ) anticipates that the E U E T S w i l l allow the E U to achieve its K y o t o target at an annual cost o f €2.9 to €3.7 billion, which is less than 0.1 percent o f the E U G D P . The E U calculates that without the scheme, the cost o f K y o t o compliance could be as high as €6.8 billion a year (European Commission 2004). Other Annex I Parties, including Canada (Government o f Canada 2005), recognize emission trading as an important policy tool to facilitate cost-effective emission reductions.  B. Joint Implementation Joint Implementation (JI) is a project-based mechanism defined under Article 6 o f the Protocol that allows a party from an Annex I to invest in an emissions abatement or sequestration project i n another Annex I country in exchange for Emission Reduction Units ( E R U s ) that it can use to help meet its K y o t o commitment ( U N F C C C 2004e). JI activities theoretically promote technology transfer between mature market economies such as Canada, U K , or Germany and countries with economies-in-transition such as the Baltic States or the Russian Federation in order to support the host country's transition towards a low-carbon economy. JI differs from emission trading in that the emissions units result from the investment in a specific project as oppose to any given source  41  ( Y a m i n and Depledge 2004). However, developing countries are excluded from participating i n this mechanism and therefore this thesis does not discuss JI i n further detail.  C. Clean Development Mechanism The Clean Development Mechanism ( C D M ) is the only K y o t o mechanism open for participation to both Annex I Parties and developing countries. A s with the other K y o t o mechanisms, the C D M is intended to assist A n n e x I parties i n achieving their K y o t o commitments more cost-effectively. However, the C D M also has an additional objective, namely; "to assist developing countries i n achieving sustainable development and thereby contributing to the ultimate objective o f the Convention" ( U N 1997 Article 12.2). The C D M is designed to allow governments, companies or other A n n e x I entities to invest i n emission reduction, abatement or sequestration  31  projects that  contribute to the sustainable development o f the host developing country. In return for successful projects that deliver quantified emission reductions, A n n e x I investors receive Certified Emission reductions ( C E R s ) . C E R s are considered fungible (equivalent and interchangeable) with other emission units recognized under the K y o t o P r o t o c o l . C E R s can be used to offset an A n n e x I 32  Party's domestic emissions, or sold to another Annex I entity through an emission trading system such as the E U E T S or, once in operation, the international emission trading scheme (European Commission 2004; U N F C C C 2004a) . 33  C.l. Leveraging Sustainable Development For developing countries, the C D M theoretically provides a number o f interrelated benefits that contribute to supporting sustainable development. First, the C D M theoretically provides an alternative and potentially significant source o f funding that can be leveraged to catalyze developing countries' transition to sustainability. C D M investments are intended to be additional to  Carbon sequestration is achieved through afforestation and reforestation projects, which include such activities as forest management, revegetation or reforestation, cropland management and grazingland management that contribute to the uptake (sequestration) of carbon, effectively removing carbon emissions from the atmosphere. The Kyoto Protocol classifies afforestation and reforestation as "land use, land-use change and forestry (LULUCF) projects". Under Article 3.3 of the Kyoto Protocol, emission reductions from afforestation and reforestation activities can be used towards meeting Annex I Parties' Kyoto targets (UNFCCC 2005b).  31  Each CER represents an offset of one metric tonne of carbon dioxide equivalent (C02e), and are fungible with Assigned Amount Units (AAUs) initially allocated to each Annex I Party; Emission Reduction Units (ERUs) generated through Joint Implementation activities, and; Removal Units (RMUs) generated by domestic land use, land-use change and forestry (LULUCF) projects (UNFCCC 2004, 2002). 32  The EU does not permit emission credits generated by nuclear facilities or land-use, land-use change and forestry (LULUF) activities to be used towards allocated emission reductions (European Commission 2004).  33  42  any official development assistance ( O D A ) allocated to support sustainable development activities in developing countries. Therefore, C D M financing should allow for sustainable development initiatives that would not occur in the absence o f the C D M ( Y a m i n and Depledge 2004). C D M financing acts as an additional revenue stream for projects that is equivalent to the market price o f the C E R s generated by the project. C D M financing can increase projects' internal rate o f return (IRR), thereby allowing project developers to overcome financial barriers that may otherwise dissuade them from implementing projects that support sustainable development (IT Power Carbon and E C N 2005). F o r example, C D M financing can increase the total revenues for renewable energy installations i n rural or urban communities that help to deliver energy services needed to support small-scale economic or educational activities that are critical to meeting the basic needs o f the local population (IT Power Carbon and E C N 2005; SouthSouthNorth 2005b). In order to deliver on the C D M ' s sustainable development objective, C D M financing must be channeled into project activities that succeed in reducing or abating emissions as well as contributing to economic, social, and local environmental objectives such as poverty alleviation, increased equity, and sustainable resources management (Figueres and G o w a n 2002; Lee 2004).  Second, the C D M presents an opportunity to assist developing countries i n decarbonizing their economies and expanding access to energy services through the uptake o f clean, efficient energy technologies. Figueres highlights the importance o f using the C D M to support the decarbonization o f developing countries' economies;  Although growth, energy intensity and carbon output have been linked throughout modem history, achieving sustainable development in developing countries depends on decarbonizing their economies. F o r developing countries reliant on importing fossil fuels, gradually decreasing the carbon intensity o f increased production through enhanced energy efficiency and development o f local renewable energy resources is a critical step toward sustainability. The dual purpose o f the C D M for developing countries confirms the intent o f the C D M to assist developing countries in decarbonizing their economies... it is the only way to achieve both sustainable development and the stabilization o f emissions concentrations.(Figueres 2004)  Using C D M financing to support efforts to decouple economic growth from rising emissions w i l l help to ensure that developing countries can pursue development initiatives aimed at reducing poverty without increasing climate-related vulnerabilities that may erode development gains. Ensuring the C D M delivers improved and expanded energy services is critical in supporting sustainable development given the rapid rise in energy demands from countries such as China and  43  India, and the continued under-delivery o f energy services to the rural and urban poor in Africa and other regions.  Third, the C D M enables governments and project developers in developing countries to gain experience i n emission reduction and mitigation initiatives, and build the institutional capacity required to support such activities. W h i l e the K y o t o Protocol only sets emission reduction and limitation targets for Annex I Parties, future commitment periods w i l l likely include developing countries i n some capacity (Baumert et al. 2002; den Elzen 2003; Sugiyama et al. 2004). Therefore, supporting the involvement o f developing countries from an early stage w i l l help to ensure they have the technical, institutional and operational experience required—and the willingness—to participate in future commitment periods.  The Protocol clearly states that support for host countries' sustainable development should be weighted equally with generating emission reductions for A n n e x I Parties i n all C D M projects (Sutter 2001). I f the C D M is implemented with the intent o f upholding its dual objectives, it could result in substantial investments in developing countries that contribute to delivering on sustainable development objectives, catalyzing the decarbonization o f developing countries' economies and expanding access to energy services, and strengthening capacity to respond to climate change while expanding access to energy services. Stated in another way, C D M investments that do not contribute to sustainable development represent a lost opportunity to strengthen developing countries' capacity to adapt to climate change and effectively participate in future mitigation efforts.  D. Weighing the Benefits W h i l e the C D M offers potential benefits to developing countries, the prospect o f unlimited use o f the C D M and other K y o t o mechanisms still raised concerns among developing countries and other stakeholders during the course o f C O P negotiations. A frequently cited concern was that industrialized countries might neglect their responsibility for reducing the emissions intensity o f their own economies i f they were able to offset their emissions more cost-effectively through the C D M and other K y o t o mechanisms ( i . e . Corporate Europe Observatory 2001; Matsui 2002; M e t z et al. 2001; Y a m i n and Depledge 2004). This would allow industrialized countries to continue on an emissions intensive path o f development, thereby limiting the long-term environmental impact o f the K y o t o Protocol. The issue was also framed as an equity concern, as some developing countries and analysts feared unlimited use o f the C D M could entrench Annex I Parties' "right to emit" by shifting responsibility for global emissions control to developing countries while enabling  44  industrialized countries to continue with business as usual practices (Boyd et al. 2001; Y a m i n and Depledge 2004). Still others questioned whether the C D M ' s dual objectives o f cost-effectiveness and sustainable development were indeed compatible, as projects offering the lowest cost emission reductions may not be the most preferable from a sustainable development perspective (Austin and Faeth 1999; Sutter 2001). Ultimately, while most Parties agreed that the mechanisms were essential to achieving the emission reductions set under the K y o t o Protocol, there was a clear message that cost-effectiveness should not come at the expense o f supporting sustainable development i n either industrialized or developing countries. Concerns regarding the unlimited use o f the K y o t o mechanisms resulted i n calls to ensure Annex I Parties uphold their responsibility during the first commitment period to improve their o w n practices through domestic actions.  D.l. Supplementarity of the Kyoto Mechanisms A t the Seventh Conference o f the Parties ( C O P 7) i n 2002 the Parties agreed that "use of the mechanisms shall be supplemental to domestic action and that domestic action shall thus constitute a significant element o f the effort made by each Party included in Annex I" ( U N F C C C 2002 Decision -/CP.7). The E U and a number o f developing countries sought to enforce quantitative limits on the use o f the K y o t o Mechanisms. However, the Parties fell short o f establishing specific limitations on the use o f K y o t o mechanisms due to concerns regarding additional reporting requirements and divergent views on what constituted a "significant element"  34  (Langrock and  Sterk 2004; Matsui 2002). Therefore, the so-called supplementarity clause leaves A n n e x I Parties to decide what level o f domestic action is appropriate, and on what basis they w i l l choose to engage in the K y o t o mechanisms.  D.2 Meeting Additional Policy Objectives It is unquestionable that the opportunity to achieve cost-effective emission reductions is a key incentive for Annex I Parties' participation in the C D M and other K y o t o mechanisms. Costeffectiveness is frequently cited as the primary motive for Annex I Parties to participate i n the C D M (i.e. Government o f Canada 2002; Lee 2004; U N D P 2003; U N F C C C 2004d), and it has repeatedly been identified as the primary driver for private (i.e. industry) C D M investments (i.e. Lecocq 2004; L e c o c q and Capoor 2005; PriceWaterhouseCoopers 2000; Sutter 2004). This indicates an underlying assumption that the marginal cost o f emission reductions i n developing countries—and  3 4  T h e only exception is in the case o f carbon sequestration (afforestation and reforestation) projects under the  C D M , where each A n n e x I Party must limit its use o f the resulting C E R s to an equivalent o f 1% o f its base year emissions for each o f year o f the commitment period ( U N F C C C Secretariat 2002a).  45  by relation the market price o f C E R s — w i l l be lower than domestic efforts (Lecocq 2004). In its 2002  Climate Change Plan for Canada, the Government o f Canada even expresses an insistence  that C E R s meet the promise o f cost-effectiveness, stating; "it is important to ensure that the price o f international permits is l o w and the cost o f achieving our K y o t o target is reasonable" (Government of Canada 2002 44). However, while A n n e x I Parties recognize limiting the cost o f achieving their targeted emission reductions is as an important card in gaining the support and commitment o f industries, local governments and the public, there are other considerations that must inform Parties' strategies for meeting their K y o t o commitments. Figure 3.1: Potential Benefits of a Low-Impact Renewable W h i l e emission reductions  Energy (Green Power) Strategy  provide the global benefit o f helping mitigate climate change, reducing or abating emissions can also result in important benefits at the local level that contribute towards meeting additional policy objectives. F o r example, the Canadian N G O Pollution Probe and the Summerhill Group (2004) proposed a plan to expand the use o f clean, low-impact renewable energy as part o f Canada's domestic response to climate change. The plan highlighted a number o f benefits that could be achieved domestically in addition to significantly  (Source: Pollution Probe and Summerhill Group 2004 p.4)  reducing Canada's total emissions by replacing polluting coal- and gas-fired electricity generation.  Some of the key  benefits included "reduced air pollution... improved human health, increased energy security, job creation and positioning Canadian firms among the world leaders in the manufacturing and  46  exporting o f innovative technologies [including through C D M projects]" (2004 6). Other benefits are shown i n Figure 3.2. Infrastructure upgrades and investments in low-emissions technologies and energy efficiency by Canadian municipalities and industries are also expected to result i n similar co-benefits (Boustie, Raynolds, and Bramley 2002; I C L E I Energy Services 2003).  Investing i n international emission reductions through the C D M or other mechanisms therefore represents a potential trade-off i n meeting domestic policy objectives such as improved local air quality, reduced health care costs, or improved delivery o f municipal services. The Government o f Canada weighed these trade-offs when developing its climate change strategy, as reflected by the following statement i n the 2002 Climate Change Plan for Canada;  W h i l e [participation in the K y o t o Mechanism] provides a cost-effective way to meet our climate change goals, it also means that there are fewer emission reductions made in Canada, with the loss o f co-benefits such as cleaner air and domestic investment i n state-of- the-art technologies. F o r these reasons the Government o f Canada would want to ensure it maximizes other policy goals should it make significant investments in the K y o t o Mechanisms (Government o f Canada 2002 19). Use o f C D M and other K y o t o mechanisms does involve an opportunity cost o f reaching domestic policy objectives. However, as suggested by the latter part o f the statement, there is an opportunity to limit the trade-offs by ensuring investments in the K y o t o mechanisms deliver on other policy goals. For example, the Canadian government recognizes that "strategic investments in the K y o t o Mechanisms may also contribute to the achievement o f Canada's international development objectives" (Government o f Canada 2002 12). Investing in C D M projects can deliver similar benefits to host countries as would have been achieved domestically, thereby contributing to meeting development objectives. This may help to improve the political acceptability, and therefore governments' credibility, o f choosing to forego the benefits o f domestic emission reductions (Kenbar and Salter 2003). However, as w i l l be discussed further i n the next chapter, investing i n the C D M does not ensure development objectives o f either Annex I or developing countries are supported.  I f Annex I Parties expect C D M investments to support international development objectives, they need to take an active role in ensuring this occurs. This could be achieved either by investing directly in projects that deliver on established development objectives, or by setting criteria to direct the investments o f industry and other stakeholders seeking to use the K y o t o mechanisms to reduce  47  the total cost o f achieving their allocated emission reductions. Otherwise, use o f the K y o t o mechanisms w i l l represent a lost opportunity to improve conditions and shift towards a more sustainable path o f development i n both Annex I and developing countries.  IV. An Operational Framework for the CDM W h i l e the Parties defined the general objectives and principles o f the C D M i n the initial text o f the K y o t o Protocol, it was not until 2001 at the seventh Conference o f the Parties (COP7) i n Marrakesh, M o r o c c o , that the Parties finally agreed to the general modalities and procedures for implementing the C D M ( U N F C C C Secretariat 2002b). The resulting Marrakesh Accords defined the requirements for participation in C D M activities, and established a preliminary list o f eligible and restricted project types—decisions the Parties had failed to reach consensus on in previous negotiating sessions. In addition, the Parties reached agreement on the general procedures for implementing C D M activities, including the responsibilities o f various actors at each stage o f the C D M project cycle. During the negotiating process at C O P 7, the Parties also sought clarification on a number o f contentious principles and issues including the additionality requirement for C D M projects and host countries' prerogative for defining sustainable development (Boyd et al. 2001; U N F C C C 2002).  The Marrakesh Accords provided the necessary legal and regulatory structure required for the prompt start o f C D M activities. However, the Parties recognized that the modalities and procedures governing the C D M were essentially a "work in progress" that would need to evolve as participants gained practical experience developing project activities and identified ways to strengthen the C D M as a tool for supporting emission reductions and sustainable development ( Y a m i n and Depledge 2004). Therefore, the Parties established an Executive Board ( E B ) to administer C D M activities and advise the Parties on any amendments or additions to the modalities and procedures that would improve the functioning o f the C D M ( C D M Executive Board 2004a; U N F C C C Secretariat 2002b). The C D M is therefore an evolving mechanism that remains relatively responsive to the recommendations o f stakeholders. Consequently, the modalities and procedures as outlined below include the decisions taken up to the early months o f 2005, but may not reflect more current changes.  A. Administration The C D M is administered by the C D M Executive Board, which operates under the guidance and authority o f the Conference o f the Parties ( C O P ) . The ten members o f the C D M Executive Board represent each o f the five U N regions, with one additional representative from the small island  48  states, and two additional representatives from both the A n n e x I and non-Annex I Parties (Lee 2004; U N F C C C 2002). O n this basis, the Board w i l l generally have four members from A n n e x I Parties, and six members from non-Annex I Parties. The Board's composition represents a concession by A n n e x I Parties to developing nations including the G-77 and China, who stressed the need for the Board's fair geographical representation during the C O P 6 negotiations ( B o y d 2002). N o n - A n n e x I Parties' interest in ensuring their strong representation on the Board highlights the importance o f the C D M to developing countries.  B. Participation Requirements The C D M modalities establish several requirements that A n n e x I and non-Annex I Parties must fulfill i n order to participate in the C D M . Parties must demonstrate their w i l l to participate in the C D M , establish institutions to support their countries' participation, and ensure systems for monitoring and reporting on their participation are in place. Developing countries also have the additional requirement o f developing a set o f sustainability criteria with which to assess potential projects.  B.l. Kyoto Ratification & Voluntary Participation A s defined in Article 12 o f the K y o t o Protocol ( U N F C C C 2004d), participation in the C D M is limited to Annex I and non-Annex I Parties that have ratified the K y o t o Protocol, and; the participation o f all Parties must be voluntary. Governments can authorize private and public entities such as companies and non-governmental organizations to participate in the C D M . However, governments are responsible for ensuring any entity acting on their behalf complies with the Protocol's provisions and regulations (Beck 2001; U N F C C C 2004e). Companies or other entities may only register C D M projects with the C D M Executive Board and apply to receive C E R s i f their government has met all o f the C D M eligibility requirements ( C D M Executive Board 2005b).  B.2. Designated National Authority Prior to participating in the C D M , each Party must also establish a Designated National Authority ( D N A ) prior to participating i n C D M activities ( U N F C C C 2002). D N A s are responsible for evaluating and approving C D M projects undertaken by companies or other entities under their authority, as well as reporting on national C D M activities. A n n e x I D N A s are not responsible for assessing projects' contribution to the host country's sustainable development, although some governments may set additional criteria for C D M investments. For example, the European U n i o n specifically restricts investments in land use, land-use change and forestry activities ( L U L U C F )  49  (European Commission 2004).  Depending on the availability o f resources, technical expertise and  institutional capacity, D N A s from both developing and developed countries may also carry out additional promotional or capacity building tasks to support the use o f the C D M (Castro et al. 2002; U N F C C C 2002).  B.3. Sustainable Development Criteria Developing country D N A s carry greater responsibilities than their A n n e x I counterparts because they are responsible for establishing sustainable development criteria with which to assess the sustainability benefits o f proposed C D M projects. However, as Figueres notes, the modalities do not specify what these assessment criteria should entail;  The C D M modalities and procedures defined in the 2000 Marrakesh Accords go to great lengths to characterize additionality, baselines, and leakage - all the issues that impact the level o f emission reductions achieved by a project and sellable to industrialized countries. The same Accords make only one indirect reference to the sustainable development o f developing countries: the Designated National Authorities ( D N A s ) in developing countries are given the task o f issuing a letter confirming that C D M projects contribute to their sustainable development. (Figueres 2004). This is primary because during the C O P negotiations, developing countries argued that any effort to establish standardized sustainability criteria would impinge on their sovereignty to direct their own development (Figueres 2004). Therefore, the assumption is that by allowing developing countries to define their own sustainability criteria, they w i l l be able to ensure foreign direct investments channeled through the C D M support national development objectives. However, as w i l l be discussed in Chapter 4, some host countries face significant challenges in establishing and applying these criteria due to resource constraints, limited technical expertise, and existing institutional weaknesses (Figueres 2004; Figueres and G o w a n 2002). M a n y developing countries have succeeded in fulfilling this participation requirement. However, a review o f the list o f authorized D N A s on the U N F C C C website reveals many o f the poorer nations, particularly in Africa, have not established D N A s and therefore are not qualified to participate in the C D M ( C D M Executive Board 2005b).  B.4. Accounting & Reporting Requirements In addition to the general requirements, the U N F C C C requires Annex I governments to comply with emissions accounting and reporting procedures set out in the K y o t o Protocol and Marrakesh Accords. Each A n n e x I government must define their assigned amount as specified under Article 3  50  of the K y o t o Protocol. In order to track progress towards meeting their K y o t o commitment, governments must then establish a national greenhouse gas inventory detailing emissions and reductions, and a national registry for all acquisitions and transfers o f emission reduction units including C E R s generated from C D M projects . In addition, Annex I Parties must submit an 35  annual report and periodic national communications o f progress and actions undertaken to achieve their K y o t o commitments (Peters, Robertson, and Brunt 2003; U N F C C C 2004c).  Table 3.2: Actors & Responsibilities K e y Responsibilities Conference of the Parties (COP) / Meeting of the Parties (MOP) CDM Executive Board  Parties  Designated National Authorities (DNAs)  Project Developers / Participant  Stakeholders Local / Others Designated Operational Authorities (DOEs)  Investors  ,  ,  •  Provide guidance on, and final approval of, the CDM Executive Board's activities and decisions • Review regional/sub-regional distribution of CDM project activities • Assign legal status to Designated Operational Entities (DOEs) • Supervise the CDM • Register validated projects • Provisionally accredit Operational Entities (DOEs) • Review and approve new methodologies • Issue Certified Emission Reduction Units (CERs) • Meet CDM participation requirements (Ratification of Kyoto Protocol, Voluntary Participation, Establish DNA, Fulfill Reporting Requirements) • Oversee participation of entities under its authority • Provide written approval of its Party's voluntary participation in the project • Review and provide confirmation that the project activity assists in achieving sustainable development (Host country DNA only) • Develop the Project Design Document (PDD) • Implement & Monitor the project activity • Submit necessary information to the DOE for Validation and Verification / Certification • Provide input into initial project design and impact assessments (local stakeholders) • Provide feedback on validation requirements (Parties, NGOs, other) • Validate project design documents (PDD) and put forward the project activity for registration by the CDM Executive Board • Verify and certify the emission reductions claimed by the project • Provide public access to non-confidential project information • Maintain a publicly available list of all CDM activities • Assist with project design, implementation and monitoring (Optional) • Purchase CERs (up-front contract agreement or end-of-pipe purchase)  D. Eligible Projects The general criteria for C D M projects are that the activities must result in "real, measurable and long terms benefits related to the mitigation o f climate change", meaning that the activities must  Annex I Parties are also required to report on emissions reductions units including assigned amount units (AAUs), and emission reduction units (ERUs) from Joint Implementation projects, and removal units (RMUs) generated by domestic land use and land use change and forestry (LULUCF) activities (UNFCCC 2004c). 51  lead to the reduction, abatement, or sequestration o f greenhouse gas emissions that are additional to what would have occurred i n the absence o f the project. In addition, all projects must contribute to the sustainable development o f the host country. The Marrakesh Accords do not specify general sustainable development criteria for C D M projects. Rather, the Parties acknowledged the right o f each host country to define national sustainable development criteria. The host country D N A are expected to use these criteria to ensure proposed C D M projects help to support the sustainable development priorities o f their country. W h i l e the C D M is relatively flexible on the type o f projects that are undertaken provided they meet the set criteria, several project types are restricted. Nuclear projects do not qualify as C D M activities, and sequestration activities are limited to afforestation and reforestation projects ( U N F C C C Secretariat 2002a). The additionality criterion is especially critical to ensuring the environmental integrity and the political credibility o f the C D M and the K y o t o Protocol.  D.l. Additionality Under the Marrakesh Accords, a C D M project activity is considered additional i f "anthropogenic emissions o f greenhouse gases by sources are reduced below those that would have occurred in the absence o f the registered C D M project activity" ( U N F C C C Secretariat 2002b 17/CP.7 43). I f the emission reductions would have occurred under business-as-usual conditions, there is no net benefit to the climate and the political credibility o f the C D M is weakened (Figueres and G o w a n 2002; Trexler and Shipley 2004). However, the issue o f how to demonstrate that the project and resulting emission reductions would not have occurred in the absence o f the C D M is a challenge. Additionality can be difficult to determine as it is a country-specific issue; prevalent technologies, environmental regulations, economic conditions and other national circumstances are considered in a project's claim. Initially, the regulations called for project activities to be tested against a baseline scenario o f emissions that would have occurred within the boundaries o f the proposed project. However, this test did not provide a clear indication as to whether the project was additional given the national circumstance, or whether C D M financing was a key factor in enabling the proposed alternative to proceed (Figueres and Gowan 2002).  W h i l e critical to the integrity o f the C D M , the additionality test was considered highly subjective by project developers and investors, and resulted in uncertainties as to whether projects would be approved by the C D M Executive Board. T o help guide the application o f the additionality test, the C D M Executive Board designed an Additionality Tool that establishes a series o f tests to rule out business-as-usual projects. The tool assesses whether there are alternatives to the project activity  52  that would result i n similar reductions, checks to ensure the project is not the most economically or financially attractive option, analyses market barriers, assesses whether the proposed activity is already common practice, and finally concludes whether the project's C D M status has helped it overcome barriers to development ( C D M Executive Board 2004c). Use o f the tool is optional, but the C D M Executive Board advises its use to reduce the uncertainty o f whether a proposed project is indeed additional and therefore whether it w i l l be approved.  D.2. Project Types C D M projects fall under three main categories; standard projects, small-scale projects, and afforestation / reforestation projects. Standard projects may include a range o f emission reduction activities that either reduce actual emissions or avoid potential emissions, assuming they meet the general project eligibility criteria. Small-scale projects are restricted to the following activities:  (i)  Renewable energy project activities with a maximum output capacity equivalent o f up to 15 megawatts (or an appropriate equivalent)  (ii)  Energy efficiency improvement project activities which reduce energy consumption, on the supply and/or demand side, by up to the equivalent o f 15 gigawatt/hours per year  (iii)  Other project activities that both reduce anthropogenic emissions by sources and directly emit less than 15 kilotonnes o f carbon dioxide equivalent annually ( U N F C C C 2002).  A n example o f a qualifying activity is the R i o Blanco Small Hydroelectric Project in San Francisco de Yojoa, Honduras, which is the first small-scale C D M project to be registered with the C D M Executive Board. The activity is a small-scale renewable energy project that supplies electricity to local communities that previously lacked access to electricity, as well as contributing power to the centralized electrical grid. The project is a run-of-the-river hydroelectrical plant that produces 22000 K W h per year o f clean electrical power. A s reported i n its P D D , no emissions or anticipated leakages are associated with the plant's generation. F o r its baseline, the project proponent estimated the emissions that would result from adding a comparable size diesel thermal generating unit to the national grid to meet increasing demand for electricity. Based on this calculation, the hydroelectric plant is expected to result in approximately 178 000 tonnes o f C 0 equivalent 2  53  emission reductions per year throughout its ten-year crediting period (Sociedad Hidroelectrica R i o Blanco S.A. de C V and Asociacion de Pequenos Productores de Energia Renovable 2004).  Afforestation and reforestation projects deal specifically with carbon sequestration. Project activities must be implemented on lands that were not forested on January 1, 1990, and should specify which carbon pools are being included i n the projects, namely; above or below ground biomass, litter, dead wood or soil organic carbon ( Y a m i n and Depledge 2004). Afforestation and reforestation projects present significant opportunities to advance sustainable development i n terms o f the sustainable use and management o f biomass resources (i.e. see B o y d 2002; B r o w n and Corbera 2003; Frank 2004). However, the modalities and issues related to afforestation and reforestation projects differ significantly from standard and small scale C D M projects, which primarily address mitigation activities related to the production or use o f commercial energy. Discussion related to the potential sustainable development benefits, implementation and marketing of afforestation and reforestation projects deal with issues specific to forestry and resource management practices. Due to the divergent nature o f these discussions afforestation and reforestation projects are not considered i n the context o f this thesis.  E. CDM Project Activity Cycle The opportunity to generate C E R s distinguishes C D M projects from other activities that may have similar aims such as improving energy efficiency, extending energy services or supporting aspects of sustainable development. In order to be issued C E R s , a project must meet all o f the relevant eligibility requirements and successfully fulfill the requirements o f each stage o f the C D M Project Activity C y c l e , as outlined i n Figure 3.2. These stages include the following: 36  1)  completion o f a project design document ( P D D ) by the Project Participant / Developer for the proposed C D M project activity; including, i f necessary, the submission and approval o f baseline and monitoring methodologies;  Estimated time required for each stage o f the process is based on I E T A (2005) estimates. H o w e v e r , the process may take significantly longer. A s o f late N o v e m b e r 2005, there was a time lag o f about 150 days between when the 15-day public comment period (Fenhann 2005)  54  2)  validation o f the P D D by  Project Participant / Developer  a Designated Operational Entity ( D O E ) to ensure the proposed project conforms to C D M regulations, which includes receiving written confirmation from the  Designated National Authority  Project Design Document min 8 months  Designated Operational Entity  Validation ~ 4 months  CDM Executive Board  Registration ~4 — 8 weeks  Submit New Methodology  Approval ofMethodology ~ 4months  host country Designated National Authority that the project meets its sustainability criteria; 3)  registration  Monitoring [PP or 3 party] Crediting period  o f the project  rd  activity with the C D M Executive Board; 4)  monitoring by the developer of the project's  Designated Operational Entity  Verification & Certification ~30 days  impacts and emission reductions; 5)  verification by the D O E that the emissions reductions have occurred as a result o f the project;  6)  certification  C D M Executive Board  Issuance <15 days  F i g u r e 3.2: T h e C D M Project A c t i v i t y C y c l e & Approximate Timeline  or written  assurance from the D O E to the C D M Executive Board that the project has achieved the verified results and, finally; 7)  issuance o f the C E R s by the C D M Executive Board once the project is successfully completed (Begg and et al 2003b; U N F C C C 2002).  Project developers w i l l also undertake additional activities within the Project Cycle i n terms o f planning and implementing the project. It is important to note the two occasions on which sustainable development is formally addressed during the Project Activity Cycle. The first is during the development o f the project design document, which requires the project developer to detail the intended sustainable development impacts and describe how any adverse environmental or social  55  impacts arising from the project w i l l be addressed. The second is at the validation stage, at which point the host country's Designated National Authority must assess and approve the project's intended contribution to sustainable development prior to the Designated Operational Entity validating the project. Project developers are not required to report on the project's development impacts during the course o f monitoring or demonstrate that the intended development benefits have been delivered i n order for the project to be certified and C E R s issued. F o r a more detailed description o f the C D M Project Activity Cycle, see Appendix B .  4.1. Simplified Modalities and Procedures for Small Scale Projects There is a common perception that small-scale projects have significant potential to support sustainable development . This is partially because small-scale projects are more likely to be 37  implemented within communities where levels o f energy demand and opportunities for energy efficiency savings are typically quite low, but where improving access to energy services can have a major impact on achieving development objectives (e.g. Begg and et al 2003a; IT Power Carbon and E C N 2005; Peters and Brunt 2004). However, small scale project developers may encounter greater barriers to developing their activities as C D M projects than large companies or multinationals involved i n larger scale projects because they tend to have fewer financial and technical resources at their disposal, and less potential to generate revenues from the sale o f C E R s due to the fact that their projects result in smaller volumes o f emission reductions.  In recognition of the potential benefits o f small scale projects and the barriers project developers may encounter, the C D M Executive Board adopted a series of simplified modalities and procedures for small scale projects in order to facilitate their development under the C D M . Small-scale projects progress through the same stages as standard projects in the C D M Project A c t i v i t y Cycle, but the requirements o f each stage have been simplified or reduced for small scale projects (IT Power Carbon and E C N 2005; Y a m i n and Depledge 2004). A summary o f the differences between the standard and simplified modalities and procedures for small scale projects are presented in Table 3.3.  T h i s assumption will be explored further in the Chapter 4.  56  Table 3.3: Simplified Modalities & Procedures for Small Scale Projects Aspect of Project Cycle  Simplified Modality or Procedure  Reduced PDD requriements related to simplifcation of montiorn ig r e q u r i e m e n t s & o t h e r e e l m e n t s a s l i s t e d b e o l w . • Standardzied basen ile methodoo lgeis are provd ied for various technoo lge is for use in calculating emsiso in reductions. • Simplifed & less frequent montiorn ig required; i.e. metern ig energy outputs from a sampel of energy instalations versus each instalation is permtied. • Additonality test limited to a barier analysis of n ivestment, technological, and institutional barriers, or bariers arising from a lck of n iformato in or prevailng practices. • Envrionmental m i pact assessment (EIA) onyl requried if requested b y h o s t c o u n t r y • Calculations of elakages (emsiso ins outsd i e of proe jct boundare is) onyl requried for estabsilhed technologies. New technoo lge is are exempt. • Smals-cale proe jcts can be validated, verified and certified by the same desg inated operato inal entiy (DOE) rather than requring diferent DOEs for each stage. • Reduced registration fee for smal-scale proe j cts U (S$5000 for proe jcts resulting in 15 000 tonnes of C02e/year or less) • One or more smal-scale proe jcts or activities can be bunde ld into a single project, alowing: o One proe jct desg in document (PDD) to be submtied o Validation, registration, montiorn i g, verification and certification processes to be jointly undertaken for all of the activities o Transacto in costs to be reduced (fees levied for a single proe j ct versus mutlp ie l projects) (IT Power Carbon and E C N 2005) Project Design Document  •  (PDD)  Baseline Methodology  Monitoring Methodology  Additionality  Environmental Impact  Assessment Leakage  Validation/Verification and Certification  Registration  Bundling  In addition to simplifying the requirements for small scale projects, the Board allows for the "bundling" o f small scale projects at various stages o f the C D M project cycle. Bundling allows for a number o f small-scale projects to be aggregated into a single project. The aggregated project must meet the established criteria for small scale activities, which limits the number o f projects that can be bundled together. Bundling is theoretically advantageous to project developers because it helps to reduce the transactions costs per project that are incurred in the process o f completing the project design document, as well as validating, registering, monitoring, verifying and certifying the emission reductions resulting from the projects (IT Power Carbon and E C N 2005). The notion that  57  small-scale projects have greater potential to support sustainable development w i l l be explored further i n Chapter 4.  Conclusion Set within the broader context o f the U N F C C C and the K y o t o Protocol, the C D M presents an opportunity to reduce global emissions cost-effectively while supporting sustainable development i n developing countries. W i t h the entry into force o f the K y o t o Protocol i n February 2005, ratifying Parties' emission reduction commitments became legally binding, providing the critical driver for participation in the C D M . Although the United States' failure to ratify the Protocol limits the potential carbon financing that may be channeled to developing countries through the C D M , the first commitment period o f 2008-2012 w i l l still be critical in terms o f strengthening developing countries' capacity to address climate change. The C D M ' s modalities and procedures are aimed at achieving the dual objectives o f cost-effective emission reductions and sustainable development. However, the effectiveness o f the C D M i n achieving its dual objectives w i l l largely be determined by the intent with which the C D M is operationalized.  58  4. Perspectives and Approaches to Sustainable Development in the Context of the Clean Development Mechanism Introduction This chapter explores the perspectives and approaches o f private sector investors, project developers and development practitioners working to operationalise the C D M , based on a series o f interviews conducted between late 2004 and late 2 0 0 5 . The discussion draws extensively on these 38  interviews to explore the varied interests o f the actors in participating i n the C D M , and their perspectives on the C D M ' s potential for supporting sustainable development. The discussion reveals the actors' diverging interpretations o f sustainable development, and highlights challenges arising from efforts to pursue multiple interests through the C D M . Finally, consideration is given to which activities and approaches offer the greatest opportunity to realize sustainable development through the C D M based on the actors' varied perspectives and experiences.  I. Operationalizing Sustainable Development through the CDM: Perspectives and Experiences The stated objective o f the C D M is to assist developing countries in achieving sustainable development and to assist Annex I Parties in achieving their K y o t o commitments ( U N 1997 Article 12.2). However, actors involved in operationalizing the C D M hold a range o f perspectives on how its actual purpose has evolved or, perhaps more aptly, what they perceive its purpose to be. Understandably, these perspectives tend to reflect the various actors' interests and experiences i n the C D M as investors, project developers and development practitioners. The perspectives range from viewing the C D M primarily as a compliance mechanism to assist Annex I entities in meeting the emission reduction targets defined in the K y o t o Protocol, to considering the C D M ' s overriding  As discussed in Chapter 1,1 conducted in-depth interviews for the purpose of my thesis research with nine individuals engaged in the CDM as investors, project developers, or development practitioners. The comments and views expressed by the interviewees represent their personal views and not those of the companies or organizations with which they are associated; however, any error or omission in presenting this material is the fault of the author. Throughout chapters 4 and 5 these interviews are quoted extensively. Supporting material related to the CDM activities discussed by the interviewees has also been drawn from project documents or reports where applicable.  59  purpose to be supporting sustainable development within the host developing countries. W h i l e the C D M ' s stated objectives are arguably not mutually exclusive, the perspectives and experiences o f actors involved in the C D M suggest interests i n securing cost-effective emission reductions and efforts to use the C D M to leverage sustainable development are not entirely compatible under the C D M ' s current structure.  A. Sustainable Development through Compliance: Investors' Perspectives According to the private sector investors interviewed, the C D M ' s primary purpose is to assist Annex I entities i n meeting their emission reduction obligations cost-effectively (Robson 2005; Vickers 2005). This perspective emphasizes the C D M ' s role as a compliance mechanism aimed at facilitating sustainable development by assisting Annex I countries to reduce global G H G emission as required under the K y o t o Protocol. A s private sector investments are expected to be a major source o f carbon financing flowing through the C D M  3 9  (Lecocq and Capoor 2005), understanding  their approach is important i n assessing the C D M ' s capacity to support sustainable development.  Wishart R o b s o n , General Manager o f Safety, Environment and Social Responsibility for Nexen 40  Inc. , highlighted some o f the considerations Canadian companies such as Nexen Inc. might 41  consider when using the C D M to comply with their emission reduction obligations ; 42  Canadian companies look for commercial transaction between parties or counter parties [project developers] who are knowledgeable and have the wherewithal to deliver on the commitments they are making. W e ' r e looking for a wide range o f projects. W e don't put too many constraints on project types... we do make it clear we would need some clarity in terms o f the methodology and the project being approved. Overall it's a view o f 'here is where we are in Canada, here are our costs, and we w i l l be looking for projects that deliver at a cost lower than what we  As of May 2005, private entities were responsible for about two-thirds (69%) of the total purchases of emission reductions credits (not limited to the CDM) (Lecocq and Capoor 2005). 40  Robson's comments reflect his personal views, rather than the position of Nexen Inc.  Nexen Inc. is "an independent global energy company" that undertakes exploration, development, production and marketing of crude oil and natural gas both in Canada and internationally (Nexen Inc. 2005). Nexen Inc. will be required to reduce the emissions of its Canadian operations during the first commitment period as part of the Government of Canada's Large Final Emitters (LFE) program. 41  To date, very few Canadian companies have undertaken CDM investments. While a number of factors likely contribute to this trend, regulatory uncertainty arising from the Government of Canada's delayed release of its climate change strategy and its changing position on the Large Final Emitters program are considered issues (Anonymous 2005; Lecocq and Capoor 2005; Robson 2005; Vickers 2005).  42  60  can do in Canada'. W e have a view o f what kinds o f risks are acceptable given where we operate and how we operate around the world. There are things we need from a project developer to make this happen. Credit worthiness (low counterparty risk) and assurance o f delivery; just the high level things to let them know we aren't out there acting as an aid agency, we are doing this because we have a compliance obligation and we are out to get the lowest cost credits (Robson 2005 phone interview). Clearly, C D M investments are considered equivalent to other commercial opportunities and relationships a Canadian company may pursue and undertake. Private sector investors are motivated by the opportunity to undertake cost-effective emissions reductions, but other issues such as risk mitigation weigh heavily into their decisions on C D M investments.  A.I. Project Assessment Criteria In the comment above, Robson identifies two criteria for assessing the risks o f entering into a contract with a C D M project developer. The key criterion is assurance o f delivery (delivery risk), which is essentially whether the project developer w i l l deliver the contracted C E R s . The second criterion is counterparty risk, which is the project developer's credit worthiness or ability to secure project financing—a factor that obviously affects the project's delivery risk. These criteria appear to be fairly standard for private investors considering C D M projects. Paul Vickers (2005), the Managing Director o f Natsource Asset Management L t d . , which is a private sector company 43  specializing in carbon emissions asset management (i.e. a carbon broker), also identified costeffectiveness and delivery risk as a key criteria for assessing C D M investments. In addition to counterparty risk, Natsource assesses the delivery risk o f C D M projects on the following basis:  • Carbon Regulatory Risk: risk resulting from policies governing C D M activities at either the host-country (i.e. sustainable development requirements) or international level;  • Country Investment Risk: risk arising from the investment climate in the hostcountry, such as issues related to the transfer o f funds, currency conversion or political unrest;  43  Natsource Asset Management Ltd. is the Canadian subsidiary of Natsource LLC. Natsource Asset Management  Ltd manages the Greenhouse Gas Credit Aggregation Pool (GG-CAP) (Natsource LLC. 2005b)  61  • Technology Performance Risk: risk associated with the operational and commercial aspects o f the technology used i n the project activity;  • Carbon Performance Risk: risk associated with such factors as variability i n emission reduction generation (i.e. varying offset levels resulting from inconsistent water levels i n a run-of-the-river hydro project) (Natsource L L C . 2005a)  According to Vickers, Natsource has used these criteria to screen over 400 C D M projects that represent several hundred million tones o f emission reductions. Vickers states with confidence that Natsource's assessment criteria have proved extremely effective in identifying the "best" C D M projects, namely; projects that w i l l deliver relatively low risk and low cost credits to their investors. However, Vickers also notes,  'best projects' is really a definition that is particular to the carbon fund that we run - and we run a carbon fund that is right now comprised exclusively o f private sector entities that have compliance obligations (Vickers 2005 interview). Due diligence on the part o f investors requires that they assess the risks o f C D M projects. However, investors with a compliance-oriented mindset are likely to be highly risk averse because their priority is on securing emission reductions, and therefore they w i l l be quite stringent i n their assessments o f which project qualify as investment opportunities.  A.2. A Compliance-Oriented Investment Fund The carbon fund Natsource operates is the Greenhouse Gas Credit Aggregation Pool ( G G - C A P ) , a fund developed with the purpose o f providing companies with "cost effective emission reductions that can be used for compliance against-emissions limitations imposed by the E U E T S from 20052012 and the K y o t o Protocol from 2008-2012" (Natsource L L C . 2005b). Through G G - C A P , Natsource is responsible for evaluating C D M projects and managing the purchase and delivery o f C E R s for twenty-six private sector investors that include manufacturing, energy and utility companies from Europe, Japan and North America—including the Canadian utility company E P C O R . A s o f September 30, 2005, G G - C A P was valued at U S $ 5 5 0 million, making Natsource L L C the world's largest private sector manager o f carbon emissions assets and a significant player in determining the type o f projects that are supported through the C D M . (Carbon Finance 2005h).  62  B. Beyond Compliance: Investors' Perspectives In discussing the compliance-oriented approach, Vickers (2005) was careful to point out that other investors and carbon funds may apply different assessment criteria to C D M investments, and that a company or government may purchase C E R s from several carbon funds as a way o f diversifying their investments to meet different interests.  The vast majority o f companies i n our buyers pool [ G G - C A P ] are also participants in the W o r l d B a n k ' s Community Development Carbon Fund ( C D C F ) . They do so for very different reasons; they have a compliance objective for which they come to us for the lowest cost, lowest risk C E R s , and they do have community objectives, objectives o f an ethical or social nature. T o a certain extent they use the C D C F to target those type o f objectives. Natsource doesn't try to do everything for them (Vickers 2005 interview). Vickers notes that investors may distinguish between "compliance" and "offset" purchases o f C E R s . W h i l e compliance purchases tend to be sourced from projects offering large volume, low cost emission reductions, offset purchases are generally sourced from projects or funds that clearly offer demonstrable sustainable development benefits.  Investors' incentive for investing i n offset differs from that o f compliance purchases. Projects that demonstrate strong development benefits offer an opportunity for investors to showcase how their C D M investments support corporate social or environmental responsibility ( C S R / C E R ) mandates, or for governments to demonstrate they are supporting their international development objectives through the C D M (Kimura 2004; Schneider 2004). While the need for distinct funds promoting sustainable development benefits challenges the notion that all C D M investments contribute to sustainable development.  B.l. Community Development Carbon Fund (CDCF) A s Vickers suggests, the W o r l d B a n k ' s Community Development Carbon Fund ( C D C F ) is a notable example o f a carbon fund that applies alternative assessment criteria to ensure the delivery of C E R s from projects with high development value. The W o r l d Bank launched the C D C F in 2003 through its Carbon Finance program with the specific objective o f supporting C D M projects that "combine community development attributes with emission reductions to create 'development plus carbon'" (World Bank 2005). The fund specifically targets community-level projects that support poverty alleviation and sustainable development, but are generally overlooked by compliance buyers due to factors such as their higher marginal costs and low volumes o f emissions  63  reductions—issues that w i l l be discussed further i n the next chapter. The C D C F is a promising example o f where a carbon fund is distinguishing between projects on the basis o f their sustainable development impacts. However, investment opportunities i n the C D C F are limited because the W o r l d Bank has chosen to cap the fund at sixteen investors that include both private sector companies and governments , although the reasons for this decision are not specified. The C D C F 44  is currently valued at US$128.6 million (World Bank 2005). The C D C F therefore represents a relatively low level o f investment i n the C D M compared to that o f the G G - C A P and other compliance funds—including the W o r l d B a n k ' s larger funds such as the Prototype Carbon Fund ( P C F ) . W h i l e investment in the C D C F is constrained, there are other options for investors 45  interested i n purchasing offset credits offering high sustainable development value.  B.2. The CDM Gold Standard The C D M G o l d Standard offers a second approach to providing investors interested i n obtaining credits from projects with high development value. The G o l d Standard was established by the W o r l d Wildlife Foundation ( W W F ) i n consultation with governments as a best practice benchmark aimed at ensuring C E R s are sourced from C D M projects that are unquestionably additional, support environmentally sustainable practices and are supported by the communities they directly affect (Carbon International 2005; Schlup 2005b). A number o f operational entities, project developers and investors recognize the G o l d Standard as being an effective tool for highlighting the distinguishing features o f projects and allowing for a comparison o f projects based on their sustainable development benefits (e.g. Liptow 2004; Rumberg 2004; Tyler 2005) . This is a key 46  issue for individual project developers seeking to market projects on the offsets market because  For a complete list of CDCF participants, see http://carbonfinance.org/cdcf/router.cfm?Page=Participants#l The Prototype Carbon Fund (PCF) was criticized in a review commissioned by the World Bank for incorporating sustainable development objectives and criteria on a "project-by-project basis and not in a systematic manner" (Huq 2002 p 1). Huq recommended that the World Bank adopt sustainable development criteria to help guide project development and provide a consistent, comparable measure of projects' sustainability impacts. The PCF has also attracted criticism from environmental and development NGOs such as International Rivers Network and CDM Watch for funding projects without apparent due diligence regarding the environmental and social impacts of projects (Haya, McCully, and Pearson 2002; Pearson and McCully 2004; CDM Watch 2005b, 2005a). Such critiques raise questions as to how the World Bank weighs the CDM's sustainable development objective compared to the objective of securing cost-effective CERs to help industrialized countries meet their compliance targets  45  Neither Robson (2005) nor Vickers (2005) were familiar with the Gold Standard, and therefore were unable to offer comment on their willingness to consider Gold Standard projects. However, Vickers noted that Gold Standard accreditation would not exclude a project from the rigorous risk assessment used in identifying potential investments for the GG-CAP. 46  64  without a clear indication o f projects' sustainable development benefits, projects are likely to be assessed solely on a cost basis (Sutter 2004).  A s o f late 2005, only two projects had been registered under the G o l d Standard, w h i c h makes it difficult to determine how effective the "premium sustainability" label w i l l be i n attracting investors' attention.  This is partially due to the fact that the G o l d Standard only began to operate  beyond an initial pilot phase in M a r c h 2005 (Schlup 2005b), and there continues to be a lack o f awareness o f the G o l d Standard among projects developers (Owino 2005a; Rajshekar S . C . 2005). However, as o f late 2005, a number o f investors had expressed their intention to purchase credits from registered G o l d Standard projects including the U K government to offset emissions from the 2005 Gleneagles G 8 Presidency Summit ( D E F R A 2005), and the Canadian government to partially offset emissions from the C O P - 1 1 meetings i n Montreal, Quebec (The G o l d Standard 2005b). The application o f the G o l d Standard's assessment criteria in designing projects is discussed later i n the chapter.  C: Merging Priorities: Investors' Perspectives The need for options such as the C D C F and the G o l d Standard suggests that compliance purchases necessarily exclude investments in C D M projects that support additional social, economic and environmental aspects o f sustainable development. However, both Robson (2005) and Vickers (2005) voiced opinions to the contrary. Robson emphasised that any C D M investments Nexen Inc. undertakes w i l l be approached on the same basis as its Canadian operations;  A t the bottom level we are in a non-renewable business, the extraction o f oil and gas. But our view is that you can do that in a sustainable fashion so that the areas where we are operating are not limited in their future use any more than they absolutely have to be. In terms o f C D M projects we would certainly want to make sure what we are doing is not just delivering credits but ensure that there aren't other issues associated with it, just like we would with a coal-bed methane project or the oilsands i n Canada. Overall, we are driven by the fact that we have an environmental and social responsibility policy and a set o f values that are driven by that, so we aren't going to invest i n C D M projects that don't match with how we do our business or how we want to be perceived to do our business... It we were investing i n a project where we had reason to believe there were social issues or some other environmental aspect o f concern we would apply the same rules as we would here. W e don't want a project that would lead us to have people at our gates or our annual meeting... with the way information is transmitted, you can't afford to take a chance with being associated with a project that w i l l give you a black eye. W e look at things pretty closely (Robson 2005 phone interview).  65  Therefore, while private sector investors may view the C D M primarily as a compliance mechanism, Robson's comments suggest that considerations aside from cost effectiveness factor into investors' C D M investment strategies. Some may question Nexen Inc.'s level o f commitment to sustainability given its involvement i n coal-bed methane and oilsands projects, but within Canada's o i l and gas industry N e x e n Inc. does have a reputation to uphold as a socially and environmentally responsible company—and a threat o f stakeholder reprisals to avoid. N e x e n Inc.'s investment record indicates an applied interest i n upholding social and environmental standards can result i n investments that support sustainable development.  C.l. The Rio Bravo Carbon Sequestration Project In 2000, N e x e n Inc. invested i n the R i o Bravo Carbon Sequestration project in Belize, a C D M project endorsed by The Nature Conservancy and the Project for Belize (PfB) as part o f a sustainable management strategy to protect the area's tropical forest (Robson 2005; The Nature Conservancy 2005). However, while the R i o Bravo project initially qualified as a C D M activity, additional regulations undertaken by the Parties post-2000 excluded land-use projects involving deforestation from the C D M (the project included sustainable harvesting as an alternative to clearcutting for agriculture) (Robson 2005). W h i l e the project w i l l not qualify for C E R s accreditation, the project has helped to introduce sustainable resource management practice into the area.  While  Nexen Inc.'s early efforts to participate in the C D M show a commitment to supporting projects with evident sustainable development benefits, it has yet to announce any further C D M investments. Therefore, it remains to be determined how its commitment to upholding social and environmental standards w i l l shape its future participation in the C D M . However, returning to V i c k e r ' s comments distinguishing between offset and compliances purchases, it should be assumed that investors do not always apply the same standards when assessing potential C D M investments. W h i l e social or environmental standards o f practice may set m i n i m u m criteria for investments, companies may be w i l l i n g to forego investments demonstrating higher sustainability standards to invest in projects that meet minimum criteria and deliver larger quantities o f emission reductions in order to meet compliance obligations.  C.2. Assuring Sustainable Development? The R i o Bravo project is an example o f where a single C D M project has been selected by an individual company. But how do larger investors such as Natsource L L C perceive the issue o f sustainable development i n the context o f the C D M ? Vickers (2005) sees investments in the C D M ,  66  or more specifically C E R s purchases, as a good opportunity to support sustainable development, where sustainable development is defined as follows;  The C D M was defined as a project based mechanism, and the projects themselves are sustainable.. .the standards that the projects have to meet—the fact that they improve some aspect o f sustainable development whether it is environment, whether its purely climate change related, whether its climate change plus air pollution, water, land use, community development; not a l l projects do a l l things... but they provide some aspects that are a consequence o f the projects. They are not the primary purpose, but because you are doing them [the project activities] y o u get all o f these other benefits because that is how the C D M was defined (Vickers 2005 interview). V i c k e r s ' argument is that C D M investments w i l l generally support sustainable development because o f the requirements set for C D M projects—not because investors conscientiously pursue projects with specific sustainable development attributes. Vickers contends i n some cases, the sustainability benefits may be at the global level i n terms o f reduced emissions, rather than delivering sustainable development benefits at the local level, and that not all projects w i l l deliver all things. The fact that Vickers identifies C D M projects' contribution to global emission reductions as being sufficient to fulfill the C D M ' s sustainability requirements is a critical point. It suggests that all projects that reduce G H G emissions should qualify as C D M projects regardless o f whether or not they make additional contributions to the host countries' sustainable development.  Based on the assumption that all projects w i l l support sustainable development on some level, Vickers urges that the critical requirement for the C D M to succeed i n its dual objectives is to increase the level o f foreign direct investment flowing through the C D M that can be used to develop projects rather than trying to limit funding to those projects that contribute to all aspects o f sustainable development. From a global sustainability perspective, prioritizing emission reductions is the rational. However, this perspective can be challenged by returning to the C D M stated objectives, which clearly state that projects should assist developing countries i n achieving their sustainable development objectives. However, i n response to this challenge, Vickers argued i f investors purchase C E R s from projects that have been approved by the host country government and the C D M Executive Board, they can be assured that this criteria has been met.  The fundamental assumption we [Natsource] make is that we are purchasing C E R s , so by definition there w i l l not be any C E R s unless and until the C D M Executive Board has approved it [the project], and the Executive Board w i l l not approve it unless and until the host country has approved it. The key is that we w i l l only  67  purchase the C E R s , so by definition it w i l l have met the criteria built into K y o t o . . . (Vickers 2005 interview) A s discussed i n the last chapter, the C D M regulations clearly state that the host country is responsible for establishing sustainable development criteria by which to assess proposed C D M projects, and that a project can only be approved with the written assurance o f the host country's Designated National Authority ( D N A ) that the activity supports its sustainable development objectives. However, the premise that developing countries' D N A s are i n a position to assess the sustainable development benefits o f C D M projects and ensure these are delivered is drawn into question by many o f the actors interviewed.  D. Limitations of the Compliance: Project Developers and Development Practitioners' Perspectives The C D M modalities and procedures assign developing countries' D N A s with the responsibility o f determining whether proposed projects meet the sustainability requirement as defined by each developing country. Host countries' definition o f these sustainability criteria, and their D N A ' s capacity to apply the criteria, are therefore seen as critical to ensuring the C D M delivers on its objective o f supporting sustainable development. M a n y o f the project developers and development practitioners interviewed agreed with the principle o f developing countries determining their own sustainability criteria (i.e. Figueres 2005b; Olivas 2005; Schlup 2005b). For example, Figueres highlights the political and practical rationale for this approach;  In terms of establishing S D [sustainable development] criteria, I support the typical developing country position that nobody can come from the outside and pretend to design S D criteria for an individual country, let alone international S D criteria... This is not the first time developing countries have been encountered with the question o f what is going to make them sustainable. This is just one small application o f developing countries deciding what is going to make them sustainable (Figueres 2005b phone interview).  A s discussed i n Chapter 3, developing countries argued against establishing standardized sustainable development criteria during the negotiations on the structure o f the C D M because they considered it an infringement on their sovereignty (Figueres 2006) . Moreover, many countries 47  have experience in developing sustainable development policies through their involvement in the U N Commission on Sustainable Development or other initiatives (Figueres 2005b; Olivas 2005).  Unpublished draft o f the International Journal o f Sustainable Development and L a w article provided by Figueres.  68  However, the majority o f interviewees, including Figueres, expressed concerns that the sustainable development objective was being devalued at the operational level. T w o reasons were highlighted, first; resource and institutional constraints among D N A s , and second; government's conflicting interests between using the C D M to support sustainable development and maximizing the foreign direct investments obtained through the C D M .  D.l. Resources and Institutional Capacity The most significant challenge facing host country D N A s appears to be a lack o f adequate resources and institutional capacity. Figueres (2005b), who has worked with developing country D N A s i n Latin A m e r i c a since the outset o f the C D M , argues that D N A s are inherently weak institutions 4 8  because they are chronically undercapitalized, under staffed, and dealing with "a very narrow mechanism" i n terms o f what the C D M allows them to do, namely; seek to promote sustainable development on a project-by-project basis.  In addition, D N A s are usually housed i n the ministry o f  environment, which Figueres argues places D N A s at a distinct disadvantage because the environment ministries are generally considered as "environmental policemen or completely ineffective... for better or worse, whether it is true or not, that is the perception that exists" (2005b). Figueres (2006) also argues that although developing countries have experience i n sustainable development decision making, these policies generally lead to increased greenhouse gas emissions because they do not integrate climate change considerations.  W h i l e strongly i n favor o f  respecting developing countries' sovereign right to define their own development path, Figueres argues there has been a lack o f international guidance on how to incorporate climate change considerations into their sustainable development criteria. Consequently, developing countries tend to define their criteria around existing policies that do not adequately address issues o f climate change, thereby "curtailing the potential o f the C D M . . . in terms o f either climate protection or sustainable development" (Figueres 2006 p 5). These factors combine to limit D N A ' s ability to pursue a sustainability agenda that is congruent with climate change objectives, which is arguably a daunting task even among the best resourced institutions. Olivas (2005) points to the enormity o f the D N A ' s task;  Figueres' experience working with developing country governments on climate change and sustainable development issues extends back to an earlier, voluntary mechanism established under the UNFCCC; Activities Implemented Jointly (AD). While not discussed in this thesis, countries' experience with the AIJ heavily influenced the design of the CDM and developing countries' insistence that the CDM be used to support sustainable development. See Figueres (2002; 2004) for a more extensive discussion on the history of the CDM and AIJ. 69  W i t h a lack o f resources, how are they going to evaluate in detail S D , which is such a large question? Evaluate S D i n a way that is quick and efficient, and yet evaluate it in a way that ensures there is S D ? It is almost contradictory. T o make a true evaluation o f S D you have to take so many variables into account it could take a while to determine i f a project really is sustainable or not, but the D N A s often don't have those type o f resources and, at the same time, it could be very costly to do this for the project promoters (Olivas 2005 phone interview). Olivas' comments make the question o f whether projects are being adequately screened for sustainable development indeed seem almost rhetorical. D N A s are under pressure to provide a timely review o f proposed projects because their endorsement is required to proceed with the registration o f the project. However, once they have given their initial approval, the C D M regulations do not provide an opportunity to monitor or evaluate projects' progress towards their stated sustainable development objectives. Therefore, developing countries' sustainability criteria may filter out projects that have weak potential to deliver sustainable development benefits, but the current structure of the C D M does not provide a means to determine i f the intended benefits are realized. The only exception is the emission reductions aspect o f the project, which is rigorously assessed and monitored throughout the project cycle in order to accurately calculate the quantity o f C E R s generated by the project. Consequently, while the D N A s serve an important function, their ability to assess projects' contribution to sustainable development is limited by resource constraints, institutional weaknesses and the inadequacy o f the regulatory structure in terms o f providing a means to evaluate the delivery o f the intended benefits.  D.2. A Race to the Bottom The second concern raised by a number o f actors was the impression that host countries were caught in a "race to the bottom" when setting their sustainability criteria due to the competition o f trying to attract foreign direct investment (FDI) through the C D M (Rajshekar S.C. 2005; Schlup 2005b; Tyler 2005). S.C. Rajshekar, a C D M consultant in India who works with project developers, suggests the trend o f setting weak sustainable development criteria may partly be motivated by pressure from project developers interested in accessing C D M financing;  Right now the situation is that i f the host country D N A gives its approval, it means this project is leading to sustainable development. However, the very definition o f sustainable development has been left open by almost all the D N A s . In India for example, other than saying that projects should be economically sustainable, use technology that does not harm the environment, and should not lead to social discrimination—sustainable development for whom and for what is not clearly  70  defined . I f you look at it from a non Annex I country, what gets project developers interested i n C D M obviously is how many dollars o f extra revenue it can bring to a project. I f you define S D too tightly, a project may not be viable... I think this could be one reason the D N A wants the definition left open (Rajshekar S.C. 2005 phone interview). However, others see the pressure stemming from Annex I investors with an interest i n ensuring the C D M results in large volumes o f low cost emissions (Schlup 2005b; Tyler 2005). Tyler, reflecting on the situation in South Africa, highlighted the dilemma this creates;  Leaving the S D criteria up to the host country government means that the host country government is left in a catch-22. It is trying to attract F D I [foreign direct investment], which is o f great importance to a developing country, but also to promote sustainable development standards. The catch-22 arises because F D I most often wants the fewest restrictions possible, which often includes those related to sustainable development. (Tyler 2005 phone interview). Another respondent involved in working with C D M investors voiced a similar opinion, arguing that when host countries are overly strict with their sustainability criteria it can act as a deterrent for companies seeking to invest in the host country because o f the increased r i s k that the D N A w i l l 50  delay approval or reject a project. W h i l e some investors with strong social and environmental investment criteria may not be deterred by strict sustainable development criteria, there is a likelihood that most investors w i l l be "less sympathetic" to strict criteria i f they are seeking to obtain a large number of C E R s at the least possible cost (Anonymous 2005).  India's DNA defines the four criteria listed below for project developers to consider when designing CDM project activities (CDM India: Designated National Authority 2005). However, Rajshekar's comments suggest these criteria are not strictly applied, meaning the de facto regulations are less 1. Social well being: Projects should alleviate poverty by generating additional employment, removing social disparities and contributing to the provision of basic amenities leading to improvements in quality of life. 2. Economic well being: Projects should bring in additional investment consistent with the needs of the people. 3. Environmental well being: Project developers should consider the project's impact on resource sustainability and resource degradation; bio-diversity friendliness; impact on human health; reduction of levels of pollution in general. 4. Technological well being: Projects should lead to transfer of environmentally safe and sound technologies that are comparable to best practices in order to assist in upgradation of the technological base. The transfer of technology can be within the country as well from other developing countries also.  49  In terms of the various types of investment risk defined earlier in the chapter, strict sustainable development criteria could be considered a "carbon regulatory risk". 50  71  D.3. Limiting  the Potential for Sustainable  Development  Regardless o f the cause, the issue o f host countries setting weak sustainable development criteria is concerning for several reasons. First, using weak sustainable development criteria to assess projects provides developers with little incentive to design projects that exceed these criteria. I f projects are "designed d o w n " to the criteria, the sustainable development benefits resulting from the C D M w i l l be limited compared to its potential under a regime o f more rigorous criteria. In addition, the credibility o f the C D M as a compliance mechanism may be eroded i f investments are seen by investors seeking development-oriented projects, N G O s , and other actors as not contributing to the aim o f shifting developing countries towards more sustainable development paths. Finally, i f the C D M fails to support developing countries i n shifting towards a more sustainable development path, their ability to limit their emissions in post-Kyoto regimes may be limited.  D.4. CDM as a Tool for Sustainable  Development  Underlying many o f the project developers and development practitioners' concerns regarding the challenges encountered by D N A s is an assumption that supporting host countries' sustainable development is a primary purpose o f the C D M . One perspective on this issue, which reflects the original stated intention o f the C D M , is that the objective o f supporting developing countries' sustainable development through the C D M should be weighed equally with helping industrialized countries meet their K y o t o commitments (Figueres 2005b). Y e t for many o f those interviewed, support for host countries' sustainable development was viewed as the paramount objective o f the C D M , with Annex I investors' interest in securing C E R s from C D M project activities being seen more as an enabling factor than a dual objective (Olivas 2005; O w i n o 2005a; Schlup 2005b). However, this perspective was often presented more as an ideal or preferred scenario. F o r reasons discussed in the next chapter, none o f the project developers or development practitioners considered the C D M to have effectively delivered on its promise o f sustainable development.  W h i l e the majority o f the project developers and development practitioners identified sustainable development as a primary objective, their perspectives on sustainable development in the context o f the C D M differed. Their approach to sustainable development can generally be divided into two main groups. First; those who support a "three pillar" approach with a balanced focus on social, economic and environmental aspects, and second; those who consider the decarbonization o f developing countries' economies to be the key component o f sustainable development in the context o f the C D M .  72  E. Three-Pillar Approach: Project Developers and Development Practitioners' Perspectives  The "three-pillar" approach to sustainable development takes into account social, economic and environmental aspects of development, and considers these issues from an immediate and long-term perspective. Many of those interviewed base their understanding of sustainable development in the context of the CDM on the three-pillar approach, although they did not necessarily label it as such (Olivas 2005; Owino 2005a; Peters 2004; Schlup 2005b; Tyler 2005). For example, Tyler (2005) and Olivas (2005) respectively state; Environmental, social and economic aspects; sustainable development has these three aspects and a project has to contribute positively in all three areas. It doesn't degrade the environment; in fact it helps towards sustaining the environment. The same applies to the social aspects and the economic aspects (Tyler 2005 phone interview). My definition of sustainable development is the basic three pillar approach; how to harmonize social, economic and environmental aspects of a particular project or action; it is really important to harmonize the three, and not to make one more important than the other—that is the challenge (Olivas 2005 phone interview). A particularly interesting point is that all of the actors who identified with the three-pillar approach addressed in the context of how project activities affect the three core aspects of sustainable development at the local level. In other words, they do not consider it sufficient for a project to contribute to environmental sustainability at the global level by reducing emissions; it must also deliver benefits to local stakeholders.  E.l. The Vanilla Jatropha Project  To illustrate what the three-pillar approach means at a project level, Owino (2005a) describes a biodiesel project that he has helped to develop through the CDM Small Projects Facility in Kenya, which is a capacity building project aimed at assisting local entrepreneurs gain practical experience and skills in developing small-scale CDM projects that deliver sustainable development benefits at the local level; In the Vanilla Jatropha project, out-grower farmers in two districts grow vanilla for sale while using the jatropha plant as the live fence and tutor for the vanilla vine. The jatropha seeds are then harvested and oil extracted from the seeds is used to replace kerosene for lighting lamps. After three years, the oil production exceeds the demand for lighting and biodiesel production starts. The biodiesel is used in local diesel engines to mill grains and drive vehicles (10/90 ratio fuel mix). The seed cake is rich in nitrogen and is used as organic manure for the vanilla crop. The 73  smoke from the jatropha oil lamps is less toxic than from kerosene which causes bronchial problems and the jatropha smoke is mosquito repellent and is useful for malaria control. The money that would have been used by the local community to buy kerosene is saved and can be used to buy other essentials like food and medicine (Owino 2005a email correspondence). The project provides multiple benefits to local stakeholders including the provision of cleaner, more affordable fuel; a source of income from the sale of the vanilla beans and jatropha oil, and; health benefits in terms of reduced exposure to harmful pollutants, malaria prevention and improved nutrition. While the scale of the project is small, the potential benefits of the project are expansive as the project is designed to outsource the production of vanilla and jatropha to up to 100 000 small farmers in the area (Owino 2005a). The project is an interesting example of how multiple development benefits can be derived from a simple fuel-switching project designed to reduce emissionsfromthe substitution of kerosene with jatropha oil and biodiesel.  E.2. Opportunities  and Constraints for Strengthening Sustainable  Development  The three-pillar approach is important because it challenges actors to consider how they can strengthen projects in terms of delivering social, economic and environmental benefits at the local level of the project. This marks a departure from the national-level perspective of the DNAs that seek to define sustainability criteria to support national development objectives, and the global perspective afforded by the Parties in recognizing the impacts of emission reductions on a global climate scale—although there is evidently a relationship between these three levels. However, there are some drawbacks to the three-pillar approach. First, the current structure of the CDM does not provide a means for evaluating the social, economic and environmental impacts of projects (aside from emission reductions). Second, even if a structure did exist, certain aspects of sustainable development such as poverty alleviation or increased gender equity may take time to foster and may continue to evolve beyond the defined timeframe of the project. This would make it difficult to consider the full impact of a project, although it is certainly not a valid reason for ignoring aspects that are arguably critical to sustainable development. Third, the CDM's current structure does not offer a way to compare projects on the basis of their sustainable development benefits due to the lack of standardized sustainable development criteria aside from the emission reductions criterion. This makes it more difficult to market projects to investors interested in obtaining CERsfromprojects with strong sustainable development benefits.  74  F. Decarbonization: Project Developers and Development Practitioners' Perspectives A s discussed i n the second chapter, shifting to a low-carbon economy through a process o f decarbonization is an important step i n shifting developing countries' course o f development to a more sustainable path. The vast majority o f the project developers and development practitioners interviewed identified decarbonization as an important criterion for the C D M (Figueres 2005b; Olivas 2005; O w i n o 2005a; Peters 2004; Rajshekar S.C. 2005; Schlup 2005b; Tyler 2005). However, Figueres carried this one step further by presenting a strong argument for defining sustainable development as the decarbonization o f developing countries' economies. Elsewhere, Figueres defines the concept o f decarbonization as follows;  Historic economic growth around the world has been based on increased fossil fuel energy consumption and consequent increased G H G emissions... W h i l e economic growth must continue, the efficiency o f energy consumption must improve, and the carbon intensity o f production must decrease. Although growth, energy intensity and carbon output have been linked throughout modem history, achieving sustainable development in developing countries depends on decarbonizing their economies. F o r developing countries reliant on importing fossil fuels, gradually decreasing the carbon intensity o f increased production through enhanced energy efficiency and development o f local renewable energy resources is a critical step toward sustainability (Figueres 2006 p 4). Therefore, the emphasis is not only on decreasing emissions, but also on decoupling economic growth and development from rising emissions by increasing energy efficiency and the use o f renewables. Figueres does not disregard the importance o f projects' additional social, economic and environmental impacts, but she argues they are difficult to measure and therefore impractical in terms o f assessing the potential sustainable development benefits o f C D M projects. In discussing this perspective, Figueres states;  The one measurable thing we can do is decarbonization. I am o f the opinion that decarbonization o f the economy actually brings a lot o f social benefits; we have health benefits and a lot o f collateral benefits, as well as economic benefits such as less dependence on imported o i l etc. Because decarbonization is very measurable and i n most instances, although not in H F C projects, there are collateral social, economic benefits, I think the primary purpose is decarbonization (2005b phone interview). Decarbonization is a practical measure o f a project's sustainable development potential because the C D M regulations require strict calculations, monitoring and verification o f emission reductions. Emission reductions are also easily comparable across projects because they are a quantifiable 75  measure i n contrast to the three pillar approach which deals with more subjective criteria. In addition, emissions reductions occur within the timeframe o f the project, which makes measuring its impacts more feasible. However, Figueres' comment regarding H F C destruction projects raises an important issue to consider; while the reduction o f greenhouse gases can always be considered positive from a global sustainability perspective because it helps to mitigate additional climate change, it does not always result i n the delivery o f social, economic or environmental benefits at the national or local level.  G. Entry Points to Sustainable Development: Project Developers and Development Practitioners' Perspectives W h i l e the three-pillar and decarbonization approaches represent different perspectives on the issue of sustainable development, these pursuits are not mutually exclusive. Rather, the two approaches represent entry points from which a project developer may seek to address the issue o f sustainable development within a C D M activity. However, which approach is pursued does have implications as to how different factors are weighted or prioritized i n the development o f a project. S.C. Rajshekar (2005) provided the example o f a project proposed by the Indian Rural Energy Network (IRENet), which is comprised o f approximately 50 Indian N G O s working with local communities. The proposed project involves the installation o f 24 572 solar lanterns to replace the use o f kerosene lanterns, which present health and fire risks and provide poor lighting. The lanterns would primarily be marketed to women in low-income households and small businesses, with financing made available through micro-credit programs managed by self-help groups with assistance from I R E N e t ' s member organizations. IRENet would use the financing from the sale o f C E R s to offset some o f the costs associated with managing the micro-credit programs, marketing and maintaining the solar lanterns (Peters and Brunt 2003; Rajshekar S.C. 2005). The project's potential emission reductions are relatively low; a total o f 20 600 metric tonnes o f C 0 e over a 10 year period (Peters 2  and Brunt 2003). However, revenue generated by the sale o f C E R s would help I R E N e t to pursue its objective o f providing access to a cleaner, safer and ultimately more affordable source o f lighting (Rajshekar S.C. 2005). Considering an example from the decarbonization approach, Figueres (2005b) discussed the possibility o f using the C D M to support the decarbonization o f the cement industry , which would result in significant emission reductions. Figueres noted that while 51  5 1  Figueres did not provide a specific example, and no proposed or registered projects were listed in the C D M  Executive B o a r d ' s database as o f December 1, 2005 to provide further context. H o w e v e r , a similar argument could be made for landfill gas capture projects, which reduce environmental contaminants and result in significant emissions reductions (the potential emission reductions o f landfill gas capture projects registered with the C D M Executive B o a r d as o f D e c e m b e r 1, 2005 range between 70 063 to 664 674 metric tonnes o f  76  decarbonization would be the primary focus, such projects could provide secondary benefits such as improving local air and water quality that would have positive benefits for local populations. While a project developer may seek to address sustainable development from a decarbonization or threepillar approach, projects may offer additional benefits that support other aspects of sustainable development. However, it should not be assumed that all projects will deliver sustainable development benefits; as discussed by the project developers and development practitioners interviewed, certain project activities have greater potential to support sustainable development than others.  II. Project Scale, Type and Design Although decarbonization and three-pillar approaches provide two different but complementary entry points for addressing the issue of sustainable development, the interviews revealed that on a practical level the project developers and development practitioners take into account issues related to the scale, type and design of projects when designing projects or assessing their potential to support sustainable development. The project developers and development practitioners interviewed had differing views on how these factors influence or shape opportunities to pursue the sustainable development objectives prioritized by the three-pillar and decarbonization approaches. Their observations serve to highlight the considerations that may be relevant to project developers interested in supporting sustainable development through C D M activities. A. Small-Scale, Big Impacts Peters (2004; 2005a) and Owino (2005a), as well as Figueres (2005b), argued small scale projects are critical to contributing to sustainable development—both in terms of reducing emissions and generating opportunities to directly deliver social, economic and environmental benefits to local stakeholders.  A.I. Expanding Access to CDM Financing Owino and Figueres contended that small scale projects are particularly important in countries with lower levels of industrialization and development because in their absence, there would be very few opportunities to access C D M financing to support sustainable development. As Figueres stated;  C0 e per year (CDM Executive Board 2005e)). However, a review of the project design documents for several landfill gas capture projects indicates that the direct social and economic benefits to local populations from such projects are extremely limited (e.g. BATTRE 2005; Onyx 2004). 2  77  There are many communities in many countries that will only be able to do small scale, and where small scale is of no small importance but rather of huge importance for that environment. Considering sustainable developmentfroma point of view of its economic and social and also environmental concerns I think small scale is hugely important (Figueres 2005b phone interview). Figueres tempered this endorsement of small scale projects with a caution that the level of emission reductions required to stabilize atmospheric concentrations of greenhouse gases cannot be achieved exclusively through small-scale projects, and therefore large scale projects must also be pursued through the CDM. However, Peters and Owino note that although small-scale projects generate lower volumes of emission reductions than standard projects , they can help to establish the 52  conditions for long-term emission reductions by avoiding the use of emission intensive technologies and practices. Moreover, Peters argues that while the short-term emission reductions from a single small-scale project may be relatively limited, there are ample opportunities to replicate small-scale interventions such as community-based renewable energy or energy efficiency projects which, considered on an aggregate level, would represent significant reductions.  A.2. Supporting Appropriate Development  Speaking from his CDM experience in the context of Kenya and other African countries, Owino (2005a) notes that in many less developed countries not only are the majority of project opportunities small-scale due to such factors as limited industrialization and low levels of energy demand, but resource and technical constraints limit project developers' capacity to undertake larger scale projects; Most CDM projects in developing countries are actually small scale. Without their inclusion, there would be very few CDM projects comingfromdeveloping countries. Secondly, the resources required to develop even small scale CDM projects are out of reach of many potential project developers ... The large CDM projects are too complex and require too many resources to develop (2005a email correspondence). 53  Owino, Peters and Figueres also shared the opinion that small scale projects provide important opportunities to directly support sustainable development and improve people's livelihood  As discussed in chapter three, small-scale C D M activities are restricted to renewable energy production with a maximum output of 15 megawatts, energy efficiency improvements up to 15 gigawatt/hours per year, or other activities that result in the emission reductions and emit less than 15 kilotonnes of carbon dioxide equivalent annually ( U N F C C C 2002). Specific barriers encountered by small scale project developers are discussed later in this chapter. 5 3  78  opportunities. While the impacts of individual projects may not contribute noticeably to meeting national development objectives, the benefits are significant at the local level. Owino used the Vanilla Jatropha project as an example of how small scale projects can have significant development impacts in terms of reducing poverty among local farmers and increasing well-being through access to more affordable energy and other benefits. A study by Begg et al. (2003a) on the potential benefits of small scale CDM projects based on a series of African case studies provides further evidence to support this claim. Begg et al. considered fifteen small scale community based energy projects in Kenya, Tanzania and Ghana using multiple social, economic and environmental criteria developed within a sustainable livelihoods framework and weighted according to local 54  stakeholders' priorities. The study found that while trade-offs existed between various social, economic and environmental objectives, each of the projects made a positive contribution to the well-being of community members. As Owino argued, in many developing countries even several small scale projects would "go a long way in addressing poverty and some of the Millennium [Development] Goals" (2005a). Efforts to promote the development of small-scale projects including simplified modalities and procedures, reduced transaction costs and options for bundling small projects are aimed in part at providing developing countries more equitable access to CDM financing. Although these special measures increase the viability of small scale projects by reducing their overall costs and administrative requirements, project developers continue to encounter significant barriers to implementing and marketing projects, as will be discussed in the next chapter. B. Promoting Sustainable Energy and Energy Use  A second perspective is that the scale of the project is less relevant than the type of technology applied in the project activity. All of the project developers and development practitioners who held this view identified renewable energy and energy efficiency projects as having the greatest potential to support sustainable development (Figueres 2005b; Peters 2004; Rajshekar S.C. 2005; Schlup 2005b; Tyler 2005). As Tyler stated;  T h e sustainable livelihoods framework emphasises poverty alleviation and is based on the assumption that a livelihood is sustainable when it "can cope with and recover from stresses and shocks and maintain and enhance its capabilities and assets both now and into the future, while not undermining the resource base" (quoted in B e g g and et al 2003c p. 15).  79  Renewable energy and energy efficiency projects certainly have a different S D profile than other project types. Whether they are small or large scale isn't really the issue. Renewable energy and energy efficiency projects quite often realize lower emission reductions per house or per unit o f effort than the larger industrial processes, and therefore they fit into the small scale category, but I don't think it is a function o f the small-scale that makes them more sustainable (Tyler 2005 phone interview).  Expanding the use o f renewable energy and improving energy efficiency was seen as critical to decoupling economic growth and development from rising emissions (Figueres 2005b; Peters 2004; Schlup 2005b), and to expanding access to modem energy services among under-serviced populations such as poor urban and rural areas (Peters 2004; Rajshekar S.C. 2005; Tyler 2005). In the latter case, the use o f local renewable energy resources and energy efficient technologies was seen as an important means o f avoiding the use o f emissions-intensive energy sources to meet rising energy demands by transitioning to a sustainable energy system based on low-carbon technologies (Tyler 2005). In this manner, the C D M can provide opportunities to "leap-frog" to a more sustainable path by avoiding the use o f emissions-intensive energy supplies in meeting rising demands for energy.  B.l. The Kuyasa Low-Income Urban Housing Energy Upgrade Project The Kuyasa low-income urban housing energy upgrade project i n Cape Town, South A f r i c a , is an 55  example of a C D M project where renewable energy and energy efficient technologies are being employed proactively to avoid increasing future demand for emissions-intensive energy and deliver sustainable development benefits to local residents (Tyler 2005). The project is a joint initiative between SouthSouthNorth ( S S N ) and the Cape T o w n City Council. The project is designed to provide energy efficient lighting, solar-powered hot water and insulated ceilings for 2 309 households in the Kuyasa township. The project uses a "suppressed demand for energy services" baseline. This baseline considers what the energy demand o f local residents would be under a scenario o f improved access to energy and rising incomes, and calculates the emissions avoided by providing households with this level o f energy service (SouthSouthNorth 2005b; Tyler 2005). Tyler described how the recognition o f suppressed demand contributes to sustainable development;  U n l o c k i n g the suppressed demand and crediting it under the C D M contributes to sustainable development because it pre-empts a community from developing along a polluting line by getting them to develop instead along clean lines, so that you  This project was registered with the CDM Executive Board in August 2005 (SouthSouthNorth 2005a). 80  don't have to go in after the fact to reduce emissions levels (Tyler 2005 phone interview). By implementing renewable energy and energy efficiency measures, the Kuyasa project establishes a basis for sustainable energy use within the community. In addition to emission reductions, the project benefits local residents in a number of ways. For example, prior to the project, residents used heat sources such as paraffin stoves and candles for cooking and heating their homes. There are negative respiratory health impacts associated with the indoor combustion of these materials, and fire-related risks such as burns or house-fires are high. Therefore, introducing a clean, safe source of electricity helped to reduce residents' health risks. In addition, each household is expected to save approximately R625.84 (US$103) per year on heating costs as a result of the project, which is a significant amount for low-income households (SouthSouthNorth 2005b; Tyler 2005). While Kuyasa is a small-scale C D M project, Tyler argues that it is the renewable energy and energy efficiency technologies being applied in the project rather than its scale per se that contributes to its sustainable development potential. Evidence from the Kuyasa project and other case examples discussed by the interviewees strongly support claims that renewable energy and energy efficiency projects, whether small or large scale, present a viable opportunity to support sustainable development through the C D M . C. End of Pipe Solutions: A Case of Low Sustainable Development Potential Projects involving end-of-pipe technological fixes, particularly HFC-23 destruction projects , 56  received an overwhelmingly poor rating in terms of their sustainable development potential from the majority of the interviewees (Figueres 2005b; Olivas 2005; Peters 2004; Rajshekar S.C. 2005; Schlup 2005b; Tyler 2005).  C.l. HFC-23 Destruction Projects HFC-23 is a potent greenhouse gas that is a by-product in the manufacturing of HCFC-22, an ozone-depleting greenhouse gas used as a refrigerant and in the production of fluorinated resins 57  that is targeted for phase-out under the Montreal Protocol in both industrialized and developing countries (Lecocq and Capoor 2005; U N E P 2000). HFC-23 destruction projects are beneficial from a global sustainability perspective because HFC-23 is a potent greenhouse gas with a global  Nitrous oxide (N20) destruction was similarly identified by some of the interviewees, but HFC-23 destruction was mentioned by all of the interviewees listed as a contentious CDM activity. While HFC-22 is a greenhouse gas, it is not listed under the Kyoto Protocol because it is already targeted for phase-out under the Montreal Protocol.  5 7  81  warming potential at least 9400 times greater than C 0 (Houghton et al. 2001a). Consequently, it is 2  important to reduce its emissions—and more pointedly, its production. However, the removal o f H F C - 2 3 has minimal impacts on local air quality, and results i n minimal increases i n employment or social equity (Figueres 2005b; Olivas 2005; Peters 2004; Schlup 2005b). Moreover, the introduction o f end-of-pipe solutions arguably do not qualify as clean technology given the production o f H F C - 2 3 (and H C F C - 2 2 ) still occurs (Schlup 2005b).  There are also concerns that  permitting C D M financing for H F C - 2 3 destruction projects may create a perverse incentive for manufacturers to increase their production o f H C F C - 2 2 , rather than phasing out its use as mandated under the Montreal Protocol (see Carbon Finance 2004; Peters 2005a).  In light o f these issues, one persuasive argument is that H F C - 2 3 destruction projects should be excluded from C D M financing because o f the projects' limited contribution to host countries' sustainable development, and instead dealt with through the phase-out o f H C F C - 2 2 through the Montreal Protocol or through alternative environmental regulation at the national level (Peters 2005 a). However, such an approach may prove less effective in reducing emissions o f H F C - 2 3 than the economic incentive provided by the C D M unless governments are committed to enforcing environmental regulations A more moderate approach would be to ensure that C D M financing for H F C - 2 3 destruction is restricted to existing operations and existing levels o f emissions so that the C D M does not create an incentive to produce more H C F C - 2 2 , but rather supports industry in reducing the environmental impacts o f its production during the phase-out period. This option is currently being considered by the C D M Executive Board, but a final decision has not yet been reached ( C D M Executive Board 2005a)..  Despite its controversy, H F C - 2 3 destruction is attractive to investors seeking low-cost, low-risk compliance credits because such projects use established technology, generate large quantities o f emission reductions for relatively low-costs, and have a short lead-time for implementation (Lecocq and Capoor 2005). A s o f late November 2005, the C D M Executive Board had approved two H F C 23 destruction projects in India and South Korea and a number o f similar projects had been proposed for China, M e x i c o , and Brazil (Fenhann 2005).  The debate over H F C - 2 3 projects serves to highlight the tensions that can exist between different parties' objectives in seeking to operationalize the C D M . Should H F C - 2 3 destruction projects be permitted under the C D M given their potential for assisting investors to meet their K y o t o commitments cost-effectively and support global emission reductions? Or, should such projects be  82  excluded given that they fail to meet one o f the dual objectives o f the C D M , namely; supporting the sustainable development o f developing countries?  A s w i l l be discussed i n the subsequent chapter,  concerns regarding H F C - 2 3 destruction projects also take centre-stage in the debate regarding how effective the C D M has been in supporting sustainable development because these projects represent the majority o f C E R s available to investors through the C D M .  D. Project Design: Process and Tools Aside from project scale and type, several o f the project developers and development practitioners drew attention to factors in the project design process that they considered to be important i n supporting sustainable development through the C D M . K e y issues they raised included the participation o f local stakeholders i n the design and implementation o f projects (Owino 2005a; Schlup 2005b; Tyler 2005); and, the use o f sustainability planning tools to help assess and strengthen projects' sustainable development potential (Schlup 2005b; Tyler 2005).  D.L Local Stakeholder Participation Schlup (2005b) and Tyler (2005) advocated for more extensive engagement o f local stakeholders in both the design and implementation o f C D M projects, particularly i n community-based projects directly aimed at meeting the development needs o f local populations. Under the C D M regulations, project developers are required to consult on the proposed design o f the project with individuals, groups or communities who would be directly affected by the project or its implementation. A l l Project Design Documents ( P D D ) submitted to the C D M Executive Board for approval must include a record o f stakeholders' comments and indicate how the project developer has addressed these concerns ( U N F C C C Secretariat 2002b). In his interview, Schlup (2005b) expressed concern that the limited requirements are arguably insufficient to ensure project developers are effectively addressing local stakeholders' concerns regarding projects—or helping to meet local development needs. Schlup noted that C D M projects' public consultation processes rarely demonstrate that the project developer has considered potential barriers to participation that may limit local stakeholders' ability to participate.  58  For example, publicly available information is often posted on websites in  English only, effectively excluding comments from stakeholders lacking internet access, literacy, or proficiency in English (Schlup 2005b). Schlup argued that the base requirements for public consultation should be increased to ensure local stakeholders can provide input into the initial design o f the project, rather than only provide feedback on the completed plan. H e contends that  This is also apparent from a review of the project design documents (PDDs) for CDM activities registered with the CDM Executive Board (see CDM Executive Board 2005e). 58  83  integrating stakeholders' interests into the project design is also beneficial to investors because it reduces the risk of future delays or the underdelivery of CERs resulting from lack of stakeholder support or challenges to the project.  Tyler (2005) returned to the example of the Kuyasa project in Cape Town, South Africa, to demonstrate how the participation of local stakeholders can particularly enhance the sustainable development benefits of community based C D M projects. The Kuyasa project was specifically initiated by SouthSouthNorth in order to demonstrate how the C D M could be used to improve energy services to low-income neighbourhoods. Development practitioners facilitated the process of designing the project with technical support from SouthSouthNorth, working in partnership with staff from the City of Cape Town and representatives elected by the community. The project design team consulted extensively with individuals and groups within the community, with the local representatives taking a leading role in raising awareness among community members as to the objectives of the project related to sustainable development, poverty alleviation and climate change, as well as what the project would require of participating community members. Prior to finalizing the design of the project, the team conducted a pilot project where the solar water heaters, insulation and other components were installed in ten local households and monitored for a period. The project team then made changes to the design of the project based on the feedback from the involved residents. Tyler emphasized that public participation was an integral part of the project's design because it helped to ensure the renewable energy and energy efficiency interventions were appropriate for the local conditions and effective in meeting people's energy needs, which made people willing to have their homes retrofitted.  A n understanding among community members of what these interventions are about, how best to use them, and how the technologies can be adapted to suit the communities' needs is really important. What we have now is neighbouring communities saying that want these interventions too. The fact that the community is talking about them, and is happy with them, really does help because it spreads the demand for the interventions which then translates into more political support (Tyler 2005 phone interview). Tyler (2005) acknowledged that adopting a participatory development approach increased the resources, time and cost of developing the project. However, she attributed the extensive stakeholder participation with the ongoing success of the project. Not only are neighbouring communities requesting similar interventions, but a number of investors have expressed interest in purchasing CERs from the Kuyasa project as offset credits largely because of its demonstrable  84  sustainable development benefits to the community. The Kuyasa project is an excellent example o f how combining climate change considerations with participatory planning practices can be used to design successful C D M projects that help to support decarbonization and deliver local sustainable development benefits in community based projects.  Participatory development practices such as those applied in the Kuyasa project are frequently used by development practitioners outside the C D M . However, there has been limited application o f such practices among C D M project developers. Part o f the reason for this disjuncture may be that many C D M projects are often developed by companies and entrepreneurs with little experience or knowledge o f development practices that could contribute to strengthening their projects' sustainable development impacts. Partnerships between development N G O s and project developers, such as occurred between SouthSouthNorth and the City o f Cape Town, offers one means o f bridging different capacities i n order to effectively support sustainable development through the C D M . However, it is unlikely that such partnerships w i l l always be feasible, and therefore alternatives approaches to supporting project developers' efforts to strengthen the sustainable development impact o f their project must also be considered.  However, it should also be recognized that the level and type o f stakeholder participation w i l l differ between projects. For example, S.C. Rajshekar (2005) argued that i n cases where C D M activities are small business ventures targeting dispersed consumers (rather than community based initiatives or large scale projects that may adversely affect local populations) a market assessment to determine demand may be more appropriate. S.C. Rajshekar provided the example o f a treadle pump project developed by International Development Enterprises (IDE), India. I D E is aiming to install 20 000 low cost irrigation treadle pumps through sales to small-holding farmers in rural areas o f Eastern Uttar Pradesh and Bihar. The treadle pumps provide a cost-effective alternative to diesel-driven irrigation pumps, with similar performance, while avoiding the emissions associated with diesel combustion (the project's projected emission reductions are 95 600 tonnes C02e over 10 years) (Peters and Brunt 2003; Rajshekar S.C. 2005). The project used existing technology, and farmers choose to participate i n the project based on their decision to purchase a treadle pump. Therefore, while I D E conducted a market analysis to assess potential demand for the treadle pumps, it did not seek further involvement from stakeholders (Rajshekar S.C. 2005). Further stakeholder consultation may arguably have contributed to improvements i n the design o f the pump or other aspects o f the project. However, as this example highlights, many projects are developed primarily as business ventures rather than development initiatives. Unless project developers recognize  85  additional benefits from consulting with affected stakeholders, they are unlikely to exceed the set requirements for stakeholder engagement. This is particularly true in the case of small scale renewable energy and energy efficiency projects—which were identified as project types with high sustainable development potential. This is because renewable energy and energy efficiency projects tend to have low internal rates of return (i.e. narrow profit margin), and project developers are 59  therefore unlikely to undertake additional activities that would add to the project costs. Therefore, while stakeholder participation can play an important role in strengthening C D M projects' sustainable development impacts, other approaches are also required.  D.2. Sustainable Development Planning Tools In discussing the issue of how to strengthen the sustainable development impact of C D M projects, several of the interviewees proposed the use of planning tools to assist project developers in designing and assessing the potential impacts of their projects. Tyler (2005) discussed SouthSouthNorth's 'Sustainable Development Appraisal and Ranking Matrix Tool' (SouthSouthNorth 2003), while Schlup (2005b) expanded on the use of the C D M Gold Standard as a planning tool to help project developers design "premium" sustainable development projects. Since the C D M was established, there has been a growing interest in utilizing planning tools to improve the design of C D M projects, as indicated by the increasing array of sustainable development criteria and frameworks proposed for this purpose (e.g. Begg and et al 2003a; Kenbar and Salter 2003; SouthSouthNorth 2003; Sutter 2003). This section provides an overview and assessment of these planning tools.  D.2.1. SouthSouthNorth Matrix Tool  SouthSouthNorth (2003) developed its 'Sustainable Development Appraisal and Ranking Matrix Tool' (SSN Matrix Tool) to assist project developers in assessing and strengthening their projects' contribution to sustainable development. The SSN Matrix Tool includes indicators designed to encouraged project developers to consider how their projects contribute to maintaining or improving environmental integrity, and to supporting social and economic development. The environmental and economic components of the matrix consist of a mix of local, regional and  ' A full discussion of the factors that contribute to the low internal rates of return of renewable energy and energy efficiency projects are beyond the scope of this thesis, but general factors include high capital costs (particularly in rural areas), limited ability of users to pay for services, and long pay-back periods due to low energy output or savings compared to capital costs.  86  THE SSN MATRIX TOOL*  SCORE  Component Indicators  How (axomp  -2 to +2  Local / regional / global environment -Water q u a l i t y -Air  quality  -Other -Soil  and q u a n t i t y  pollutants  -Biodiversity  (toxicity.rodiooctwity,POPs, stratoipherk ozonelayer depleting gates)  (quality and quantity)  (species and habitat conservation)  Social sustainability and development -Employment (including job quality, fulfilment of labour standards) -Livelihood  of t h e poor (poverty alleviation, distributional equity, access to services)  t o energy  services  -Human and i n s t i t u t i o n a l  capacity  (empowement, education, involvement, gender)  Sub total  Economic and technological development -Employment (numbers) -Balance  i . e . where there is significant damage to ecological, social end/or economic systems that cannot be litigated through preventive (not remedial> measures, - 1 ; VERY MINOR NEGATIVE IMPACTS,  Sub total  -Access  Project performance must be assessed against the l i s t of indicators. using tht following scoring system: -2: MAJOR NEGATIVE IMPACTS,  (emission* other than ems)  condition  t o u s e t h e t o o l .  o f payments (sustainability)  -Technological  self  reliance  (project replicabtiity, hard currency liability,  skills development, institutional capacity, teAnalogy transfer) Subtotal  TOTAL 00 Table 4.1: Sustainable Development Appraisal and Ranking Matrix Tool (SSN Matrix Tool)  i . e . where there is a aeasurable impact but not one that is considered by stakeholders to militate against the implementation of the project activity / cause significant damage to ecological, social and/or economic systems. 0 : NO (OR NEGLIGIBLE) IMPACTS, i . e . where there i s no i a p a c t o r the impact i s c o n s i d e r e d i n s i g n i f i c a n t by stakeholders. + 1: MINOR POSITIVE IMPACTS + 2: MAJOR POSITIVE IMPACTS Project performance should be considered in terms of each indicator relative to the baseline scenario (i.e. in the absence of the proposed project} as defined in the project design document. RESULT: - Each sub-tot ol must score better than -1. - Each indicator must score better than -2.  global indicators. This requires project developers to extend their thinking beyond reducing global emissions to how projects can address local and regional development issues. The social component is primarily focused on assessing projects' contribution to poverty alleviation, improving equality, and expanding access to services at the local level. The emphasis on local development issues reasserts that emission reductions are not a sufficient contribution for projects to qualify for the C D M according to its stated objectives.  D.2.2 Gold Standard A s previously discussed, the G o l d Standard was initially established as a best practice benchmark aimed at ensuring C E R s are sourced from C D M projects that are unquestionably additional, support environmentally sustainable practices and are supported by the communities they directly affect (Carbon International 2005; Schlup 2005b). However, the G o l d Standard can also be used as a methodology for assisting project developers i n designing C D M projects that clearly deliver sustainable development benefits. The G o l d Standard requires project developers to apply three assessment "screens" during the process o f developing their projects that set more stringent requirements than those established by the C D M Executive Board (The G o l d Standard 2005a).  The G o l d Standard's screens include a Project Type Screen, an Additionality Screen and a Sustainability Screen (The G o l d Standard 2005a). The Project Type Screen restricts C D M projects eligible for G o l d Standard accreditation to renewable energy and demand-side energy-efficiency projects. This restriction is based on the assumptions (as discussed above) that renewable energy and energy efficiency activities are best suited to supporting developing countries' transition to a low-carbon economy, and allow for a decentralized approach that provides opportunities to support community development through expanding access to clean, reliable energy (Schlup 2005b). The Additionality Screen requires that all projects apply and conform to the C D M Executive Board's additionality test , and apply the most conservative scenario i n calculating the emission baseline to 60  ensure all emission reductions resulting from the projects are additional. Schlup (2005b) suggested that this has the effect o f reducing projects' risk o f under delivering on their projected C E R s , as adopting a conservative baseline helps to ensure the potential emission reductions are not overestimated. The Sustainability Screen entails additional requirements regarding stakeholder consultation and information access; guidelines for environmental impact assessments i f required; and, the application o f a sustainable development assessment matrix that is based on the S S N  60  See Chapter 3 for further details of the C D M Executive Board's Additionality Test  Matrix T o o l . A g a i n , Schlup (2005b) suggested that the application o f the Sustainability Screen contributes to reducing the perceived risks o f a project because it provides assurance o f the project developer's due diligence i n terms o f addressing stakeholder concerns and assessing environmental impacts. The G o l d Standard is not intended to supercede host country authority in defining sustainable development priorities. Rather, as with S S N M a t r i x T o o l , it is intended to help project developers strengthen the sustainability benefits o f their individual projects so that they provide a greater contribution to meeting local development needs and national development objectives.  D.2.3. Alternative Planning Tools Other multi-criteria assessment frameworks are also worth assessing. B e g g et al (2003a) developed a framework based on the sustainable livelihoods approach that was popularized by Chambers and Conway (1991), and applied extensively by D F I D and other international development agencies (Solesbury 2003). The framework developed by B e g g et al requires project developers (and community members) to weigh a number o f social, economic and environmental criteria according to their perceived importance, which are then used i n designing C D M projects aimed at addressing the prioritized interests. This approach is positive i n that it encourages project developers to assess the meaning o f sustainable development within the context o f the affected community. However, it is also quite complex in that it involves a large number o f criteria, which may be difficult for project developers without experience i n community development or participatory methods to successfully apply. Due to the emphasis placed on community participation in ranking the criteria, project developers could easily fall victim to the "myth o f community" (Guijt and Shah 1998) by assuming the project meets the affected community's needs. In reality, unless the project developer is able to identify and adequately address potential barriers to participation caused by such factors as location, socio-economic and gender relations, marginalized members o f the community may be unable to effectively participate in this process. However, this problem could also arise among project developers seeking to use the S S N Matrix T o o l i n a community based setting, although less emphasis is placed on ranking the sustainability indicators. I f implemented with awareness o f these issues, Begg et al's framework could help project developers in identifying and addressing relevant development issues at the local level.  89  Methane  Capture  1  jDSM  Industnal  processes  Geothermal  Bbmass  Sdar  j Types  Project  J  Ftwer Rants!  Table 4.2: Sutter's Multi-Criteria Assessment Framework  Assessment Criteri; Stakeholder Participatior) Improved Service AvailabilitV Equal Distributiori t Fossil Energy Resources Air Quality Water Quality Land Resources Regional Economy Microeconomic Efficiency Employment Generatjorp Technology Transfer (Source: Sutter 2004)  The second is the Multi-criteria Assessment Framework developed by Sutter (2003). Sutter's multicriteria approach is similar to that o f Begg et al. in that it requires project developers (or investors seeking to assess projects' sustainable development value) to select and weigh both quantitative and qualitative criteria from social, economic and environmental groupings that are applicable to the project. See Table 4.2 for a listing o f Sutter's criteria and his preliminary selection o f relevant criteria for various project types. The framework uses a simple ranking system similar to SouthSouthNorth's Sustainability Matrix Tool. "+1" designates positive impacts, " 0 " designates neutral impacts, and " - 1 " designates negative impacts. Projects must rank favorably i n all o f the key areas selected. Sutter's approach is interesting for several reasons. A s with Begg et al (2003a), Sutter allows for the ranking o f indicators to reflect local priorities (and is therefore prone to the same benefits and drawbacks o f this approach). However, he emphasizes the need to limit the number o f criteria to simplify the task o f assessing project's contribution to sustainable development. Sutter advises, "be courageous and reduce sustainability to key indicators; otherwise the C D M is reduced to C E R prices" (2004 presentation). Reducing the framework to a narrow set of indicators could be problematic i f it works to obscure significant impacts that fall outside those selected to highlight. However, actively engaging local stakeholder in the selection process would lessen the chance o f negative impacts being ignored. From a marketing perspective, narrowing the set o f indicators is prudent advice given most prospective investors have little interest, or  90  inadequate time and resources, to assess projects at a micro level. A s Sutter suggests, i f investors are overwhelmed by detail they w i l l return to assessing projects based on one simple criteria; the price o f C E R s . I f this occurs, investors are unlikely to give preference to projects offering greater sustainable development value because as previously discussed, such projects are often more resources intensive and costly to develop—meaning the resulting C E R s w i l l be relatively high priced. Sutter's framework is therefore a useful tool for project developers seeking to market the sustainability aspects o f their projects, or for investors seeking a relatively simple approach for assessing the sustainable development value o f a given project.  W h i l e these tools apply different approaches and indicators, there are important similarities. A l l o f the tools encourage project developers to assess the social, economic and environmental sustainability benefits o f their projects, thereby providing the opportunity for them to consider how their projects could be strengthened. In addition, while only the G o l d Standard and Sutter's framework are specifically designed to help project developers market the sustainability benefits o f their projects, all o f the tools provide a means for project developers to distinguish their projects on the basis o f their sustainability benefits. Finally, by incorporating criteria that address both local and global aspects o f sustainability, the tools serve as a reminder to both project developers and investors that C D M projects should aim to deliver more than emission reductions i f they are to meet the C D M ' s objective o f supporting host countries' sustainable development.  Conclusions Sustainable development remains a contested term in the context o f the C D M , as highlighted by the three perspectives that emerged from the interviews with investors, project developers and development practitioners. The first is a global sustainability perspective that emphasizes the importance o f achieving global emission reductions. The second perspective focuses on the decarbonization o f developing countries' economies as the critical aspect o f sustainable development to support through the C D M . The third perspective reflects the three-pillar approach to sustainability, emphasizing the importance o f C D M activities' contribution to supporting environmental, social and economic development objectives at the local level. W h i l e each o f these perspectives highlights a different aspect o f sustainability, the C D M ' s sustainability objective is clearly defined as assisting developing countries in meeting their sustainable development objectives. This arguably requires sustainable development benefits to be delivered at the local or national levels. Consequently, while the C D M ' s contribution to reducing global G H G emissions as emphasized by the global perspective is important in terms o f mitigating climate change, it is 91  insufficient to fulfill the C D M ' s sustainable development objective. The decarbonization and threepillar perspectives provide entry points for considering how C D M projects may contribute to sustainable development at the national or local level.  The experiences o f project developers and development practitioners suggest that while a range o f project types and scales can provide opportunities to support sustainable development at the local or national level, certain projects are more likely to deliver sustainable development benefits. Renewable energy and energy efficiency projects contribute to decarbonizing developing countries' economies, and can be used to expand access to clean, affordable energy and related services among under-serviced populations. Small scale projects are considered particularly important i n cases where demand for energy services is limited but the provision o f these services w i l l contribute to achieving development objectives, such as i n less developed countries where opportunities for small scale projects predominate. H F C - 2 3 projects and other C D M activities involving end-of-pipe solutions have less potential for supporting sustainable development, although some activities may have secondary benefits such as improving local air and water quality.  The intent with which projects are designed and developed appears to have the greatest impact on whether projects support sustainable development. Participatory development approaches can assist project developers in identifying and designing C D M projects that contribute to meeting local stakeholders' development needs; although the appropriate level o f stakeholder engagement w i l l vary between projects. Planning tools such as the S S N Matrix T o o l and the G o l d Standard can also assist project developers i n assessing and strengthening the sustainability benefits o f C D M projects. Supporting project developers in accessing and applying such approaches and tools to C D M projects would contribute to strengthening the C D M ' s capacity to supporting sustainable development by improving the quality o f individual projects. However, while the C D M ' s capacity to support sustainable development is largely dependent on the quality o f projects funded through the mechanism, there are additional factors that affect the C D M ' s effectiveness in supporting sustainable development that w i l l be discussed in Chapter 5.  92  5. Exploring the Operational Reality of the CDM Introduction Since the K y o t o Protocol's entry into force i n February 2005, the C D M has grown in terms o f the number o f projects under development (i.e. i n the process o f being validated, registered, or implemented). W h i l e the C D M has been i n operation since 2001, only three C D M projects had been registered with the C D M Executive Board by December 2004 . However, since February 61  2005, the rate o f new projects coming under development has significantly increased. This has largely been motivated by an increase i n demand for Certified Emission Reductions ( C E R s ) by Annex I investors that are now required to meet legally binding emission reduction commitments, and a corresponding increase i n confidence among project developers that financing from C D M investments w i l l be forthcoming—at least until the end o f the first commitment period i n 2 0 1 2 (Lecocq and Capoor 2005; O w i n o 2005a).  62  B y early October 2005, this had increased to twenty-  three registered C D M projects, with an additional 302 proposed projects seeking registration. A s o f late November 2005, thirty-three C D M projects had been registered with the C D M Executive Board, with 440 proposed projects i n various other stages o f the registration process (see Fenhann 2005).  The growth o f the C D M is positive in that it represents the potential for increased foreign direct investment for developing countries and the opportunity for significant global emission reductions. Moreover, it suggests the C D M is becoming recognized by project developers and investors as a viable mechanism for obtaining project financing and emission reductions, respectively. The interviewees identified several factors that may be contributing to this trend in addition to the entry into force o f the K y o t o Protocol. O w i n o (2005a) suggested that C D M capacity building programs undertaken to date have achieved some success in raising the level o f awareness among project developers in countries such as K e n y a as to the need to reduce emissions, and how sustainable development activities that contribute to this goal may be financed through the C D M . Tyler (2005) similarly reasoned that governments, investors and project developers are finally gaining a  6 1  T h e s e i n c l u d e d the G r a n e r o s P l a n t F u e l S w i t c h i n g P r o j e c t i n C h i l e , the O l a v a r r i a L a n d f i l l G a s R e c o v e r y  Project i n A r g e n t i n a , a n d the R i o B l a n c o S m a l l S c a l e H y d r o e l e c t r i c Project i n H o n d u r a s . 6 2  A s n o t e d i n A p p e n d i x C , t h e P a r t i e s c o n f i r m e d that C D M f i n a n c i n g w o u l d c o n t i n u e i n t o the p o s t - 2 0 1 2  p e r i o d at C O P 11 i n D e c e m b e r 2 0 0 5 . H o w e v e r , m a r k e t a n a l y s t P o i n t C a r b o n s u g g e s t s i n v e s t o r c o n f i d e n c e i n the p o s t - 2 0 1 2 c a r b o n m a r k e t r e m a i n s l o w i n t h e a b s e n c e o f p o s t - K y o t o e m i s s i o n r e d u c t i o n c o m m i t m e n t s .  93  sufficient level o f understanding o f the C D M to participate i n its activities. She suggested the targeted efforts o f governments, institutions and organizations to build capacity around designing and implementing C D M projects has been critical i n expanding the body o f knowledge from which others may learn.  However, when asked to assess the C D M ' s effectiveness i n supporting sustainable development, all of the interviewees rated its contributions as insignificant—particularly when compared to their expectations o f the C D M ' s potential (Figueres 2005b; Olivas 2005; O w i n o 2005a; Peters 2004; Rajshekar S.C. 2005; Schlup 2005b; Tyler 2005; Vickers 2005). F o r example, Tyler (2005) stated that the C D M ' s "on-the-ground contribution to sustainable development... [has been] m i n i m a l " , while Figueres (2005b) argued that it has not been at all effective in terms o f facilitating transformative change towards a decarbonized economy. Their critical assessments gave rise to further discussion on what factors are limiting the current effectiveness and potential o f the C D M to support sustainable development. Some o f the limiting factors (many o f which are closely interconnected) that have arisen out o f the practical implementation o f the C D M are explained below.  I. Backlogs & Delays A key issue o f concern expressed by many of the interviewees was the backlog o f projects awaiting registration by the C D M Executive Board and the related delays i n issuing C E R s (Figueres 2005b; Rajshekar S.C. 2005; Schlup 2005b; Tyler 2005; Vickers 2005). While a growing number o f project developers are seeking to register their projects as C D M activities, the number o f registered projects remains relatively low (see Fenhann 2005). Moreover, at the time I conducted my interviews, the C D M Executive Board had yet to issue C E R s for any o f the registered projects. This situation has since improved slightly; as o f late November 2005, the C D M Executive Board had issued 57 744 C E R s  6 3  for the initial emission reductions  64  resulting from the three C D M  projects listed in Table 5.1 ( C D M Executive Board 2005c). However, the quantity issued remains minimal compared to the potential C E R s from proposed projects awaiting approval, which w o u l d  Equivalent to 57 744 tonnes o f carbon dioxide equivalent ( t C 0 e ) reductions. 2  W h i l e the B o a r d has officially issued the C E R s , it has yet to forward these C E R s to the project participants because the participants' holding account for the C E R s still needs to be opened. Note that C E R s can be issued incrementally as emissions reductions are verified. 6 4  94  offer approximately 83.3 m i l l i o n C E R s per year i n total (Fenhann 2005). The interviewees expressed concern about the impacts o f these delays.  Table 5.1: CERs Issued for CDM Projects Title  D  a  t  e  o  f  issuance  Rio Blanco Small Hydroelectric Project  CERs issued  Verified period  ;  Host , Party  Other Parties  Oct 20, 2005  7304  Aug 1, 2 0 0 4 - D e c 31, 2004  Honduras  Finland  Oct 21, 2005  48230  Aug 1,2003 - Jun 30, 2005  India  Netherlands  Oct 20, 2005  2210  Jun 1,2003 - May 31, 2005  Honduras  Italy  (Small Scale Project, Reference #0028) 65  Biomass in Rajasthan: Electricity generation from mustard crop residues  (Reforoncc ^0058) La Esperanza Hydroelectric Project  (Small Scale Project, Reference #0009) (CDM Executive Board 2005c)  A. Shortfalls in Emission Reductions & Financing Vickers (2005) noted that the potential emission reductions resulting from the C D M projects registered to date w i l l make a relatively insignificant contribution either to funding sustainable development or reducing global emissions. He argued that administrative delays at the level o f the C D M Executive Board are seriously restricting the C D M ' s capacity to support sustainable development—either at national or global level—because it is limiting the amount o f foreign direct investment being channeled through the C D M .  This is occurring in a period when the potential for  carbon financing through the C D M is rising dramatically. A s o f January 2004, approximately U S $ 2 7 5 million in carbon financing was available through private and public carbon funds. B y A p r i l 2005, the funds available for carbon financing had increased to U S $ 9 5 0 million, but actual investments in the C D M remained limited given the short supply o f C E R s from approved projects (Lecocq and Capoor 2005).  Reference numbers provided by the CDM Executive Board. 95  Figure 5.1: Annual C E R s from C D M Projects (Registered & Proposed)  43394  45000 40000 -  y  o o w  DC 111  19883  O  ro  c 0) o  3253  0-  Renewables  Energy efficiency  1062  Fuel switch  CH4 HFC & N 2 0 reduction & reduction Cement  Project Type (Data Source: Fenhann 2005)  The magnitude o f the current shortfall in C E R s is particularly apparent when compared to anticipated demand for emission reduction credits. The W o r l d Bank estimates that Annex I countries w i l l be seeking to secure approximately 1.4 billion tonnes o f C 0 e reductions through the 2  C D M to use in meeting their Kyoto targets (see Carbon Finance 2005e), and this is a relatively conservative estimate. The International Emissions Trading Association ( I E T A 2005) estimates that the demand w i l l be between 275 and 800 million tonnes o f C 0 e reductions per year, 2  depending on the effectiveness o f Annex I countries' domestic policies. However, the I E T A cautions that the supply o f potential C E R s from projects under development would only serve to meet 4 to 15 percent o f A n n e x I countries' expected compliance gap. It estimates that between 1000 and 1500 C D M projects w i l l be required to deliver 300 million tonnes o f C 0 e reductions 2  annually, which greatly exceeds the number o f projects currently under development. If the C D M were able to deliver 300 million C E R s annually, this would equate to approximately U S $ 3 billion per y e a r  66  being invested in developing countries ( I E T A 2005). In order to reach this level o f  investment, there would have to be a significant increase in the number o f approved projects  6 6  US$10/CER, assuming CDM financing represents an average o f 3 (IETA 2005). G i v e n the average price per CER is currently US$5, this  Estimate based on an average price o f  percent o f the total investment value may be a generous estimate.  96  reaching the crediting stage. See Figure 5.1 for more details regarding the potential annual CERs from registered and proposed CDM projects currently under development.  B. Increased Risks & Potential Losses Some investors are entering advanced purchase agreements for CERs under the assumption that projects will eventually be registered by the CDM Executive Board (Vickers 2005). However, the speculation and uncertainty surrounding the approval of CDM projects increases the risks for the involved parties. Investors face the risk of whether the contracted CERs will be delivered, as CERs can only be issued from registered CDM projects (Vickers 2005). In turn, project developers must 67  deal with the heightened risk of whether CDM financing will be forthcoming—of which there are limited successful examples to inspire confidence (Owino 2005a; Rajshekar S.C. 2005). These risks affect the price investors are willing to pay for emission reductions, which is problematic given the price dictates the level of carbon financing available to project developers. While the price of emission reductions for each project is negotiated between the project developer and investor, the World Bank estimates that the price for emission reduction credits from unregistered CDM projects where the investor carries the risk of the project failing to be approved averaged at US$4 per tonne of C0 e. In cases where the project developer carries this risk (i.e. agrees to deliver the contracted 2  CERs to the investor even if they must be purchased from another supplier, or pay a fee for undelivered CERs), the price averages around US$6 per tonne of C0 e (Lecocq and Capoor 2005). 2  Consequently, project developers are forced to decide between limiting their risks but accepting a lower price for their project's emission reductions, or seeking higher prices but accepting the risk that they will be unable to deliver on the contracted CERs if their project fails to be approved. In addition, S.C. Rajshekar (2005) noted that many project developers have become skeptical of using the CDM to finance their activities due to growing concerns that the CDM Executive Board will fail to register projects in time for them to fully deliver their potential CERs for the first commitment period. Under the Marrakesh Accords, projects can be retroactively credited for emission reductions achieved since January 1, 2000, so long as the project is registered with the  Emission reductions from projects that are not approved are labeled "verified emission reductions" (VERs). V E R s may be purchased by investors seeking to offset their emissions for ideological reasons that do not require CERs (i.e. business travelers offsetting the emission from their air travel), but VERs cannot be used towards Kyoto compliance because they are not certified by the C D M Executive Board and therefore cannot officially demonstrate their additionality. 6 7  97  C D M Executive Board before December 31, 2 0 0 5  6S  ( U N F C C C Secretariat 2002b). However, due  to the backlog in unregistered projects, many project developers are at risk o f missing the December 31, 2005 deadline for retroactive crediting. S.C. Rajshekar suggests that in the absence o f a commitment by A n n e x I Parties to continue the C D M beyond the first commitment period, there is little incentive for project developers to invest their time and resources i n pursuing C D M  financing.  The uncertainties created by the administrative delays act as a disincentive for project developers and investors seeking to participate in the C D M . Unless the factors contributing to these delays are addressed, they may ultimately limit the C D M ' s potential to deliver financing for sustainable development projects and related emission reductions.  II. Institutional Barriers Shaping the above backlogs and delays in approving C D M projects and issuing C E R s are a number o f institutional barriers which I highlight as a second factor limiting the potential of C D M to support sustainable development. Institutional barriers at the level o f the C D M Executive Board are widely identified as the key factors causing the delays i n registering C D M projects and issuing C E R s . Frequently identified barriers include a lack o f adequate funding to support the Board's activities and insufficient staff (both in terms o f quantity and breadth o f expertise) to provide a timely review o f proposed projects, assess new methodologies, and issue C E R s as required (see Carbon Finance 2005b, 2005E 2005g; I E T A 2005). In addition, regulatory uncertainties at the level o f the C D M Executive Board were identified by several interviewees as a significant barrier in the C D M approval process (Figueres 2005b; Rajshekar S.C. 2005). Some o f these regulatory uncertainties are elaborated below.  A. Funding the CDM Executive Board The C D M Executive Board currently relies on voluntary contributions from Annex I Parties that have ratified the K y o t o Protocol to fund its operations. However, voluntary contributions have proven to be an inadequate source o f funding to support the Board's activities—partially due to the failure o f Parties to deliver on promised funding ( I E T A 2005). In July 2005, the C D M Executive Board announced a funding shortfall o f US$2.93 million in meeting its anticipated operating  The Marrakesh A c c o r d s state that " a project activity starting as o f the year 2000, and prior to the adoption o f this decision, shall be eligible for validation and registration as a clean development mechanism project activity i f submitted for registration before 31 December 2005. If registered, the crediting period for such project activities may start prior to the date o f its registration but not earlier than 1 January 2 0 0 0 " ( U N F C C C Secretariat 2002b D e c i s i o n 17/CP.7). 6 8  98  expenses of US$7 million for 2005. The Board warned that unless the shortfall was remedied, it would likely "hamper, i f not close soon, the full implementation of [the C D M Executive Board's] activities in the second half of 2005" (quoted in Carbon Finance 2005b online). Despite additional contributions by the Parties, a resource gap of US$2.3 million remained as of September 30, 2005 ( C D M Executive Board 2005a). The Board is projecting that its resource requirements for the 2006 to 2007 biennium will increase to US$17.83 million due to its increasing workload, although the funding has yet to be secured ( C D M Executive Board 2005a). Unless changes to the C D M Executive Board's funding structure are undertaken, the challenges resulting from insufficient funds are likely to intensify as more projects are developed.  At its twenty-first meeting in September 2005, the C D M Executive Board proposed introducing a 'share of proceeds' levy on all projects to assist in covering administrative expenses ( C D M Executive Board 2005a Annex 26). The proposed levy is US$0.20 per CER issued, although there is discussion of reducing the rate to US$0.10 per CER for small scale project activities. The greatest source of revenues would be from HFC and N 0 destruction projects that typically result in large 2  volumes of emission reductions. The Board has proposed that the issuing of CERs be contingent on the project proponent paying the levy. A decision on the funding proposal is expected to be made at COP-11 in December 2005 , as the Parties who have ratified the Kyoto Protocol are required to 69  approve changes to the C D M Executive Board's funding structure (Carbon Finance 2005a; C D M Executive Board 2005a Annex 26).  The levy would provide a significant source of funding for the C D M Executive Board's administrative functions, and likely help to expedite the registration process in so far as funding shortages have contributed to the delays. However, the levy would increase the transaction costs incurred by project developers seeking to access C D M financing. It is unlikely that the levy would impose a significant financial barrier on large scale industrial activities such as HFC and N 0 2  destruction projects that are able to generate CERs at a relatively low marginal cost. However, the levy could affect small-scale project developers—particularly those involved in renewable energy projects at the community level. As will be discussed further, while such projects can contribute to meeting local energy needs and other development objectives, they tend to have relatively high marginal costs, low returns on investment, and limited access to conventional financing. Therefore,  See Appendix C: COP-11 Decisions on the C D M , "Funding of the C D M Executive Board" for details on the outcome of this decision.  99  it w o u l d be preferable for the C D M Executive Board to adopt the reduced levy for small scale projects, or exclude small-scale projects entirely from the levy.  B. Resources, Responsibilities & Regulatory Uncertainties Insufficient funding has limited the C D M Executive Board's ability to fulfill its administrative functions. In 2005, the Board relied on four part-time staff to assist i n processing registration applications, as well as a roster o f consultants who sit on its Accreditation and Methodology Panels  70  ( C D M Executive Board 2005d; I E T A 2005). The current backlog in projects applying to  the C D B Executive Board provides ample evidence o f the need for increased staffing. However, it is questionable i f addressing the Board's resource constraints w i l l resolve all o f its problems, as it has also drawn criticism for its approach to administrating the C D M .  A n issue o f concern that Vickers (2005) and Robson (2005) each raised during their interviews was that there appears to be a lack o f clarity as to the definition o f responsibilities at the level o f the C D M Executive Board. Vickers (2005) noted that on several occasions, members o f the C D M Executive Board have rejected the recommendations o f the Methodology Panel i n favor o f their own rulings. This issue has also been raised as a concern by organizations including the International Emissions Trading Association and the W o r l d Bank, who have criticized the members of the C D M Executive Board for extensively engaging in technical discussions on proposed methodologies when the Board mandated the Methodology Panel to perform this function (see Carbon Finance 2005e; I E T A 2005). Robson (2005) argued that the C D M Executive Board's efforts to rigorously assess each project has unduly delayed the approval o f qualified projects that would deliver carbon financing to developing countries and help to support sustainable development. H e suggested that "perfection is the enemy o f good" is the perfect paraphrase describing the current state o f the C D M .  S.C. Rajshekar offered an alternative perspective on the performance o f the C D M Executive Board and Methodology Panel. Speaking from the perspective o f a project developer, S.C. Rajshekar expressed frustration with the lack o f consistency and transparency o f the B o a r d and Panel's rulings on proposed projects and methodologies—including its rulings on the issue o f additionality. Other actors share S.C. Rajshekar's concerns, particularly in the case o f the Methodology Panel as its  For example, there are 15 consultants on the Methodologies Panel, as well as four members of the CDM Executive Board. The Methodology Panel provides recommendations on proposed baseline and monitoring methodologies (CDM Executive Board 2005d). 70  100  meetings are reportedly closed to the public and it has failed to deliver coherent minutes o f its meetings or provide rational explanations for its decisions ( I E T A 2005; M G M International 2005). S.C. Rajshekar noted that the Board's inconsistent rulings have resulted in regulatory uncertainty, which has had an adverse impact on project developers attempting to register their projects;  W h e n we present the C D M cycle, we present it saying as once your P D D [Project Design Document] is ready, y o u go to the D N A [Designated National Authority], then you get it validated, and then register it with the C D M Executive Board. But each o f these processes is longer than preparing the P D D ; validation, for example, is really resource intensive. W h e n we talk about the cost o f validation, we only take the cost o f paying the D O A [Designated Operational Entity], but the costs the organization has to pay i n terms o f man hours spend on it is quite enormous. This is simply because many o f the procedures around the C D M are not clear. What is acceptable to the C D M Executive Board is not very clear (Rajshekar S.C. 2005). S.C. Rajshekar did note that the introduction o f the Additionality T o o l (discussed i n Chapter 3) has helped to reduce the regulatory uncertainty regarding additionality, but emphasized that there was still a lack o f clarity on many o f the Board's decisions and procedures. S.C. Rajshekar's experience demonstrates that regulatory uncertainty can have a negative impact on project developers because they may incur additional costs due to delays and setbacks in registering their projects with the C D M Executive Board.  Overall, the criticisms regarding the definition o f responsibilities and regulatory uncertainties at the level o f the C D M Executive Board suggest the need for revisions to the Board's operating practices. W h i l e there may be a need for better definition o f responsibility in the approval process, reviewing the terms o f reference and operating procedures for the Methodology Panel may also be pertinent. In particular, ensuring the Methodology Panel provides consistent, transparent reporting on their rulings would help to reduce the regulatory uncertainty by assisting project developers in identifying what considerations should be addressed when proposing new methodologies and submitting projects for approval. These changes would likely help to expedite the approval o f new methodologies and projects by reducing the delays and setbacks experienced by project developers in the process o f registering projects with the C D M Executive Board.  C. Uncertainties in Assessing Additionality W h i l e the introduction o f the Additionality T o o l has reportedly helped to reduce the uncertainties regarding the Board's rulings on additionality, the issue continues to raise concerns for a number o f the actors interviewed. Peters (2004) and Schlup (2005b) argued that practicing due diligence in  101  assessing the additionality o f C D M projects is critical to maintaining the legitimacy o f the C D M . I f non-additional projects are approved, the C D M w i l l weaken the effectiveness o f the K y o t o Protocol. This is because the emission reductions claimed by Annex I investors would have occurred regardless o f the C D M . Schlup also stressed that ensuring the additionality o f C D M projects is important even when there are obvious sustainable development benefits, such as i n the case o f renewable energy and energy efficiency projects.  If you say that renewable and energy efficiency projects are at the heart o f the C D M , then from the first picture it doesn't look all that bad, because we have about 34 percent o f the credits coming from renewables. But the question remains—how many o f these projects are additional, and how much o f the money spent on these projects would have been spent on renewables and energy efficiency i n developing countries anyway? (Schlup 2005b phone interview) Therefore, the concerns regarding the approval o f non-additional projects are two-fold. First, allowing non-additional projects reduces the legitimacy o f the C D M and weakens the K y o t o Protocol's contribution to mitigating climate change.  Second, when a business-as-usual project  receives carbon financing, it occurs at the opportunity cost o f supporting a project that could have delivered sustainable development benefits that would otherwise be unobtainable.  W h i l e recognizing the importance o f ensuring that business-as-usual projects are not approved under the C D M , several o f the actors interviewed expressed concern regarding the implications o f the C D M Executive Board's application o f the additionality clause. Figueres (2005b) noted in her interview that the additionality clause has had the unintended effect o f discouraging developing countries from introducing policies and regulations that would contribute to decarbonizing their economies. This is because one o f the criteria the C D M Executive Board considers in its additionality assessment is whether existing laws or regulations that limit emissions are applicable to the proposed activity ( C D M Executive Board 2004c). According to the guidelines set out by the Board's Additionality T o o l , i f the level o f emission reductions resulting from a proposed project is required, the Board w i l l deem the project non-additional. I f a project results in emission reductions that exceed the level specified by the regulations, the project can still qualify for the C D M . However, the emission standards set by the laws or regulations must be used in establishing the business-as-usual case that acts as the baseline for calculating the project's emission reductions. Consequently, introducing proactive laws and policies can reduce the amount o f carbon financing available to project developers, or disqualify proposed projects from the C D M (Figueres 2005b). Elsewhere, Figueres (2006) cites an example from Columbia o f the unintended policy implications  102  o f the additionality clause. The Columbian government has identified its forestry, energy and transportations sectors as the focus for its mitigation activities, and consulted extensively with these sectors to identify emission mitigations options and strategies. However, it has purposely avoided enacting policies to promote these strategies out o f concern that this w i l l disqualify projects i n these sectors from participating i n the C D M .  Comparing that proactive policies could significantly  contribute to reducing the emissions intensity o f these sectors, Figueres argues that " C o l o m b i a ' s decarbonization potential is being held back by the perverse incentive o f the additionality criterion in the C D M " (2006 6). Discussing the issue i n her interview, Figueres (2005b) noted that the opportunity cost o f countries' decisions to delay the implementation o f proactive policies has been particularly high because so few projects have been approved by the C D M Executive Board.  S.C. Rajshekar drew attention to a second perversity resulting from the application o f the additionality clause. He noted that i n cases that proactive policies are introduced, the outcome can be opposite from the desired effect i f policies are not properly enforced. In the case that the policy disqualifies affected projects from receiving carbon financing through the C D M , the total emission reductions may even lower than i f the policy had not been enacted. To explain this scenario, S.C. Rajshekar provided an example from Bangalore, India, regarding the unintended effect o f a recently-passed law requiring all new homes to install solar hot-water heaters.  [In Bangalore,] there are thousands o f houses that don't have solar water heaters, which they would all benefit from having. But now, the local government has passed a law which says it is mandated for new houses to have solar water heaters. So straight away this project is not a C D M project in Bangalore because it is already mandated by law that you should have a solar water heater i f y o u are building a new house. If it is law, then it is business-as-usual and it does not qualify as a C D M project. But then we know that although there is a law, people may not follow it because it is not strictly enforced. So one thing is that government has to be extremely careful when passing such policies, because it can be used against you when you are setting up a C D M project (Rajshekar S.C. 2005 phone interview). In this case, a C D M project aimed at encouraging home owners to voluntarily install the heaters by subsidizing their costs through carbon financing likely would have been more effective than introducing a law requiring solar water heaters i n all new homes due to the lack o f enforcement. The case demonstrates that i f a law or regulation aimed at reducing emissions is introduced but is not enforced, it can have the unintended effect o f decreasing the total emission reductions achieved.  103  D. Questioning the Project-Based Approach In her interview, Figueres (2005b) suggested that the perversities arising from the additionality clause stem from the C D M Executive Board's project-based approach to the C D M . W h i l e the C D M was designed as a project-based mechanism, Figueres argued that the Board has severely limited the C D M ' s potential to support sustainable development by choosing a very narrow and literal working definition o f "project-based". A s discussed above, the Board's decision to approve C D M activities on a project-by-project basis has resulted i n significant delays and caused developing countries to delay introducing policies which, i f enforced, could result i n far greater emission reductions than are currently being achieved through the C D M . Consequently, Figueres advocates for expanding the definition o f a C D M project to include policies that help to lower the emissions o f a given sector i n an approach labeled "Sectoral C D M " (Figueres 2006; Samaniego and Figueres 2002). Under the Sectoral approach, the policy itself is the C D M project rather than the individual project activities undertaken to achieve the policy aims. Elsewhere, Figueres provides the following explanation o f the Sectoral approach.  S - C D M [Sectoral C D M ] is policy-based and sectoral i n scope. Under the S - C D M , actual emission reductions are achieved by individual project activities but these are implemented i n response to an overall sectoral or sub-sectoral policy adopted by the government. In contrast to the current C D M where credits are generated by a carbon upgrade such as a fuel switch or an improvement in efficiency in one specific facility or company, S - C D M credits are generated by adopting and verifiably implementing GHG-friendly policies i n specific sectors (Figueres 2006 p 10). The concept o f Sectoral C D M would dramatically alter the environment in which C D M activities are undertaken. Rather than requiring each individual project from a specific sector in a given country to apply to the C D M Executive Board for approval, the host country government could submit a single application for all o f the individual projects that would contribute to achieving the policy's aims. The Sectoral approach would also alter the baseline against which projects' emission reductions are measured. Instead o f using the policy to establish the business-as-usual case, the baseline would be the emissions scenario in the absence o f the policy. This would remove the perverse incentive to delay the enactment o f proactive policies that is currently created by the additionality clause (Figueres 2005b, 2006). Figueres emphasized that rather than allowing for incremental, project-by-prqject gains through the C D M , the Sectoral approach opens the door for the C D M to facilitate transformative change i n the level o f decarbonization achieved by developing countries (Figueres 2005b). Arguably, i f policies are designed to support other aspects o f sustainable development, decarbonization w i l l coincide with other social, economic and 104  environmental gains. The Sectoral approach as conceptualized by Figueres is also important because it offers a means to strengthen the CDM within its existing structure. Aside from broadening the definition of projects to include policies, the existing institutional structures, modalities and procedures would still be applicable. Given that it is unlikely that Annex I and developing country governments would be willing to renegotiate the terms of the CDM within the first commitment period, opportunities to improve its effectiveness within the existing structure should be seriously considered. III. A Questionable Source of Emission Reductions The third limiting factor to the attainment of sustainable development goals within CDM is the sourcing of emission reductions from projects that deliver little or no sustainable development value aside from emission reductions. While Annex I investors' demand for CERs is increasing, so too are concerns that the majority of emission reductions available for purchase are generated by CDM projects that have little or no sustainable development potential. By definition, all CDM projects must result in the reduction of greenhouse gas emissions. As discussed in Chapter 3, emission reductions are calculated by comparing a project's actual emissions against a counterfactual baseline that represents the emission scenario that would have occurred in the absence of the CDM project. The baseline is dependent on prevailing practices and technologies, as well as local environmental conditions and regulations. Therefore, it is difficult to specify the exact volume of emissions that different project types may contribute. However, certain types of CDM activities do tend to result in larger quantities of emission reductions than others. While projects that generate large quantities of emission reductions per project are favorable from a global sustainability perspective, a project's potential to generate emission reductions does not necessarily correlate with its capacity to contribute to the CDM's additional objective of supporting sustainable development at the local or national level.  105  Figure 5.2: CDM Project Types & CERs/Year (% of Total Projects Under Development)  efficiency [ B ~ % total projects  & Cement  Reduction  • % total CERs/yr 1  (Data Source: Fenhann 2005) H F C - 2 3 and N 0 destruction projects are particularly notable for generating large quantities o f 2  emission reductions, while energy efficiency and renewable energy projects generally have lower potential for emission reductions. For example, an approved H F C - 2 3 destruction project in India  71  is expected to generate approximately 3.83 million tonnes o f C 0 e reductions per year, while the 2  Kuyasa low cost housing energy upgrade project i n South Africa (a combined renewable energy and energy efficiency project) is expected to generate only 6,580 tonnes of C 0 e reductions per year 2  ( C D M Executive Board 2005e).  A s o f early November 2005, H F C - 2 3 and N 0 destruction projects 2  constituted only 2 percent o f all the C D M projects in the pipeline, but represented 52 percent o f the annual volume of emission reductions anticipated and, by relation, the potential quantity o f C E R s to be generated through the C D M (Fenhann 2005). In contrast, renewable energy and energy efficiency projects (which were identified as the project types with the greatest sustainable development potential) constituted 70 percent o f the total projects, yet only 23 percent o f the projected annual emission reductions and C E R s to be generated through the C D M (Fenhann 2005). Figure 5.2 illustrates the ratio o f projects to C E R s for these and other project types.  The project is entitled " G H G emission reduction by thermal oxidation o f H F C 23 at refrigerant ( H C F C - 2 2 ) manufacturing facility o f S R F L t d " (Project #0115) ( C D M Executive B o a r d 2005e).  7 1  106  The dominance of H F C - 2 3 and N 0 destruction projects within the C D M is concerning. A s 2  discussed i n Chapter 4, most o f the actors interviewed strongly opposed the inclusion o f H F C - 2 3 destruction projects i n the C D M because o f the projects' low development value. Schlup's description o f H F C - 2 3 destruction projects encapsulates some o f the key concerns discussed i n Chapter 4 regarding these projects,  H F C projects have no sustainable development value at all, apart from reducing G H G emissions... There is no improvement in the livelihoods o f the local populations, it does not change the air quality in the area the project happens, it does not improve trade balances, it does not generate employment—nothing happens here except for that it generates a lot o f credits at a very l o w price... (Schlup 2005b phone interview). Yet for investors seeking to fulfill their compliance obligations, H F C - 2 3 destruction projects are highly attractive precisely because large quantities o f emission reductions can be achieved at very low costs—reportedly as low as US$0.50 per tonne o f C 0 e (Wittneben et al. 2006). Moreover, 2  given the current shortage o f C E R s , some analysts consider H F C - 2 3 destruction projects to be critical i n terms o f enabling Annex I countries to close their compliance gaps (Lecocq and Capoor 2005).  However, there is a concern that by permitting H F C - 2 3 destruction as a C D M activity, the potential for emission reductions from other project types may be further decreased. During their interviews, Peters (2005 a) and Schlup (2005b) both suggested that the abundance o f low-priced C E R s from H F C - 2 3 projects may drive down the price o f C E R s for other projects with higher marginal costs such as small-scale renewable energy projects. In his interview, Schlup (2005b) argued that unless investors distinguish between projects on the basis o f their sustainable development value, projects offering greater sustainable development value may effectively be priced out o f the market. A s w i l l be discussed, there are both financial and market barriers that affect such projects' ability to compete with HFC-projects in the C E R s market.  Elsewhere, Schlup (2005a) has also cautioned that host countries should be careful to distinguish between the immediate benefits o f foreign direct investment being channeled through H F C - 2 3 projects and the longer term benefits derived from using the C D M to support the decarbonization o f their economies.  107  Host countries should acknowledge that a dollar earned for an end-of-pipe C D M project today cannot compensate for the dollars not spent on importing fossil fuels in the future i f they are replaced by R E / E E [renewable energy / energy efficiency]. It would most likely be cheaper, i n the mid-term and considering recent o i l price developments, to install R E / E E capacity today with the help o f C D M F D I , while at the same time imposing legislation for cleaning up end-of-pipe G H G emissions, with double the effect for the climate (Schlup 2005a online).  W h i l e Schlup's advice to channel C D M financing to renewable energy and energy efficiency activities has merit from a sustainability perspective, most countries are struggling to attract even minimal levels o f foreign direct investment through the C D M . Therefore, there is likely little incentive for them to further restrict their involvement by officially excluding H F C - 2 3 and other end-of-pipe technology projects (although for many o f the less developed countries, H F C - 2 3 projects may not even be an option). However, countries with approved or pending H F C - 2 3 projects, namely India, China, South Korea, and M e x i c o , generally do have higher levels o f industrialization and emissions, and therefore more leverage with investors to set the rules by which they engage i n the C D M .  China is one country that is taking action to encourage C D M investments in sustainable development activities, although its approach varies from Schlup's proposal. China has announced its intention to levy a 65 percent tax on C E R s revenues resulting from H F C - 2 3 projects to ensure the price o f C E R s from H F C - 2 3 projects are not lower than those o f renewable energy, energy efficiency, and coal-bed methane capture, which the government has identified as its priorities for the C D M . China estimates that it has the potential to generate 1 783 million tonnes o f C 0 e 2  reductions by 2010 from C D M activities in its priority areas (Carbon Finance 2005c). However, given the potential tax revenues, China is unlikely to exclude H F C - 2 3 projects from its portfolio o f C D M activities. F r o m a global perspective, this is positive given that the government reportedly intends to use the tax revenues from H F C - 2 3 projects to support additional climate-related activities (Carbon Finance 2005c, 2005d). However, China's situation is hardly typical o f most countries and as o f yet, no other governments have followed China's lead.  The issue o f H F C - 2 3 projects again reveals the tension that can exist within the C D M ; investors' interest i n achieving K y o t o compliance as cost-efficiently as possible and the importance o f reducing global emissions are weighed against the importance of supporting sustainable development priorities at the local and national level. However, it also raises the question o f how  108  the feasibility o f developing and marketing projects that offer greater sustainable development value can be increased so that the tension is lessened.  IV. Financial and Market Barriers to Sustainable Development W h i l e end-of-pipe activities such as H F C - 2 3 projects supply the majority o f C E R s available to investors, these activities do not constitute the majority o f projects under development. A s previously noted, renewable energy and energy efficiency projects constituted 70 percent o f the total projects under development as o f late November 2005. While the emission reductions potential o f each o f these projects is significantly lower than that o f H F C - 2 3 projects, the potential cumulative reductions o f the renewable energy and energy efficiency projects is still significant at 19 m i l l i o n tonnes o f C 0 e reduction per year (Fenhann 2005). Moreover, these projects have the 2  capacity to support the decarbonization o f developing countries' economies because they are aimed at reducing countries' reliance and use o f carbon-intensive fuels. A t least in some cases, these projects also have the capacity to help meet development needs at the local level by improving the accessibility o f energy services and related benefits. Y e t while there are approximately 335 renewable energy and energy efficiency projects currently under development, it remains questionable as to how many o f these projects w i l l be fully implemented, even i f they are approved as C D M projects by the C D M Executive Board. This is because there are a number o f financial and market barriers that limit project developers' ability to develop their projects and sell the resulting C E R s at a price that makes their involvement i n the C D M financially feasible. T w o key barriers the interviewees identified included insufficient levels o f carbon financing and lack o f access to upfront financing. Additional barriers that contribute to these problems include investors' risk adversity to small-scale projects, lack o f access to market data, and the challenge o f marketing projects' sustainable development value in a compliance-oriented market.  A. Lack of Up-Front Financing W h i l e the prospect o f C D M financing may help to increase the financial feasibility o f projects by boosting their potential internal rate o f return, project developers must first overcome the challenge o f securing up-front financing to pay for equipment and other capital expenditures required to develop their projects. This can present a serious barrier to developing C D M projects, particularly  109  for independent small-scale project developers who often have limited resources and access to conventional financing  72  (Owino 2005a; Peters 2004; Rajshekar S.C. 2005).  A.I. Carbon Financing W h e n the C D M was first established, it was assumed that investors would partner with project developers from the outset, reducing the risks borne by the project developer by providing up-front carbon financing for the anticipated C E R s (Liptow et al. 2004). However, as both Owino (2005a) and S.C. Rajshekar (2005) noted during their interviews, this bilateral investment approach has not borne out in practice.  I do not believe that the level (in terms o f numbers and size) o f implementation o f sustainable development projects has increased. This is because i n developing countries, the biggest barrier to C D M projects is financial (capital investment), besides other barriers that could be unique to the specific projects. The C D M does not address this barrier and assumes financial assistance for implemented projects... A s a result there are potential C D M projects that have not gone beyond the P I N [ P D D ] stage (Owino 2005a email correspondence). 7 3  Under the C D M one o f the mechanisms was that the Annex I country would actually invest in the project. But what we are actually seeing is no equity in participation. M o s t o f it is post-facto purchases o f carbon credits. This means the project developer does all o f the development and gets the project off the ground, and then contracts with the buyer when the buyer is very sure the carbon credits w i l l be issued... There is no support through technology or capital; it is just purchasing the goods after they are produced. This is not the same as investing in equity where you are bearing the risks o f the project (Rajshekar S.C. 2005). (Rajshekar S.C. 2005 phone interview). A s S.C. Rajshekar suggests, rather than entering into partnerships with project developers, investors often choose to arrange purchase agreements once the delivery o f C E R s is guaranteed—particularly in the case o f small scale projects. In discussing why this unilateral approach has become the preferred practice for many investors, Vickers explained;  This is compared to small-scale projects developed by subsidiaries of multinational companies or as part of an established company's larger operations, such as an energy company developing a wind-farm (Rajshekar S.C. 2005). The Project Idea Note (PIN) is a document that project developers often use to market their potential projects tofinancersor investors. The PIN is similar to the Project Design Document (PDD), but investors (particularly large carbon funds managers such as the World Bank) often have specific formats in order to elicit additional information they may require from project developers. For an example, see the World Bank's PIN template at: http://carbonfinance.org/docs/PINTemplate3 05 2004.doc. 73  110  Small scale projects have huge risks. First, they are small, so the overall costs [per C E R ] are far greater so this presents a risk. I f y o u build a small project, the transaction costs are huge compared to large projects because the transaction costs are fixed cost. The other aspect is that often the counterparties are not reputable corporations with a good track record. Thirdly, these projects often need all o f the money upfront in order to get the project going, and then you have nothing to fall back on i f they walk, or they go bankrupt, etc. So these are typically projects that are far beyond the capacity o f commercial corporations to take. They simply won't do it (Vickers 2005 interview). Investors' risk adversity is understandable to a degree, as small scale projects often entail higher risks than the large scale industrial projects. However, it may also be a case o f self-fulfilling prophecy. I f investors choose to purchase C E R s rather than invest in projects, it has the effect o f deferring the full cost and risks o f designing, developing and marketing the project onto the developer (Liptow et al. 2004; O w i n o 2005a; Rajshekar S.C. 2005). Faced with the challenge o f securing up-front financing from alternative sources and bearing the full risks o f the project, developers are more likely to encounter problems delivering on their projected emission reductions (Owino 2005a).  O w i n o (2005a) returned to the example o f the V a n i l l a Jatropha project, which involves the cultivation o f Jatropha plants for biodiesel , as an example o f how insufficient up-front financing 74  can limit project's capacity to deliver emission reductions;  [In the case o f the V a n i l l a Jatropha project], the project developers have been able to fund some o f the initial activities and fanning has started. The Japan Carbon Fund has expressed interest [in purchasing C E R s from the project] and agreed to fund the transaction costs provided 40 percent o f the planned land size has been planted, but the project is slow because there are not adequate funds to finance adequate seedlings production and [the planted area] is therefore expanding very slowly. This is an example o f a good project that w i l l be limited by the capital investment. G o o d projects with significant contribution to sustainable development are available... However, capital investment for implementation is a major barrier to implementation (Owino 2005a).  In this case, the investor had offered to provide funding to cover the transaction costs associated with registering and accrediting the project. However, the funding was provisional on the project developers demonstrating they had the capacity to deliver the anticipated C E R s . Unfortunately, the lack o f up-front financing to enable the production of jatropha seedlings was restricting their ability  The Vanilla Jatropha project is discussed in more detail in Chapter 4. Vanilla vines are grown on the Jatropha bushes, providing an additional source of revenue to the local farmers involved in the project. 7 4  Ill  to meet the investor's conditions, despite the fact that the developers had adequate land and sufficient farmers willing to participate in the project.  A.2. Conventional  Financing  While investors' risk adversity contributes to the challenges of securing up-front financing, it is not the only barrier. For example, had the Vanilla Jatropha project been able to secure up-front financing from another source, it could have succeeded in securing the additional financing from the Japan Carbon Fund. However, local banks and financiers that could provide financing often lack an understanding of the CDM, and tend to question the financial feasibility of small scale projects. Even when financial institutions are familiar with CDM financing, they tend to consider the risks of project development to be extremely high because of the multiple uncertainties involved in registering projects, delivering emission reductions, and finding an investor to purchase the resulting CERs (Peters 2005a). CDM projects are also subject to general barriers to investment in developing countries, which can include inadequate communication among stakeholders, ineffective regulation or poor enforceability of laws which increases the investment risk (UNDP 2002).  A.3. Addressing  the Challenge  of Up-Front  Financing  Addressing the need for up-front financing is important in enabling project developers, particularly independent small-scale project developers, to develop CDM projects that can deliver sustainable development benefits. There are several strategies that may facilitate access to up-front financing. Encouraging investors to allocate a portion of their CDM investments to the development of bilateral CDM projects (i.e. a partnership model) could increase the availability of funding. Initiatives such as the Gold Standard could help investors in identifying projects with lower investmentrisks(Schlup 2005c). Investors could also limit their risks by agreeing to enter an advance purchase agreement for a limited quantity of CERs at a lower price, with a further agreement to purchase additional CERs at a higher price once they are guaranteed the project can deliver its anticipated emission reductions (Liptow et al. 2004). This would be beneficial to both the project developer and the investors because it would provide some up-front financing to assist in the project's development and lower its delivery risk. In addition, educating investors in the offset market (who tend to favor projects with demonstrable sustainable development benefits) of how providing up-front financing can contribute to higher volumes of emission reductions may encourage them to invest in bilateral CDM projects.  112  Efforts o f governments and international development agencies could also help project developers reduce their up-front costs. Host country governments could help to reduce the up-front costs o f developing projects by assisting project developers with feasibility studies and the preparation o f P D D s . In many cases, simply providing access to relevant information such as national energy statistics or a directory o f equipment providers would help to reduce the effort and cost o f preparing the P D D s . Limited support in designing and preparing C D M projects is already available through international development initiatives (Peters 2005c). F o r example, the Government o f Canada has provided funding through its Climate Change Development Fund for the Pembina Institute's Small Project Facility to assist project developers i n India, K e n y a and Nigeria i n preparing business plans and P D D s for small-scale projects (The Pembina Institute 2006). The United Nations Environment Program ( U N E P ) also works with potential project developers and host governments to identify C D M projects and develop P D D s through its Capacity Development for C D M ( C D 4 C D M ) program ( U N E P 2005). However, these programs could also be made more effective by helping project developers to secure funding for their remaining upfront costs.  Overall, improving access to conventional funding is likely the most critical issue i n overcoming the barrier o f up-front financing. A s w i l l be discussed, the need to expand access to conventional funding is compounded by the fact that even when up-front carbon financing is available, its contribution to the total project costs is relatively minimal. Encouraging development banks and development organizations to prioritize the provision o f low-interest loans for renewable energy and energy efficiency projects, and encouraging developed countries to increase their contributions to such agencies is important to expanding access to conventional financing (Peters 2005c). W o r k i n g with both international and local financial institutions to increase their understanding o f the C D M would also assist in expanding access to up-front financing. D N A from host countries could assist in this process by providing local institutions with information on the C D M , and assisting project developers in identifying financing opportunities.  B. Insufficient Carbon Financing Theoretically, the C D M is designed to provide project developers with an additional source o f revenue through the sale o f C E R s to help facilitate the development o f sustainable development projects that would not occur i n the absence o f the C D M . However, the price o f C E R s has remained relatively low, which has meant that the level o f carbon financing is often insufficient to affect the financial feasibility o f renewable energy, energy efficiency and other small scale projects (Owino 2005b; Peters 2005a; Rajshekar S.C. 2005; Schlup 2005b).  113  B.l. Low Internal Rates of  Return  Commenting on the affect o f carbon financing on renewable energy and energy efficiency ( R E / E E ) projects, Schlup states;  R E / E E projects gain a relatively small boost i n their internal rate o f return (IRRs) from carbon credit revenues. Increased I R R s through C E R sales were exactly what was thought would attract more investors and bring more projects online through the help o f the C D M . B u t l o w C E R prices... have prevented this mechanism from coming fully to fruition (Schlup 2005a online). In his interview, Schlup expanded on this point by explaining that C E R s were expected to increase projects' internal rate o f return above the threshold where financial institutions would consider investing i n a project and reduce the project's risk factors, thereby expanding project developers' access to financing. Schlup explained,  In developing countries, y o u would be looking at a required I R R o f 30 percent because otherwise no private investor looks at a project as they simply consider it too risky. N o w i f you have an I R R o f 15 percent, which is not unreasonable, and you can increase your I R R by 15 percent through the sale o f C E R s , then obviously you w i l l have investors look at the project more closely. The other side o f it is that the revenue stream w i l l be i n hard currency, which is much safer than having the revenue stream i n the local currency, not just because o f the exchange rate, but also because you have a buyer in a developed country where the legal frameworks are much easier—its easier to sign a contract with the buyer that he needs to give you back the money that y o u loaned to the project. (Schlup 2005b) However, the low price o f C E R s has meant that for many projects, carbon financing  75  has not  provided the necessary increase i n the internal rate o f return to expand project developers' access to additional financing.  B.l. Price of CERs It is difficult to accurately determine the price o f C E R s due to the fact that contract terms differ between projects and many investors do not disclose the details o f their purchase agreements. However, market analysts estimate that between January 2004 and A p r i l 2005, the price o f C E R s averaged at US$5.63, with prices ranging between U S $ 3 to U S $ 7 (Lecocq and Capoor 2005). W h i l e the price o f C E R s has increased over the past year due to rising demand, the price remains  The revenue from CERs may be received up-front or calculated into the business plan as a future revenue stream when project developers present their project to potential financiers.  75  114  significantly lower than that o f allowances in the European U n i o n Emissions Trading System ( E U E T S ) , which averaged around €17 (US$21) per tonne o f C 0 e over the same period (Lecocq and 2  Capoor 2005). The relatively high price o f allowances in the E U - E T S suggests that there is an opportunity for C E R s prices to increase because as long as the cost o f purchasing international emission reduction credits remains below the cost o f domestic emissions, C D M investments remain a cost-effective alternative. S.C. Rajshekar explained how the low price o f C E R s has limited the C D M ' s effectiveness i n supporting developing countries' sustainable development;  If you take the C D M objective as helping developing countries achieve sustainable development; by its self I don't think the C D M is helping. F o r example i f you take solar water heaters—which is ranked as having fairly good potential as a C D M project—the C D M contributes something like 10-15% o f the capital cost over a 10 year crediting period. That means the C D M is contributing very insignificantly towards the capital costs. B y itself, the C D M w i l l not help start projects that lead to sustainable development (Rajshekar S.C. 2005). Analysts suggest that the price o f C E R s has remained relatively low due to the uncertainty o f whether projects w i l l be approved, as well as investors' perception that C D M projects have higher investment risks than domestic projects or initiatives (Lecocq and Capoor 2005). However, several of interviewees noted the price o f C E R s has also been affected by price-setting among investors, who establish a ceiling on the price they are willing to pay for C E R s (Peters 2004; Schlup 2005b). In his interview, Schlup explained that part o f the challenge is that buyers often don't recognize that costs can vary significantly between projects, and therefore set the ceiling at a level that is unreasonably low to support projects that could deliver greater sustainable development benefits, but have higher costs;  Most buyers today, even government buyers, set a ceiling on the price [of C E R s ] . The problem with that is that usually you have two different interests in a C D M tendering process. Y o u have the environmental people who want to buy good projects, and then you have the financial people who don't understand the issue o f sustainability, so they look at the market and say that the average price is $4/tonne, so they set a ceiling o f $6/tonne and that just keeps prices low (Schlup 2005b). In a market where demand for C E R s is greater than the supply, price-setting has likely had the effect o f artificially deflating the price o f C E R s below what project developers might otherwise receive.  115  In addition to price setting, S.C. Rajshekar (2005) suggested that project developers also face barriers i n negotiating higher prices because they lack access to market data. He suggested that although negotiating a fair price for their C E R s is critical to the success o f their project, most project developers do not have the information required. Consequently, negotiating the C E R s purchase price with an investor is one o f the most difficult tasks a project developer undertakes. S.C. Rajshekar stated,  H o w should you price it [CERs]? Right now the price that is offered is the price you have. Y o u don't know what the best price you actually can get for it because you have no information about what it costs an Annex I country investor to actually buy your C E R s , or what options they have. Y o u don't know what the opportunity cost o f buying the C E R s are, and without that knowledge you are actually going to the negotiating table completely b l i n d . . . What is the actual cost, say, for a Canadian o i l refinery to reduce their G H G emissions? This is the marginal abatement cost, and you don't know whether it is $2 or $200 i n terms o f C 0 equivalent. Without that knowledge, what are you negotiating with? (Rajshekar S.C. 2005 phone interview) 2  Yet in addition to a lack o f information, S.C. Rajshekar noted that project developers are at a disadvantage because o f the power imbalance between themselves and the investor;  F r o m the buyers perspective the C D M has more or less become unilateral. This was suppose to be a type o f deal where you had private entities dealing with private entities. Right now, it is project developers dealing with governments o f Annex I countries. I f you take C E R U P T [Dutch C D M tender] or the Finnish or Norwegian tenders, these are governments backed by big budgets buying from small project developers like me. What negotiation chances do we have with them? Nobody is actually advising the seller; everybody is working on behalf o f the buyer. What they are advising the seller is "you better sell now, because the prices may go down". This is what I have been hearing for the past 4 years, although the prices have actually inched up. (Rajshekar S.C. 2005 phone interview).  Lack o f access to market data and the fact that most project developers are dealing with investors who wield substantial power to control prices within the C E R s market contribute to the challenges project developers encounter in attempting to use the C D M to assist in developing their projects. For some projects, the additional revenue generated through the sale o f C E R s may still be worthwhile. However, the low price o f C E R s can discourage project developers from participating in the C D M , particularly i f the revenue generated through the sale o f C E R s does not offset the additional transaction costs incurred by project developers as a result o f developing their projects as a C D M activity.  116  B.2. Transaction Costs  In an assessment of the relative cost to develop CDM projects, the UNDP found that small-scale projects are generally more expensive to develop in terms of $US per tonne of C02e than standard projects, largely due to the fact that CDM transactions costs for small-scale projects are higher on a marginal cost basis (UNDP 2002). The UNDP reported that "renewable projects are the most expensive; off-grid projects are more expensive than on-grid projects; projects in rural areas are more expensive than projects in urban areas, and projects in Africa are more expensive than elsewhere in the world" (UNDP 2002 4). Official CDM transaction costs include fees for validating and registering projects, and a 2 percent adaptation fee levied on projects to support the adaptation to climate change in developing countries (Peters, Robertson, and Brunt 2003). Small-scale projects qualify for reduced registration fees according to the CDM Executive Board's simplified modalities and procedures for small-scale projects (CDM Executive Board 2003b). However, the transaction costs per tonne of C0 e are still generally higher than those of standard projects that are 2  able to generate large volumes of emission reductions (Liptow et al. 2004). Additional costs project developers typically incur include the costs associated with developing the PDD (i.e. feasibility studies, business plans), as well as the cost of monitoring, verifying and certifying emissions (Krey 2005; Liptow et al. 2004). Owino (2005a) noted that completing the requirements of the PDD, including selecting the baselines and calculating emission reductions, often requires technical expertise that small scale project developers are unlikely to have, and often is not locally available. Hiring a contractor with the necessary skills to provide this information adds to the transaction costs of developing the PDD. Finally, S.C. Rajshekar (2005) noted that marketing CERs to potential investors can be extremely costly and resource intensive, particularly for independent project developers. In some cases, negotiating a purchase agreement can literally take years, during which time the project developer must invest additional time and resources into meeting with investors and responding to their inquiries.  Ultimately, unless a project is guaranteed to result in sufficient CERs to offset the additional transaction costs imposed by the CDM, there is no incentive for project developers to invest the time and resources required to pursue CDM financing. This is particularly true for small-scale project developers involved in renewable energy and energy efficiency projects that generally have low internal rates of return even before the addition of CDM transactions costs. Project developers therefore need to improve their ability to negotiate fair prices for the CERs generated by their projects.  117  B.3. Expanding the Scope of Capacity Building Programs Expanding existing capacity building programs for project developers to include the marketing o f C E R s would help to build project developer's skills i n this area and strengthen their negotiating position (Rajshekar S.C. 2005). Providing project developers with information on C D M tenders and requirements o f investors, and assisting project developers i n assessing which tenders would be most suitable for their projects would help to reduce the costs o f C E R s marketing. A l s o , i f project developers were able to approach investors with a portfolio o f potential projects that had been prescreened by the D N A o f an Annex I country, investors may be more receptive to considering smallscale projects.  Capacity building programs may also be able to supply project developers with  relevant information on the costs o f domestic emission reductions among Annex I countries, which would help to even the power imbalances by providing project developers with greater resources on which to draw during the negotiating process. Another approach would be to establish a website or database that project developers could access to compare C E R s prices, although this may be complicated by contractual clauses that restrict project developers from sharing information.  B.4. Encouraging Sectoral CDM A s previously discussed, adopting a Sectoral approach to the C D M would dramatically alter the environment in which C D M activities are undertaken. The concept o f Sectoral C D M as suggested by Figueres (Figueres 2005b, 2006; Samaniego and Figueres 2002) is primarily targeted at decarbonizing specific economic sectors. However, the underlying notion o f redefining the definition o f C D M project to include policies aimed at reducing emissions could support both the decarbonization of industrial activities and community-based initiatives under the C D M . F o r example, a policy to expand access to energy services into rural or peri-urban areas through distributed renewable energy systems could significantly reduce the transaction costs incurred by small-scale project developers. Under the Sectoral approach, the government could submit a single application (i.e. Project Design Document) that would apply to a l l o f the individual small-scale project activities undertaken to achieve the aim o f expanding access to energy services into rural and peri-urban areas. T o improve the marketability o f C E R s resulting from the individual project activities, the government could offer to subsidize the capital costs o f individual projects or provide access to low-interest loans i n exchange for the emission reductions generated by the project. The government could also implement a national program to monitor projects and ensure the emission reductions claimed by the project developer were occurring. This could have the secondary benefit of ensuring that the energy systems supplying communities were properly maintained and operational. Additional development objectives such as improving gender equity could be achieved  118  by designing complementary programs. F o r example, technical training programs aimed at teaching local women to maintain or manage local energy systems could help to improve women's incomes and skills. W h i l e the advantages o f the Sectoral approach i n terms o f supporting decarbonization have been explored (e.g. Figueres 2006; Samaniego and Figueres 2002; Sterk and Wittnben 2005), further consideration should be given to its potential benefits i n supporting smallscale community-based activities.  B.5 Marketing  Sustainable  Development  Benefits  A key strategy for promoting projects that deliver sustainable development benefits is to enable project developers to distinguish their projects on the basis o f their contribution to sustainable development and demand higher C E R s prices from investors on this basis (Schlup 2005b; Tyler 2005). T w o issues must be addressed i n order for this to occur. First, project developers need to be able to market the sustainable development benefits o f their projects in a way that allows investors to easily recognize the project's sustainable development value and compare it to the offerings o f other projects. Tools such as the C D M G o l d Standard provide project developers with a credible, recognized framework for demonstrating the additional advantages offered by their projects beyond emissions reductions. W h i l e other assessment criteria may be more rigorous, the G o l d Standard is particularly beneficial because it provides tools to assist project developers i n marketing their projects. These include a G o l d Standard database that is used to promote projects to potential investors, and general information that is distributed to investors on the qualifications required o f G o l d Standard projects. In addition, representatives from the G o l d Standard participate i n climate change conferences and investment forums raising awareness o f the G o l d Standard and promoting the benefits of its projects (Gold Standard 2005). Beyond the additional costs incurred at the validation stage by requiring the Designated Operational Entity to assess a project according to the G o l d Standard criteria, there is no charge for labeling a project as G o l d Standard certified (Ecofys 2005). The second is how to motivate investors to distinguish between C D M projects on the basis of their sustainable development value rather than solely on the price o f C E R s (Schlup 2005b; Tyler 2005). A s Schlup noted in his interview, this is often an issue o f educating investors that there are more elements to sustainable development in the C D M than global emission reductions;  One o f the difficulties is that everyone has a different understanding o f sustainable development. Most o f the buyers are in the market because they are seeking to abate greenhouse gas emissions; they don't even think about the other implications of sustainable development in C D M projects. I think the dominant issue is to explain to a buyer why they should purchase a C E R that cost more when it delivers the same value to them as i f they purchased a cheaper credit. What is the  119  difference that the buyer makes, and what is the value that he gets by making that difference when he pays more for the renewable energy project compared to a H F C C E R (Schlup 2005b phone interview). Therefore, part o f the benefits o f the G o l d Standard is that it provides project developers with a framework for redefining sustainable development in a locally, versus globally, relevant way. Raising investors' awareness o f the potential benefits o f supporting sustainable development w i l l also help them to identify how they can find additional value in their investments, whether this involves reporting to stakeholders or supporting international development objectives. Small-scale project developers are likely to have the greatest success with investors i n the offset market, as these investors tend to be more receptive to considering additional social, environmental or economic (i.e. economic benefits delivered to the local community) investment criteria (Tyler 2005). The value o f this approach has been demonstrated by the Kuyasa low cost housing energy upgrade project i n Khayelitsha, South Africa. The Kuyasa project was one o f the first G o l d Standard Certified C D M projects, and in a press release issued on November 28, 2005, SouthSouthNorth announced the first o f its C E R s had been purchased;  The Cape T o w n City Council, owners o f the Kuyasa low cost housing energy upgrade project in Khayelitsha, South Africa, has sold the project's first 10,000 C E R s to the U K government to offset greenhouse gas emissions from the recent G 8 summit at Gleneagles. The credits were sold for the highest price C E R price yet to be publicly disclosed, 15 Euros. The premium is acknowledged to be due to the projects status as 'registered', and as G o l d Standard. The credits w i l l be delivered between 2006 and 2008, and the project has over 110,000 still available. The City is currently considering its sales strategy for the remainder (SouthSouthNorth 2005a online).  The Kuyasa project succeeded i n securing a price o f €15 (US$21) per C E R , the highest price for a C D M transaction that has been publicly disclosed to date. W h i l e it would be preferable i f all C D M projects could demonstrate strong sustainable development value, the key issue is to ensure projects are rewarded financially so that there is an incentive to develop projects that deliver sustainable development benefits, rather than penalize projects that incur higher marginal costs as a result o f their efforts to strengthen the social, economic and environmental sustainability o f their local communities or national economies.  120  Conclusion The entry into force o f the K y o t o Protocol has increased the level o f activity and interest i n the C D M among governments, private sector investors and project developers. However, the effectiveness of the C D M i n supporting sustainable development objectives at either a local, national or global level has been severely limited. Administrative and regulatory barriers at the level o f the C D M Executive Board have resulted in a backlog o f unapproved projects, and the Board's application o f the additionality clause has created a perverse incentive for developing countries to avoid or delay introducing proactive policies that would regulate G H G emissions. Meanwhile, H F C - 2 3 and other n o n - C 0 projects that offer few local or national sustainable 2  development benefits have come to dominate the C E R s market, which has contributed to maintaining a l o w price for C E R s . This creates multiple challenges for project developers seeking to use the C D M to implement projects with strong sustainable development benefits. I f the C D M is to succeed in its objective o f supporting sustainable development, the identified barriers and challenges w i l l have to be addressed. While the task o f strengthening the C D M appears daunting, there are opportunities at multiple levels to reduce or remove the barriers. Initiatives to improve the functioning o f the C D M Executive Board, expand the definition o f C D M projects to include climate-friendly policies, and support project developers by expanding capacity building programs, increasing access to up-front financing and considering strategies to reduce transactions costs would all contribute to strengthening the C D M ' s capacity to support sustainable development.  121  6. Conclusions Introduction W h i l e the Clean Development Mechanism i n theory provides a " w i n - w i n " approach to addressing climate change and development issues, further efforts are required to ensure it fulfills its objective o f assisting developing countries to achieve sustainable development. However, I have also come to realize that although significant barriers and challenges exist, there are real opportunities to strengthen the C D M ' s capacity to foster sustainable development.  A t the outset o f my thesis research, I established four questions to guide my inquiry into how effective the C D M has been in fostering sustainable development, and how it could be strengthened in this regard. These questions were:  1)  H o w do the policies governing the Clean Development Mechanism ( C D M ) impact its capacity to support sustainable development?  2)  H o w is sustainable development being defined and operationalized in the context o f the CDM?  3)  What barriers or challenges do project developers encounter i n seeking to plan and implement C D M projects that w i l l deliver sustainable development benefits?  4)  What could be done to assist project developers in overcoming these barriers in order to strengthen the C D M ' s capacity to support sustainable development?  I return to these questions in concluding m y thesis to consider what insights I have gained as a result o f my research. In doing so, I recognize the wealth o f knowledge I have accessed through the project developers, investors, and development practitioners who took the time to share their experiences and perspectives on the C D M . The growth in my understanding o f the C D M both as a theoretical concept and an operational mechanism is largely a result o f their willingness to answer my questions and lead the discussion into areas o f which I would otherwise have been ignorant. In the following section I seek to address each o f my research questions in order to draw together the research and discussion presented in my earlier chapters.  122  I. How do the policies governing the Clean Development Mechanism (CDM) impact its capacity to support sustainable development? The C D M exists within the broader framework o f international climate change policy, namely the U N Framework Convention on Climate Change ( U N F C C C ) and its supporting agreement, the K y o t o Protocol. The C D M is one o f three internationally-based mechanisms designated to assist i n international efforts to mitigate additional climate change under the K y o t o Protocol. However, it is unique i n that it is the only mechanism i n which developing countries may participate and which has the stated objective o f supporting host countries' efforts to achieve sustainable development. The intent and structure o f the C D M reflect the guiding principles for action on climate change established i n the U N F C C C . These principles support the C D M ' s objective by emphasizing the need to respect countries' specific needs, circumstances and development priorities, and encouraging efforts to support sustainable development as a means o f increasing countries' capacity to address the adverse impacts and underlying causes o f climate change ( U N 1992b). The C D M ' s structure, which is designed to enable developed countries to contribute to host countries' sustainable development, is also supported by the U N F C C C ' s principle o f "common but differentiated responsibilities". This principle confirms that while climate change is a global issue for which all countries are responsible, developed countries have the responsibility for leading action on climate change because their relative contribution to anthropogenic climate change is greater than developing countries and they have greater access to resources with which to pursue mitigation measures ( U N 1992b; U N F C C C Secretariat 2002a).  W h i l e the U N F C C C ' s guiding principles provide the rationale for the approach and structure o f the C D M , it is the K y o t o Protocol that enables the C D M to operate. The K y o t o Protocol establishes the incentive for Annex I countries to participate in the C D M by setting legally binding emission reduction targets. Annex I investors' primary motive for participating in the C D M is therefore to enable them to achieve compliance with their K y o t o commitments; a motive which serves as the C D M ' s second objective. The C D M ' s dual objectives o f assisting developing countries in achieving sustainable development and supporting Annex I investors in achieving K y o t o compliance are arguably not mutually exclusive. However, these different interests have served to create tension between stakeholders. Annex I investors' interests are better served by supporting projects that deliver large quantities o f emission reductions, while developing countries interests are better served by projects that contribute to their sustainable development. W h i l e there is a potential for projects to deliver large volumes of emissions and support sustainable development, evidence to  123  date suggests that there is often a trade-off. Those projects offering the largest volumes o f emission reductions (i.e. H F C - 2 3 destruction projects) provide little in the way o f sustainable development benefits. In contrast, small scale projects with limited capacity for emission reductions can deliver significant development benefits such as expanding access to energy and related services.  II. How is sustainable development being defined and operationalized in the context of the CDM? A s highlighted i n Chapters 3 and 4, sustainable development remains a contested term, especially in the context o f the C D M . According to C D M regulations, host country governments are responsible for establishing sustainability criteria with which to assess C D M projects' contribution to sustainable development. W h i l e this affirms the developing countries' right to direct their o w n development, resource constraints as well as other institutional and regulatory barriers often limit designated national authorities' ( D N A s ) ability to pursue sustainable development objectives through the C D M . Consequently, it is important to expand our gaze beyond the D N A s when seeking to understand how the C D M ' s sustainable development objective is being operationalized. The interviews with the investors, project developers and development practitioners revealed three alternative perspectives on sustainable development in the context o f the C D M . These perspectives are not mutually exclusive, but rather represent entry points for understanding how project developers, investors and project developers are seeking to operationalize sustainable development in the context o f the C D M .  The first perspective focuses on the C D M ' s contribution to global sustainability through the reduction o f greenhouse gas emission reductions. Through the global sustainability lens, the C D M is primarily viewed as a compliance mechanism aimed at assisting Annex I investors achieve their emission reductions targets as required by the K y o t o Protocol. The strongest advocates o f this perspective were private sector investors who argued that increasing the amount o f foreign direct investment flowing through the C D M would be the most effective way to support sustainable development because it would strengthen developing countries economies and increase the volume of emission reductions achieved.  The second perspective identifies decarbonization o f developing countries' economies as the critical aspect o f sustainable development to support through the C D M . According to this perspective, C D M activities should facilitate a transformation o f developing countries' economies by reducing  124  the emissions intensity o f economic growth, thereby strengthening countries' capacity to realize sustainable development. The decarbonization perspective emphasizes the importance o f C D M activities that have the potential to affect change throughout a sector o f the economy, such as introducing measures to improve the energy efficiency o f operations and reduce on-site emissions in the cement industry. Advocates of the decarbonization perspective argued that additional social, economic or environmental benefits such as increased employment or improved water and air quality may be realized at the local level as a result o f C D M projects, but considered this a secondary benefit o f the C D M .  The third perspective is based i n the three-pillar approach to sustainability, and emphasizes the importance o f the C D M in supporting environmental, social and economic development objectives at the local level. The three-pillar approach encourages project developers and investors to expand their thinking o f how C D M projects can contribute to sustainable development. Advocates o f the three-pillar approach place a greater emphasis on achieving social development objectives than those advocating for the global sustainability and decarbonization perspectives, which tend to focus exclusively on the environmental and economic aspects o f sustainable development. The V a n i l l a Jatropha project i n K e n y a and the Kuyasa low-income urban housing energy upgrade project i n South Africa, discussed in Chapter 4, are examples o f how C D M activities can assist in achieving social, economic and environmental development objectives.  W h i l e each o f the three perspectives highlights a different aspect o f sustainability, the C D M ' s sustainability objective is clearly defined within the framework o f assisting developing countries in meeting their sustainable development objectives. This arguably requires sustainable development benefits to be delivered at the local or national level. W h i l e the C D M ' s contribution to reducing global G H G emissions is important in terms o f mitigating climate change, it is insufficient to fulfill the C D M ' s sustainable development objective. Therefore, the decarbonization and three-pillar perspectives are more appropriate entry-points for considering how C D M projects may contribute to sustainable development at the national or local level.  125  III. What barriers or challenges do project developers encounter in seeking to plan and implement CDM projects that will deliver sustainable development benefits? In researching and discussing this issue with investors, development practitioners and project developers, it became apparent that the C D M ' s potential to foster sustainable development has been limited at the operational level by a range o f institutional, financial and market barriers. These barriers affect the operation o f the C D M at various stages o f the project cycle.  M a n y project developers encounter financial barriers from the outset o f developing their projects, particularly independent developers seeking to implement small-scale projects. The financial barriers identified include a lack o f upfront financing and insufficient carbon financing. The lack o f upfront financing for projects i n developing countries is not unique to the C D M . Particularly i n the case o f small scale renewable energy and energy efficiency projects, developers encounter problems in accessing conventional (or alternative) financing because the internal rate o f return is typically low and financiers consider the projects to be high risk. Originally, the promise o f the C D M was that it would provide project developers with access to upfront financing that would help to overcome these barriers because investors would enter into a partnership with developers from the outset o f the project. However, this has not transpired due to the risk adversity o f project developers and the C D M Executive Board's decision to allow unilateral C D M projects, which means investors are not required to participate in the development o f C D M projects. Instead, most project developers choose to purchase C E R s once projects have demonstrated they w i l l deliver on their emission reductions targets. Project developers must therefore seek financing from conventional financial institutions, which often view the promise o f carbon financing to be insufficient to offset the perceived risks. In some cases, financial institutions do not have an adequate understanding o f the C D M or they disregard its potential to boost projects' internal rate o f return due to the uncertainty o f whether carbon financing w i l l be forthcoming—or whether it w i l l be sufficient to significantly affect projects' financial feasibility. In other cases, the additional transaction costs incurred in developing projects as C D M activities are barely offset by the additional revenue generated through the sale o f C E R s . These problems are compounded by the fact that the price o f C E R s has remained low, averaging about U S $ 5 per C E R (with notable exceptions such as the Kuyasa project). Prices have remained low in part due to market barriers such as price setting by investors and project developers' weak negotiating position. However, the price has also been affected by H F C - 2 3 projects and other end-of-pipe activities that offer minimal  126  sustainable development benefits yet limit the demand for projects with higher marginal costs by flooding the C E R s market with large volumes o f low priced C E R s . Unless investors choose to recognize the added value o f additional development benefits, there is little incentive to pay the higher prices required by smaller-scale developers to make their participation i n the C D M financially feasible.  Project developers encounter additional barriers when they seek to register their projects as C D M activities. A t the national level, Designated National Authorities ( D N A ) may operate with insufficient resources and limited institutional capacity, which can impede their ability to assess projects i n a timely manner or provide project developers with sufficient evidence that their projects contribute to their countries' sustainable development (i.e. investors seeking offset credits may require further evidence). A t the international level, project developers encounter numerous institutional barriers that affect the functioning of the C D M Executive Board. A lack o f adequate funding to cover the Board's operational expenses is one factor contributing to the backlog o f proposed C D M projects awaiting approval by the C D M Executive Board. The delays in the approval process increase the risks o f participating in the C D M for project developers because they run the risk that the emission reductions resulting from their projects w i l l not occur within the first commitment period, and because investors offer lower prices for emission reductions from unregistered projects. The inconsistent and non-transparent rulings o f the Board and its Methodology Panel on proposed projects and methodologies, particularly in terms o f assessing projects' additionality, have resulted in regulatory uncertainties that present a further barrier for project developers seeking to register their projects with the Board.  The Board's approach to additionality has created another barrier to fostering sustainable development—this time outside o f the C D M . Although the C D M ' s additionality clause is important i n terms o f ensuring business-as-usual projects are excluded from the C D M , the Board's application o f the clause has had the unintended effect o f discouraging countries from introducing pro-active policies and regulations that would contribute to decarbonizing their economies. This is because projects that result in emission reductions that are required by existing laws or regulations are disqualified as C D M activities according to the guidelines set out by the Board's Additionality T o o l , and where emission reductions exceed the required amount the regulation or law provides as the baseline used for calculating the project's additional emission reductions. This has led some governments to delay implementing laws and regulations that would limit the amount o f carbon financing available to project developers, particularly in sectors with significant potential for  127  emission reductions. This is problematic because, assuming proper enforcement, laws and regulations limiting emissions could have a far greater impact on reducing emissions that the C D M may achieve, particularly given the limited number o f projects approved to date. The perverse incentive to delay the implementation o f pro-active laws and regulations created by the Board's application o f the additionality clause is linked to its narrow definition o f "project", under which the Board identifies each individual project as a distinct activity. This requires the Board to assess every project i n detail, which further contributes to the backlogs and delays in its approval process.  IV. What could be done to assist project developers in overcoming these barriers in order to strengthen the CDM's capacity to support sustainable development? W h i l e there are significant barriers limiting the C D M ' s current capacity to foster sustainable development, a number o f initiatives and tools have been identified that would contribute to strengthening the C D M i n this regard. In some cases, the potential solutions to identified barriers are relatively straightforward, and w i l l likely be implemented in the near future. For example, the Parties w i l l likely approve the proposed 'share o f proceeds' levy during C O P - 1 1 , which would help to cover the C D M Executive Board's administrative expenses. In other cases, addressing the barriers and implementing solutions are more complex. Below, I highlight some implications for policy and practice that different C D M actors might consider in their work:  A. Addressing Institutional Barriers Ensuring that the C D M Executive Board addresses the additional institutional barriers that are affecting its ability to function efficiently and support the implementation o f sustainable development projects is extremely important. The Board should reviewing its project approval process to ensure that the criteria used i n assessing proposed methodologies and activities are clearly established and available to project developers. This would help to reduce the existing regulatory uncertainties and related costs incurred by project developers attempting to anticipate the changing requirements.  The Board should also ensure that its staff and the members o f the  Methodology Board have the adequate skills to effectively fulfill their responsibilities. The most significant initiative the Board could undertake to strengthen the C D M is to expand its definition o f a C D M project activity to include policies that promoting emission reductions and alter its approach to assessing additionality in order to allow activities falling under the policy to claim all o f their emission reductions as additional. This would dramatically reduce the Board's administrative burden by avoiding the need to assess projects on an individual basis and, more importantly, 128  encourage developing countries to implement pro-active policies that encourage emission reductions and sustainable development.  B. Limiting CERs from Projects with Low Development Potential L i m i t i n g C E R s from activities with minimal sustainable development value such as H F C - 2 3 destruction projects would contribute to ensuring the integrity o f the C D M and maintaining its potential to support project offering sustainable development value beyond emission reductions. Restricting eligible H F C - 2 3 projects to existing operations w o u l d help to reduce the amount o f lowcost, l o w value C E R s on the market, and avoid creating a perverse incentive to increase the production o f H C F C - 2 2 and H F C - 2 3 .  C. Facilitating Access to Up-Front Financing Improving project developers' access to up-front financing is a critical factor in supporting the development o f sustainable development projects, particularly those initiated by independent small scale project developers. Encouraging investors to enter into bilateral C D M projects, or to agree to advance purchase agreements for a portion o f the total C E R s contracted from a project would help project developers to secure the funds necessary to implement their projects and thereby reduce the risk o f under delivery on anticipated C E R s . Improving access to conventional financing is critical because even i n cases where carbon financing is available, it w i l l not be sufficient to fund all the upfront costs. Encouraging development banks and organizations to provide financing, particularly in the form o f low-interest loans, is therefore important. Governments and development organizations' efforts to reduce the upfront costs borne by project developers by providing access to relevant information and assistance in preparing their Project Design Documents ( P D D ) could also help to facilitate the development o f projects delivering sustainable development benefits.  D. Integrating Sustainable Development Benefits into CER Pricing. Building the value o f additional sustainable development benefits into the price o f C E R s is critical to ensuring project developers receive adequate carbon financing to encourage their participation in the C D M and enable sustainable development projects that would otherwise be financially unfeasible to be implemented. The G o l d Standard is particularly useful in this regard as it acts as a marketing tool that enables project developers to distinguish their projects on the C E R s market based on their additional development benefits (i.e. beyond emission reductions). Assuming investors recognize the added value o f these benefits, project developers using the G o l d Standard have the opportunity to access a greater level o f carbon financing for projects that obviously contribute to achieving sustainable development objectives. The City o f Cape T o w n ' s success in  129  negotiating a price o f U S $ 2 1 per C E R for its Kuyasa l o w cost housing energy upgrade project demonstrate that there are investors who recognize the added value o f projects that deliver additional development benefits.  E. Promoting Multi-stakeholder Support Increasing support from Annex I governments, N G O s and international development agencies for capacity building among Designated National Authorities ( D N A s ) , project developers, and financial institutions within developing countries could contribute to strengthening the ability o f these stakeholders to foster sustainable development. This capacity building should respectively be aimed at establishing strong sustainability criteria and assisting project developers to obtain financing, designing projects with greater development value and securing financing, and offering financial support to credible projects. Capacity building programs for project developers should provide training in use o f planning fools, such as the G o l d Standard and SouthSouthNorth's M a t r i x T o o l , which offer assistance to project developers i n assessing and strengthening the sustainable development benefits o f their projects. The structure for providing such training already exists in ongoing capacity building programs such as the Pembina Institute's C D M Small Projects Facility and U N D P ' s Capacity Development for C D M ( C D 4 C D M ) programs, but the scope o f these initiatives needs to be expanded to deal with the operational realities o f the C D M and efforts multiplied to provide more training opportunities.  Conclusion W h i l e the C D M has yet to deliver on its full potential due to the manner in which it has been operationalized, opportunities remain to increase its effectiveness i n fostering sustainable development. The challenge that remains is how to convince the broad range o f stakeholders that the C D M ' s objective o f assisting developing countries to achieve sustainable development is not only worthwhile in and o f itself, but necessary i f developing countries are to contribute to future efforts to reduce emission and have the capacity to address the impacts o f climate change.  130  Works Cited A C I A . 2004. Impacts of a Warming Arctic: Arctic Climate Impact Assessment (ACIA). Canada: Cambridge University Press. Adger, W . N e i l , Saleemul H u q , Katrina B r o w n , Declan Conway, and M i k e Hulme. 2003. Adaptation to climate change i n the developing world. Progress in Development Studies 3 (3):179-195. A l l e y , R . B . , Marotzke, J., Nordhaus, W . D . , Overpeck, T.J., Peteet D . M . , Pielke Jr., R . A . , Pierrehumbert, R . T . , Rhines, P . B . , Stacker, T . F . , Talley, L . D . , Wallace J . M . , . 2003. Abrupt climate change. Science 299:2005:2010. Anonymous. 2005. Personal communication, September 26. Ashton, John, Zhou Dadi, L u i z G y l v a n M e i r a Filho, Bert Metz, M a r t i n Parry, John Schellnhuber, K o k Seng Y a p , and Robert Watson. 2005. A v o i d i n g Dangerous Climate Change. In International Symposium on the Stabilisation of greenhouse gas concentrations, Hadley Centre, Met Office, Exeter, UK, 1-3 February 2005. Exeter, U K : Hadley Centre. Austin, Duncan, and Paul Faeth. 1999. H o w much sustainable development can we expect from the Clean Development Mechanism? Washington: W o r l d Resources Institute. B A T T R E . 2005. Salvador da Bahia Landfill Gas Management Project: B r a z i l [ C D M Reference #0052]. Salvador, B r a z i l : Bahia Transferencia e Tratamiento de Residuos S . A . ( B A T T R E ) . Baumert, K e v i n A . , Odile Blanchard, S i l v i Llosa, and James Perkaus, eds. 2002. Building on the Kyoto Protocol: Options for Protecting the Climate. Washington, D C : W o r l d Resources Institute. Baumert, K e v i n , and Nancy Kete. 2001. United States, developing countries, and climate protection: Leadership or stalemate? Washington, D C : W o r l d Resources Institute. . 2002. Introduction: A n Architecture for Climate Protection. In Building on the Kyoto Protocol: Options for Protecting the Climate, edited by K . A . Baumert. Washington, D C : W o r l d Resources Institute. Beck, Tony. 2001. The Marrakesh Accords and the K y o t o Mechanisms. AETF Review: Australasian Emissions Trading Forum, 3-5. Beg, N . , J . C . Morlot, O . Davidson, Y . Afrane-Okesse, L . Tyani, F . Denton, Y . Sokona, J . P . Thomas, E . L . L a Rovere, J. K . Parikh, K . Parikh, and A . A . Rahman. 2002. Linkages between climate change and sustainable development. Climate Policy 2 (2-3): 129-144. Begg, Katherine, and et al. 2003a. Encouraging C D M energy projects to aid poverty alleviation, Summary Report to U K D F I D : U K Department for International Development (DFID).  131  . 2003b. Encouraging C D M energy projects to aid poverty alleviation, Summary Report to U K D F I D : Attachment l ~ R e v i e w o f C D M Activities: U K Department for International Development (DFID). . 2003c. Encouraging C D M energy projects to aid poverty alleviation, Summary Report to U K D F I D : Attachment 3--Assessment o f Sustainability Benefits from Small-scale Projects: U K Department for International Development ( D F I D ) . Boustie, Sylvie, M a r i o Raynolds, and Matthew Bramley. 2002. H o w Ratifying the K y o t o Protocol W i l l Benefit Canada's Competitiveness. Calgary: Pembina Institute for Appropriate Development. B o y d , E m i l y . 2002. The N o e l K e m p f f project in B o l i v i a : gender, power, and decision-making i n climate mitigation. Gender & Development 10 (2):70-77. B o y d , E m i l y , Jon Hanks, L i s a Schipper, M a l e n a Sell, Chris Spence, and Juliette V o i n o v . 2001. Summary o f the 7th Conference o f the Parties to the Framework Convention on Climate Change: 29 October - 10 November 2001. Earth Negotiations Bulletin, 16. Bramley, Matthew. 2005. Future Financial Liability for Greenhouse Gas Emissions from N e w Large Industrial Facilities in Canada. Ottawa: The Pembina Institute. B r o w n , Katrina, and Esteve Corbera. 2003. A Multi-Criteria Assessment Framework for CarbonMitigation Projects: Putting "development" i n the center o f decision-making. N o r w i c h : Tyndall Center for Climate Change Research. Byers, Stephen, O l y m p i a Snowe, B o b Carr, John P Holdren, Martin K h o r Kok-Peng, Nathalie Kosciusko-Morizet, Claude Martin, Tony M c M i c h a e l , Jonathon Porritt, A d a i r Turner, Ernst U l r i c h von Weizsacker, N i Weidou, Timothy E Wirth, Cathy Z o i , and Rajendra K Pachauri. 2005. Meeting the Climate Challenge: Recommendations o f the International Climate Change Taskforce. Canberra: Australia Institute. Cannon, Terry. 2002. Gender and climate hazards i n Bangladesh. In Gender, Development and Climate Change, edited by R. Masika. Oxford: Oxfam. Carbon Finance. 2004. First C D M project submitted for registration, as controversy rages. Carbon Finance 1 (9): Available from http://www.carbon-financeonline.com/. . 2005a. C D M Executive Board offers solution to resources hurdle. Carbon Finance 2 ( 1 0 ) : Available from http://www.carbon-financeonline.com/. . 2005b. C D M Executive Board still facing budget shortfall. Carbon Finance 2(19): Available from http://www.carbon-financeonline.com/. . 2005c. China considering 60-70% H F C credit tax. Carbon Finance 2(17): Available from http://www.carbon-financeonline.com/. . 2005d. China outlines C E R tax levels. Carbon Finance 2 (22): Available from http://www.carbon-financeonline.com/. . 2005e. C O P / M O P should focus on improving C D M - W o r l d Bank. Carbon Finance 2 (22): Available from http://www.carbon-financeonline.com/. 132  . 2005f. Deal emerges in Montreal on C D M . Carbon Finance 2 (23): Available from http://www.carbon-financeonline.com/. . 2005g. I E T A calls for overhaul o f C D M . Carbon Finance 2 (21): Available from http://www.carbon-financeonline.com/. . 2005h. Natsource raises €455 million for G G - C A P . Carbon Finance 2 (22): Available from http://www.carbon-financeonline.com/. Carbon International. 2005. The G o l d Standard: Premium Quality Carbon Credits. Basel: The G o l d Standard. Castro, Marcos, Christiana Figueres, R o b y n M c G u k i n , and Matthew Mendis. 2002. The Functions of a National Authority. In Establishing National Authorities for the CDM: A Guide for Developing Countries, edited by C . Figueres. Winnipeg: International Institute for Sustainable Development (USD) and Centre for Sustainable Development i n the Americas (CSDA). C D M Executive Board. 2003a. Executive Board o f the Clean Development Mechanism Seventh Meeting Report: A n n e x 4 - Glossary o f terms used in the C D M project design document ( C D M - P D D ) . Bonn: United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat.  . 2004. Simplified modalities and procedures for small-scale CDM project activities (FCCC/CP/2002/7/Add.3). U N F C C C 2003b [cited November 16 2004]. Available from http://cdm.unfccc.int/Reference/Documents/AnnexII/English/annexII.pdf. . 2005. CDM Executive Board (CDMEB). United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat 2004a [cited January 16 2005]. Available from http://cdm.unfccc.int/EB. . 2004b. Clean Development Mechanism Guidelines for Completing the Project Design Document ( C D M - P D D ) , the Proposed N e w Methodology Baseline ( C D M - N M B ) and the Proposed N e w Methodology Monitoring ( C D M - N M M ) [Version 02: 1 J u l y 2004]. Bonn, Germany: United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat. . 2004c. Executive Board o f the Clean Development Mechanism Sixteenth Meeting Report: Annex 1 - Tool for the demonstration and assessment o f additionality. Bonn: United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat. . 2004. Project Design Document Form (CDMPDD) - Version 02. United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat, 1 J u l y 2004 2004d [cited December 5 2004]. Available from http://cdm.unfccc.int/Reference/Documents/cdmpdd/English/CDM PDD_ver02.pdf. . 2005a. Clean Development Mechanism Executive Board: Twenty-first Meeting Report, 30 September 2005, at Bonn, Germany.  133  . 2005. Designated National Authorities (DNA). United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat 2005b [cited January 10 2005]. Available from http://cdm.unfccc.int/DNA. . 2005. Issuance of CERs. United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat 2005c [cited November 1 2005]. Available from http://cdm.unfccc.int/Issuance/. . 2005. Members of the Meth Panel. United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat 2005d [cited December 17 2005]. Available from http://cdm.unfccc.int/Panels/meth/members. . 2005. Registered CDM project activities. United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat 2005e [cited January 7 2005]. Available from http://cdm.unfccc.int/Projects/registered.html. . 2006. Registration. United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat 2006 [cited M a r c h 26 2006]. Available from http://cdm.unfccc.int/Statistics/Registration/. C D M India: Designated National Authority. 2005. Host Country Approval: Eligibility Criteria. Government o f India, Ministry o f Environment and Forests 2005 [cited October 20 2005]. Available from http://envfor.nic.in/cdm/host_approval_criteria.htm. Cecelski, Elizabeth. 2000. The Role o f Women i n Sustainable Energy Development. Golden, Colorado: National Renewable Energy Laboratory. . 2002. Enabling Equitable Access to Rural Electrification: Current Thinking on Energy, Poverty and Gender: A s i a Alternative Energy Unit: The W o r l d Bank. Chambers, R o b e r t , and Gordon Conway. 1991. Sustainable rural livelihoods: Practical concepts for the 21 st century. Brighton: Institute o f Development Studies. Clancy, Joy, Margaret Skutsch, and Simon Batchelor. 2003. The Gender - Energy - Poverty Nexus. In DFID Project CNTR99852L London: U K Department for International Development. Clark, W i l l i a m , Jill Jaeger, Robert Corell, Roger Kasperson, James J. M c C a r t h y , D a v i d Cash, Stewart J. Cohen, Paul Desanker, Nancy M . Dickson, Paul Epstein, D a v i d H . Guston, J . M i c h a e l H a l l , Carlo Jaeger, Anthony Janetos, N e i l Leary, M a r c A . L e v y , A m y Luers, M i c h a e l M a c C r a c k e n , Jerry M e l i l l o , Richard Moss, Joanne M . N i g g , Martin L . Parry, Edward A . Parson, Jesse C . Ribot, Hans-Joachim Schellnhuber, Daniel P. Schrag, George A . Seielstad, Eileen Shea, Coleen V o g e l , and Thomas J . Wilbanks. 2000. Assessing vulnerability to global environmental risks. In Report of the Workshop on Vulnerability to Global Environmental Change: Challenges for Research, Assessment and Decision Making. Cambridge, M A : Environment and Natural Resources Program, Belfer Center for Science and International Affairs ( B C S I A ) , Kennedy School o f Government, Harvard University. Corporate Europe Observatory. 2005. Corporate Campaign to Corrupt The Kyoto Protocol Continues After COP-6 [Media Article]. CorpWatch 2001 [cited 2005]. Available from http://www.corpwatch.oi-g/article.php?id=980.  134  D E F R A . 2005. The Green G 8 Presidency - African Project to benefits from U K offsetting o f carbon dioxide emissions [News Release]. London: U K Department for Environment, Food, and Rural Affairs ( D E F R A ) . den Elzen, M . G . J. 2003. Exploring Climate Regimes for Differentiation o f Future Commitments to Stabilise Greenhouse Gas Concentrations. Integrated Assessment 3 (4):343-359. den Elzen, M i c h e l , and Andre de M o o r . 2002. Evaluating the Bonn-Marrakesh agreement. Climate Policy 2:111-117. Denton, Fatma. 2002. Climate change vulnerability, impacts, and adaptation: why does gender matter? Gender & Development 10 (2): 10-20. D F I D . 2002. Energy for the Poor: Underpinning the M i l l e n n i u m Development Goals. London: Department for International Development (DFID). D O E , Energy Information Administration ( E I A ) . 2003. International Energy Outlook 2003: World Energy Consumption [website]. Government o f the United States 2003 [cited 23 October 2003]. Available from http://www.eia.doe. gov/oiaf/ieo/world.html. Downing, T, R . Butterfield, S. Cohen, S. H u q , R . M o s s , A . Rahman, Y . Sokona, and L . Stephen. 2000. Climate Change Vulnerability: Toward a Framework for Understanding Adaptability to Climate Change. Oxford, England: Environmental Change Unit, Oxford University. Easterling, D a v i d R., Gerald A . M e e h l , Camille Parmesan, Stanley A . Changnon, Thomas R . K a r l , and L i n d a O. Mearns. 2000. Climate Extremes: Observations, Modeling, and Impacts. Science 289:2068-2074. Ecofys. 2005. The G o l d Standard: Project Developer Manual. Basel: The G o l d Standard. E I A . 2003. W o r l d Energy Consumption. In International Energy Outlook 2003. Washington, D C : Energy Information Administration, Department o f Energy, U S Government. . 2004a. Emissions o f Greenhouse Gases i n the United States 2003. Washington, D C : Energy Information Administration, U S Department o f Energy. . 2004b. Environmental Issues and W o r l d Energy Use. In International Energy Outlook 2004. Washington, D C : Energy Information Administration, Department o f Energy, U S Government. . 2004c. W o r l d Energy and Economic Outlook. In International Energy Outlook 2004. Washington, D C : Energy Information Administration (EIA), U . S . Department o f Energy. . 2005. International Energy Outlook 2005. Washington, D C : Energy Information Administration (EIA), U . S . Department o f Energy. E P A . 2005. US Environmental Protection Agency Clean Air Market Programs - Cap and Trade: Essentials [pdf]. U S Environmental Protection Agency 2005a [cited September 9 2005]. Available from http://www.epa.gov/airmarkets/capandtrade/ctessentials.pdf.  135  . 2005. US Environmental Protection Agency: Clean Air Markets - Allowance Trading. U S Environmental Protection Agency, 12/05/2005 2005b [cited September 7 2005]. Available from http://www.epa.gov/ainnarkets/trading/index.html. European Commission. 2004. E U Emissions Trading. A n Open Scheme Promoting Global Innovation to Combat Climate Change. Belgium: European Commission. Eyzaguine, Jimena, and N i c o l e Kalas. 2002. Science and Policy. In Establishing National Authorities for the CDM: A Guide for Developing Countries, edited by C . Figueres. Winnipeg: International Institute for Sustainable Development ( U S D ) and Centre for Sustainable Development i n the Americas ( C S D A ) . Fenhann, J. 2005. Information on the CDM Pipeline. U N E P Risoe Centre, November 24 2005 [cited November 27 2005]. Available from www.cd4cdm.org/Publications/CDMpipeline.pdf. Figueres, Christiana. 2004. Institutional Capacity to Integrate Economic Development and Climate Change Considerations: A n Assessment o f D N A s i n Latin A m e r i c a and the Caribbean. Washington, D C : Inter-American Development Bank. . 2005a. Draft proposal for the Implementation o f Programmatic C D M project activities within the existing regulatory framework o f C D M project activities. Washington, D C : W o r l d Bank. . 2005b. Phone interview. Washington, D C , September 28. . 2005c. Programmatic C D M Project Activities: Eligibility, Methodological Requirements and Implementation. Washington, D C : W o r l d Bank. . 2006. Sectoral C D M : Opening the yet Unrealized Goal o f Sustainable Development. International Journal of Sustainable Development Law and Policy 2 (1): 1-20. , ed. 2002. Establishing National Authorities for the CDM: A Guide for Developing Countries. Winnipeg: International Institute for Sustainable Development (USD) and Centre for Sustainable Development in the Americas ( C S D A ) . Figueres, Christiana, and M a r y G o w a n . 2002. The Operation o f the C D M . In Establishing National Authorities for the CDM: A Guide for Developing Countries, edited by C . Figueres. Winnipeg: International Institute for Sustainable Development ( U S D ) and Centre for Sustainable Development i n the Americas ( C S D A ) . Frank, VA^hringer. 2004. Forest conservation and the clean development mechanism: Lessons from the Costa Rican protected areas project. Mitigation and Adaptation Strategies for Global Change 9 (3):240. G o l d Standard. 2005. The Gold Standard. Basel Agency for Sustainable Energy ( B A S E ) 2005 [cited July 28 2005]. Available from http://www.cdmgoldstandard.org/. Goldemberg, J., T. B . Johansson, A . K . N . Reddy, and R . H . Williams. 2001. Energy for the new millennium. Ambio 30 (6):330-337. Government o f Canada. 2002. Climate Change Plan for Canada. Ottawa: Government o f Canada. 136  . 2005. Offset System for Greenhouse Gases. Ottawa: Environment Canada, Government o f Canada. Grubb, M i c h a e l J., Chris Hope, and Roger Fouquet. 2002. Climatic Implications o f the K y o t o Protocol: The Contribution o f International Spillover. Climate Change 54 (1-2):11-28. Guijt, Irene, and M e e r a K a u l Shah, eds. 1998. The myth of community : gender issues in participatory development. London: Intermediate Technology Publications. Gupta, Joyeeta. 2000. "On Behalf of My Delegation,...": A Survival Guide for Developing Country Negotiators. Washington, D C : Center for Sustainable Development o f the Americas ( C S D A ) and the International Institute for Sustainable Development (USD). Holstein, James, and Jaber Gubrium. 2004. The active interview. In Qualitative Research: Theory, Method and Practice, edited by D . Silverman. London: Sage Publications. Houghton, J. T., Y . D i n g , D . J . Griggs, M . Noguer, P . J. van der Linden, and D . Xiaosu. 2001a. Climate Change 2001: The Scientific Basis. (Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on Climate Change). Edited by J. T. Houghton, Y . D i n g , D . J . Griggs, M . Noguer, and X . D . P J . van der Linden, K . M a s k e l l , C A . Johnson. Cambridge, United K i n g d o m and N e w Y o r k , N Y , U S A : Cambridge University Press. , eds. 2001b. Climate Change 2001: The Scientific Basis (Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on Climate Change (IPCC)), IPCC Third Assessment Report: Climate Change 2001. Cambridge: Cambridge University Press. Houghton, JT, G J Jenkins, and JJ Ephraums, eds. 1990. Scientific Assessment of Climate Change: Report of Working Group I. Edited by I P C C , IPCC First Assessment Report. Cambridge: Cambridge University Press, U K . I C L E I Energy Services. 2003. The Business Case for Cutting Greenhouse Gas Emissions from M u n i c i p a l Operations. Ottawa: Federation o f Canadian Municipalities. I E T A . 2005. Strengthening the C D M . Toronto: International Emissions Trading Association. I P C C . 2001a. Climate Change 2001: Impacts, Adaptation & Vulnerability (Technical Summary). In IPCC Third Assessment Report: Climate Change 2001. Geneva, Switzerland: Intergovernmental Panel on Climate Change ( I P C C ) Secretariat. . 2001b. Climate Change 2001: Impacts, Adaptation & Vulnerability (Technical Summary), IPCC Third Assessment Report: Climate Change 2001. Geneva, Switzerland: Intergovernmental Panel on Climate Change ( I P C C ) Secretariat. . 2001c. Climate Change 2001: Mitigation (Technical Summary). Geneva, Switzerland: Intergovernmental Panel on Climate Change ( I P C C ) Secretariat. . 200Id. Climate Change 2001: Synthesis Report. (Contribution of Working Groups I, II, and III to the Third Assessment Report of the Intergovernmental Panel on Climate Change).  137  Edited by R . T. Watson and the Core Writing Team. Cambridge, United K i n g d o m and N e w Y o r k , N Y , U S A : Cambridge University Press. . 2 0 0 l e . Climate Change 2001: The Scientific Basis (Summary for Policy Makers & Technical Summary). Geneva, Switzerland: Intergovernmental Panel on Climate Change ( I P C C ) Secretariat.  Climate Change 2001: The Scientific Basis. Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on Climate Change. Edited by X .  . 200If.  D . P.J. van der Linden, K . M a s k e l l , C A . Johnson. Cambridge, United K i n g d o m and N e w Y o r k , N Y , U S A : Cambridge University Press. . 2004a. 16 Years o f Scientific Assessment i n Support o f the Climate Convention December 2004. Geneva: Intergovernmental Panel on Climate Change (IPCC). . 2004. About IPCC [web page]. Intergovernmental Panel on Climate Change 2004b [cited A p r i l 2 2004]. Available from http://www.ipcc.ch/about/about.htm.  , ed. 1995. IPCC Second Assessment: Climate Change 1995. A Report of the Intergovernmental Panel on Climate Change. Geneva: Intergovernmental Panel on Climate Change. IT Power Carbon, and E C N . 2005. A Guide to Bundling Small-scale C D M Projects: IT Power Group & Energy Research Centre o f the Netherlands. Kenbar, M a r k , and L i a m Salter. 2003. G o l d Standard: Background and Overview: W o r l d Wildlife Foundation ( W W F ) . K i m u r a , Osamu. 2004. Demand for C D M from Business Side: Current status o f C D M in Japan [Central Research Institute o f Electric Power Industry ( C R I E P I ) . Paper read at Climate Protection as Development Opportunity Conference, June 7-8, at Hamburg Institute o f International Economics. Retreived from http://www.goldcdm.net/. Krey, Matthias. 2005. Transaction costs o f unilateral C D M projects in India-results from an empirical survey. Energy Policy 33 (18):2385-2397. Langrock, Thomas, and Wolfgang Sterk. 2004. The Supplemental!ty Challenge: C D M , JI & E U Emissions Trading. Wuppertal, Germany: Wuppertal Institute. Lecocq, Frank. 2004. State and Trends o f the Carbon Market 2004. Washington D C : Development Economics Research Group, W o r l d Bank. Lecocq, Frank, and Karan Capoor. 2005. State and Trends o f the Carbon Market 2005. Washington, D C : W o r l d Bank & International Emissions Trading Association ( I E T A ) . Lee, M y u n g - K y o o n , ed. 2004. CDM Information and Guidebook. 2nd ed. Roskilde, Denmark: U N E P Riso Centre on Energy, Climate and Sustainable Development. Liptow, Holger. 2004. C D M Rules: A G T Z Perspective [Climate Protection Programme (CaPP), G T Z ] . Paper read at Climate Protection as Development Opportunity Conference, June 7-8, at Hamburg Institute o f International Economics. Available at http://www.goldcdm.net/.  138  Liptow, Holger, A x e l Michaelowa, Stefan Raubenheimer, and M i c h a e l Jahn. 2004. Measuring the Potential o f Unilateral C D M : A Pilot Study. H W W A Discussion Paper no. 263. Hamburg: Hamburg Institute o f International Economics ( H W W A ) . Markandya, A n i l , and Kirsten Halsnaes, eds. 2002. Climate Change and Sustainable Development: Prospects for Developing Countries. London: Earthscan Publications L t d . Marks, Use. 1996. W o m e n and energy resources management. Natural Resources Forum 20 (2): 145. Matsui, Yoshiro. 2002. Some Aspects o f the Principle o f " C o m m o n but Differentiated Responsibilities". International Environmental Agreements: Politics, Law and Economics 2 (2):151-170. McCarthy, James J., Osvaldo F . Canziani, N e i l A . Leary, D a v i d J. Dokken, and Kasey S. White, eds. 2001. Climate Change 2001: Impacts, Adaptation and Vulnerability (Contribution of Working Group II to the Third Assessment Report of the Intergovernmental Panel on Climate Change). Cambridge, United K i n g d o m and N e w Y o r k , N Y , U S A : Cambridge University Press. M e e h l , Gerald A . , Warren M . Washington, W i l l i a m D . Collins, Julie M . Arblaster, A i x u e H u , Lawrence E . Buja, Warren G . Strand, and Haiyan Teng. 2005. H o w M u c h M o r e G l o b a l Warming and Sea Level Rise? Science 307 (5716):1769-1772. M e t z , Bert, Ogunlade Davidson, Rob Swart, and Jiahua Pan, eds. 2001. Climate Change 2001: Mitigation (Contribution of Working Group III to the third assessment report of the Intergovernmental Panel on Climate Change). Edited by B . Metz. Cambridge ; N e w Y o r k : Cambridge University Press. M G M International. 2005. Last chance for the C D M . Carbon Finance 2 (23): Available from: http://www.carbon-financeonline.coiT). Michaelis, Laurie. 2003. Sustainable consumption and greenhouse gas mitigation. Climate Policy 3 (Supplement 1): 135-146. M i l l e n n i u m Ecosystem Assessment Board. 2005. L i v i n g Beyond Our Means: Natural Assets and Human Well-being: M i l l e n n i u m Ecosystem Assessment. M i r z a , M . M o n i r u l Qader. 2003. Climate change and extreme weather events: can developing countries adapt? Climate Policy 3 (3):233-48. Misana, Salome, and G a i l V . Karlsson, eds. 2001. Generating Opportunities: Case Studies on Energy and Women. N e w Y o r k , N Y : United Nations Development Programme. Natsource L L C . 2005a. Fact Sheet on the Greenhouse Gas Credit Aggregation Pool. N e w Y o r k : Natsource L L C . . 2005. Natsource Corporate Overview. Natsource L L C . 2005b [cited 2 October 2005]. Available from http://www.natsource.com/about/corp_overview.pdf. Nexen Inc. 2005. About Us. N e x e n Inc. 2005 [cited September 2 2005]. Available from http://www.nexeninc.com/About U s / . 139  O k o Institut. 2005. The environmental effectiveness and economic efficiency of the E U E T S : Structural aspects o f the allocation: W W F . Olivas, Helena. 2005. Phone interview. Montreal, Q C , September 13. Olmos, Santiago. 2001. Vulnerability and Adaptation to Climate Change: Concepts, Issues, Assessment Methods: Climate Change Knowledge Network. Onyx. 2004. O n y x Landfill Gas Recovery project: Tremembe - B r a z i l [ C D M Reference #0027]. Nanterre: Onyx. O w i n o , T o m . 2005a. E m a i l correspondence. Nairobi, K e n y a , September 12. . 2005b. Personal communication. Montreal, Q C , November 30. Oxfam. 2005. Four million people are at risk of humanitarian disaster in West Africa (Oxfam International press release). Oxfam, 8 June 2005 [cited 4 July 2005]. Available from http://www.oxfam.org.uk/press/releases/wafrica_crisis_080605.htm. Peters, Roger. 2003. Selecting Baselines for C D M Projects - Experience from Asia, presented at Environment Canada C D M Workshop, February 28: Pembina Institute for Appropriate Development. . 2004. Interview. Calgary, A B , October 28. . 2005a. Personal communication. Montreal, Q C , November 28-29. . 2005b. Small-Scale C D M Project Development: K e y Issues and Solutions. Ottawa: Pembina Institute. . 2005c. Strengthening the Clean Development Mechanism. Drayton V a l l e y : The Pembina Institute. Peters, Roger, and Carol Brunt. 2003. Canada Clean Development Mechanism ( C D M ) Small Projects Facility - Pilot Phase Final Report. Ottawa: Pembina Institute. . 2004. Small-Scale C D M Project Development: K e y Issues and Solutions. Ottawa: Pembina Institute for Appropriate Development. Peters, Roger, Leslie-Arm Robertson, and Carol Brunt. 2003. A User's Guide to the C D M (Clean Development Mechanism), 2nd edition. Calgary: Pembina Institute for Appropriate Development. Point Carbon. 2004. What determines the price o f carbon? Carbon Market Analyst, October 14, 114. Pollution Probe, and Summerhill Group. 2004. A Green Power V i s i o n and Strategy for Canada: towards a sustainable electricity future for Canada. Toronto: Pollution Probe. PriceWaterhouseCoopers. 2000. A Business V i e w o f K e y Issues Relating to the K y o t o Mechanism. London: PriceWaterhouseCoopers.  140  Rajshekar S.C. 2005. Phone interview. Bangalore, India, 25 August.  Reddy, A . K . N . 2000. Energy and Social Issues. In World Energy Assessment: Energy and the  Challenge of Sustainabdity, edited by J. Goldemberg. N e w Y o r k : United Nations Publications. Reid, Hannah, and Mozaharul A l a m . 2005. M i l l e n n i u m Development Goals. Newswatch, January, 18-22.  Tiempo Climate  Robson, Wishart. 2005. phone interview. Calgary, A B , October 17.  World Energy Assessment: Energy and the Challenge of Sustainability, edited by J. Goldemberg. N e w  Rogner, Hans-Holger, and A n c a Popescu. 2000. A n introduction to energy. In Y o r k : United Nations Publications.  Rumberg, M i c h a e l . 2004. Factors for success for the G o l d Standard - from a certification perspective [ T U V Industrie Service G m b H , T U V S U D Group]. Paper read at Climate Protection as Development Opportunity Conference, June 7-8, at Hamburg Institute o f International Economics. Available at http://www.goldcdm.net/. S.C. Rajshekar, . 2005. Phone interview. Bangalore, India, 25 August. Samaniego, Joseluis, and Christiana Figueres. 2002. E v o l v i n g to a Sector-Based Clean Development Mechanism. In Building on the Kyoto Protocol: Options for Protecting the Climate, edited by K . A . Baumert, O. Blanchard, S. Llosa and J. Perkaus. Washington, D C : W o r l d Resources Institute. Sawin, Janet. 2003. Charting a N e w Energy Future. In State of the World 2003, edited by L . Starke. N e w Y o r k : W . W . Norton & Company. Schlup, Michael. 2005a. One goal is not enough. http://www.carbon-financeonline.com.  Carbon Finance 2 (21):Available from:  . 2005b. Phone interview. Basel, Switzerland, August 28. Schlup, M i c h e a l . 2005. What can CDM projects contribute to sustainable development? [News article]. Renewable Energy & Energy Efficiency Partnership ( R E E P ) 2005c [cited 28 August 2005]. Available from http://www.reeep.org/index.cfm?articleid=1200. Schneider, Lambert. 2004. Climate Protection as Development Opportunity: W h i c h R E Technologies can benefit from the G S ? [Oko-Institut]. Paper read at Climate Protection as Development Opportunity Conference, June 7-8, at Hamburg Institute o f International Economics. Available at http://www.goldcdm.net/. Simms, Andrew. 2005. Africa - U p in smoke? The second report from the W o r k i n g Group on Climate Change and Development. London: The W o r k i n g Group on Climate Change and Development, N e w Economics Foundation ( N E F ) . Simms, Andrew, John Magrath, and Hannah Reid. 2004. U p in smoke? Threats from, and responses to, the impact o f global warming on human development. London: W o r k i n g Group on Climate Change and Development / new economics foundation (nef).  141  Sociedad Hidroelectrica R i o Blanco S . A . de C V , and Asociacion de Pequenos Productores de . Energia Renovable. 2005. RIO BLANCO Small Hydroelectrical Project [ C D M Simplified Project Design Document for Small Scale Project Activity ( S S C - P D D ) ] . U N F C C C , November 4 2004 [cited January 4 2005]. Available from http://cdm.unfccc.intAJserManagement/FileStorage/FS 792172973. Solesbury, W i l l i a m . 2003. Sustainable Livelihoods: A Case Study o f the Evolution o f D F I D Policy. London: Overseas Development Institute. SouthSouthNorth. 2003. The SouthSouthNorth Sustainable Development Appraisal & Ranking Matrix T o o l . Cape T o w n : SouthSouthNorth. . 2005. First Transaction of Kuyasa Gold Standard CERS. SouthSouthNorth 2005a [cited November 28 2005]. Available from http://www.southsouthnorth.org/. . 2005b. Kuyasa Low-Cost Urban Housing Energy Upgrade Project Khayelitsha (Cape Town) South Africa: Summary o f C D M Project Activity. Cape T o w n : SouthSouthNorth. Sperling, F . 2003. Poverty and Climate Change: Reducing the vulnerability of the poor through adaptation [Report], African Development Bank et al. 2003 [cited February 12 2003]. Available from www.worldbank.org. Sterk, Wolfgang, and Bettina Wittnben. 2005. Addressing Opportunities and Challenges o f a Sectoral Approach to the Clean Development Mechanism. Wuppertal, Germany: Wuppertal Institute for Climate, Environment and Energy. Stott, Peter A . , and J. A . Kettleborough. 2002. Origins and estimates o f uncertainty i n predictions o f twenty-first century temperature rise. Nature 416:723 - 726. Sugiyama, Taishi, Kristian Tangen, Henrik Hasselknippe, A x e l Michaelowa, John Drexhage, Jiahua Pan, Jonathan Sinton, and A r i l d M o e . 2004. Where to next? Future steps o f the global climate regime. Oslo: Point Carbon. Sutter, Christoph. 2001. Small-Scale C D M Projects: Opportunities and Obstacles. C a n small-scale projects attract funding from private C D M investors? Zurich: Factor Consulting + Management L t d . . 2003. Sustainability Check-Up for CDM Projects: How to assess the sustainability of international projects under the Kyoto Protocol. Berlin: Wissenschaftlicher Verlag Berlin. Original edition, [Ph.D. Thesis] Swiss Federal Institute o f Technology Zurich. . 2004. H o w to ensure the development claim o f C D M projects [Factor Consulting and Management A G , Zurich]. Paper read at Climate Protection as Development Opportunity Conference, June 7-8, at Hamburg Institute o f International Economics. Available at http://www.goldcdm.net/. Swart, Rob, John Robinson, and Stewart Cohen. 2003. Climate change and sustainable development: expanding the options. Climate Policy 3 (Supplement 1): 19-40. The G o l d Standard. 2005a. Developing a project under The G o l d Standard. Basel: The G o l d Standard.  142  . 2005b. Environment Canada to use G o l d Standard credits for United Nations Climate Change conference offset [News Release]. Basel: The G o l d Standard. The Nature Conservancy. 2005. Climate Action Project: Rio Bravo Conservation and Management Area, Belize. The Nature Conservancy 2005 [cited November 4 2005]. Available from http://nature.org/initiatives/climatechange/work/art4247.html. The Pembina Institute. 2005. Climate Change, Development and the CDM. The Pembina Institute 2006 [cited November 15 2005]. Available from http://www.pembina.org/ie/intemational_eco3.shtml. Trexler, M a r k , and Jessica Shipley. 2004. B a c k to the future. Carbon Finance 1 (10):Available from: http://www.carbon-financeonline.com. Tyler, E m i l y . 2005. Phone interview. Cape T o w n , South Africa, September 12. U N . 1988. Protection o f global climate for present and future generations o f mankind (A/RES/43/53): United Nations General Assembly. . 1992a. R i o Declaration on Environment and Development. In Report of the United Nations Conference on Environment and Development. R i o de Janeiro: United Nations. . 1992b. United Nations Framework Convention on Climate Change ( U N F C C C ) . N e w Y o r k : United Nations. . 1997. K y o t o Protocol to the United Nations Framework Convention on Climate Change. K y o t o , Japan: United Nations. . 2001. Population, Environment and Development: The Concise Report. N e w Y o r k : United Nations Population Division. . 2004. L a c k of energy services for poor could doom development goals, U N experts warn. UN Press Briefing, 10 November. U N D P . 2004. United Nations Development Programme (UNDP) Clean Development Mechanism (CDM) Roundtable: Meeting Summary. United Nations Development Programme 2002 [cited November 12 2004]. Available from http://www.undp.org/seed/eap/html/docs/CDM Roundtable_Summary.doc. . 2003. The Clean Development Mechanism: A User's Guide. N e w Y o r k : United Nations Development Program. . 2005. Human Development Indicators. In Human Development Report 2005 International cooperation at a crossroads: Aid, trade and security in an unequal world, edited by K . Watkins. N e w Y o r k : United Nations Development Program. U N E P . 2000. The Montreal Protocol on Substances that Deplete the Ozone Layer. Nairobi: United Nations Environment Program, Ozone Secretariat. . 2002. State o f the Environment and Policy Retrospective: 1972-2002. In Global Environment Outlook 3: Past, present and future perspectives. Sterling, V A : Earthscan.  143  . 2004. Introduction to the CDM: Clean Development Mechanism, CD4CDM. Roskilde, Denmark: UNEP Riso Centre on Energy, Climate and Sustainable Development. . 2005. CD 4 CDM: Capacity Development for the CDM. UNEP 2005 [cited November 15 2005]. Available from http://www.cd4cdm.org/. UNEP, and UNFCCC. 2002. United Nations Climate Change Information Kit, edited by M . Williams. Harare: United Nations Environment Programme (UNEP) & United Nations Framework Convention on Climate Secretariat (UNFCCC Secretariat). UNFCCC. 2002. Report of the Conference of the Parties on its Seventh Session, Held at Marrakesh from 29 October to 10 November 2001 - Part Two: Action Taken by the Conference of the Parties. Geneva: United Nations. . 2005. Emissions Trading [United Nations Framework Convention on Climate Change Webpage]. United Nations 2004a [cited January 16 2005]. Available from http://unfccc.int/kyoto mechanisms/emissions_trading/items/2731txt.php. . 2005. Feeling the Heat: The Clean Development Mechanism [webpage]. UNFCCC 2004b [cited January 16 2005]. Available from http://unfccc.int/essential_background/feeling_the_heat/items/2918.php. . 2004. Guidelines under Articles 5, 7 and 8: Methodological Issues, Reporting and Review under the Kyoto Protocol [United Nations Framework Convention on Climate Change Webpage]. United Nations 2004c [cited November 16 2004]. Available from http://unfccc.int/national_reports/accounting_reporting_and_review_under_the_kvoto prot ocol/items/1029.php. . 2004. Kyoto Protocol to the United Nations Framework Convention on Climate Change. UNFCCC 2004d [cited July 10 2004]. Available from http://unfccc.int/essential_background/kvoto protocol/items/1678.php. . 2005. The Mechanisms under the Kyoto Protocol: Joint Implementation, the Clean Development Mechanism and Emissions Trading [United Nations Framework Convention on Climate Change Webpage]. United Nations 2004e [cited January 17 2005]. Available from http://unfccc.int/kyoto_mechanisms/items/1673.php. . 2004. Message on the 10th anniversary of the entry in to force of the UNFCCC [web page]. UNFCCC, United Nations Framework Convention on Climate Change 2004f [cited April 4 2004]. Available from http://unfccc.int/wnew/conv_10.html. . 2005. UN Secretary-General receives Russia's Kyoto Protocol ratification [UNFCCC Press Release]. United Nations 2004g [cited February 10 2005]. Available from http://unfccc.int/press/interviews_and_statements/items/3290txt.php. . 2005. Kyoto Protocol Thermometer. UNFCCC, February 2 2005a [cited March 10 2005]. Available from http://unfccc.int/essential background/kyotoprotocol/status of ratification/items/3134txt. php.  144  . 2005. Land-use, land-use change and forestry (LULUCF). United Nations 2005b [cited January 7 2005]. Available from http://unfccc.int/methods_and_science/lulucf/items/3060.php. . 2005. Project Activities Under Review [Project for GHG emission reduction by thermal oxidation of HFC 23 in Gujarat, India]. United Nations, 02/02/05 2005c [cited February 3 2005]. Available from http://cdm.unfccc.int/Projects/under_review.html. U N F C C C Secretariat. 2002a. A Guide to the Climate Change Convention Process. Bonn: United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat. . 2002b. Report o f the Conference o f the Parties on its Seventh Session, H e l d at Marrakesh from 29 October to 10 November 2001 - Part T w o : A c t i o n Taken by the Conference o f the Parties. Bonn: United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat. . 2003a. Caring for climate: A guide to the Climate Change Convention and the K y o t o Protocol. Bonn: United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat. . 2003b. Report of the Conference o f the Parties on its 8th Session, held at N e w Delhi from 23 October to 1 November 2002. Part T w o , A n n e x II - Simplified modalities and procedures for small-scale clean development mechanism project activities. Bonn: United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat. . 2005. Emissions Trading. United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat 2004a [cited January 16 2005]. Available from http://unfccc.int/kyoto_mechanisms/emissions trading/items/2731txt.php. . 2004. United Nations Framework Convention on Climate Change: Status of Ratification [last modified 24 May 2004]. United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat 2004b [cited July 10 2004]. Available from www.unfccc.int/resource/conv.ratlist.pdf. . 2006. Glossary of climate change acronyms. United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat 2006a [cited 5 M a r c h 2006]. Available from http://unfccc.int/essential_background/glossary/items/2639.php. . 2006. Vacancy announcements. United Nations Framework Convention on Climate Change ( U N F C C C ) Secretariat, 23 February 2006b [cited 26 February 2006]. Available from http://unfccc.int/secretariat/employment/vacancies/items/1216.php. U S Government. 2001. Climate Change Report. Washington, D C : United States Government. Vickers, Paul. 2005. Interview. Calgary, A B , August 18. W C E D . 1987. Our common future. Edited by W . C . o. E . a. Development. Oxford: Oxford University Press. W H O . 2003. Climate Change and Human Health - Risks and Responses. Summary. Edited by A . J. M c M i c h a e l . France: W o r l d Health Organization ( W H O ) .  145  W i g l e y , T. M . L . 2005. The Climate Change Commitment. Science 307 (5716):1766-1769. Wittneben, Bettina, Wolfgang Sterk, Hermann Ott, and Bernd Brouns. 2006. In from the C o l d : The Climate Conference in Montreal Breathes N e w Life into the K y o t o Protocol. Wuppertal, Germany: Wuppertal Institute for Climate, Environment and Energy. W M O . 2005. WMO Statement on the Status of the Global Climate in 2004: Global Temperature in 2004 Fourth Warmest [WMO Press Release No. 718]. W o r l d Meteorological Organization, 15 December 2004a [cited January 5 2005]. Available from http://www.wmo.int/. . 2005. World Meteorological Organization: About WMO. W o r l d Meteorological Organization 2004b [cited January 5 2005]. Available from http://www.wmo.int/. W o r l d Bank. 2003. Community Development Carbon Fund. Washington, D C : W o r l d Bank. . 2005. Carbon Finance at the World Bank [website]. W o r l d Bank 2005 [cited February 15 2005]. Available from http://carbonfinance.org/. W W F . 2004a. N o Place to Hide: Effects o f Climate Change on Protected Areas. Berlin: W W F Climate Change Program. . 2005. WWF Climate Witness: Penina Moce, Fiji. W o r l d Wildlife Fund 2004b [cited M a y 12 2005]. Available from http://mw.panda.org/campaign/powerswitch/people_power/climate_witnesses_detail.cfm? uNewsID=16588. Y a m i n , Farhana, and Joanna Depledge. 2004. The International Climate Change Regime: A guide to Rules, Institutions and Procedures. Cambridge: Cambridge University Press.  146  A p p e n d i x  A :  I n t e r v i e w  P r o t o c o l  As described in Chapter 1, the interviews with key informants ranged in duration from 45 to 90 minutes, and followed a semi-structured format guided by an interview protocol. The following questions served as the basis o f the interview protocol.  However, not all o f the questions were  asked o f each interviewee, and additional questions were added to allow for further inquires or discussion on relevant points o f interest.  I. The Interview Protocol 1.  Could you briefly describe how your work relates to the Clean Development Mechanism?  2.  What do you consider the primary purpose o f the CDM to be?  3.  What do you understand "sustainable development" to mean in the context o f the C D M ?  4.  Under the K y o t o Protocol, the CDM has 2 stated objectives: 1) to assist developing countries i n achieving sustainable development, and 2) to assist Annex I countries i n achieving their targeted emissions reductions a) In your view, how effective do y o u think the CDM has been to date i n supporting these dual objectives? b) H o w hopeful are y o u that the CDM w i l l achieve its aims?  5.  Could you give me an example o f a CDM project that you believe has made a significant contribution to sustainable development?  6.  H o w would y o u characterize this project's contribution to sustainable development?  7.  What are the key lessons to be learned from this project that could be applied to other CDM projects?  147  8.  a) D o you think that small-scale C D M projects differ from standard C D M projects i n their capacity to support sustainable development? b) I f so, how does scale affect projects' capacity?  9.  b) What w o u l d be required to bring about these changes?  10. In your experience, what are the motivations o f investors seeking to purchase certified emission reductions ( C E R s ) ?  11. What do investors look for i n a C D M project?  12. What has been the experience o f developing country governments seeking to participate i n the CDM?  13. a) A r e you familiar with any sustainability planning tools developed to assist project developers i n designing or marketing projects (i.e. C D M G o l d Standard / SouthSouthNorth Sustainable Development Appraisal Tool)? b) If so, do you consider these tools to be useful? W h y or why not?  14. a) What changes do you think would make the C D M more effective in supporting sustainable development?  148  A p p e n d i x  B : D e t a i l s o f t h e C D M  P r o j e c t A c t i v i t y C y c l e  I. Project Design Document (PDD) Design The first stage o f the Project A c t i v i t y C y c l e is the preparation o f the Project Design Document ( P D D ) . The P D D acts as a guide to the proponent or developer to ensure o f the essential technical and organizational details o f the project activity is provided as required under the K y o t o Protocol. The P D D requests general information, details o f the baseline and monitoring methodologies to be applied i n the project activity, estimated greenhouse gas emissions related to the project, an environmental impact assessment, comments received from local stakeholders, as w e l l as details o f funding sources ( C D M Executive Board 2004b, 2004d). Once completed, the project developer submits the P D D to a Designated Operational Entity ( D O E ) for validation.  A. General Information The P D D requests general information on the activity including such elements as a basic description o f the project, its location, the project participants, and how the project w i l l support the transfer o f environmentally safe and sound technology. The proponent must also justify the project's additionality, explaining how the proposed activity w i l l reduce greenhouse gases by source and by what quantity, and why the emission reductions would not have occurred in the absence o f the project ( C D M Executive Board 2004d). The general information is intended to provide a brief summary o f the project to assist in the review and assessment o f the activity, not a detailed implementation plan.  B. Project Duration & Crediting Period Proponents must define the duration o f the project, which is the expected operational lifetime o f the project, as well as specifying the preferred crediting period during which the project may claim C E R s for emissions reductions resulting from its activities ( C D M Executive Board 2004d). The proponent may apply for either a fixed, one-time crediting period of ten year, or a renewable crediting period o f seven years that may be renewed up to two times with the approval o f the C D M Executive Board ( U N F C C C Secretariat 2002b). For a project to qualify for the renewable credit period, the baseline scenario must be updated to allow for current alternatives, or proved to be still valid through an independent review by a designated operational entity ( C D M Executive Board 2004b).  149  C. Baseline & Monitoring Methodologies The P D D requires proponents to identify and describe in detail the baseline and monitoring methodologies that w i l l be applied i n the project, and provide a justification for the choice o f methodologies ( C D M Executive Board 2004d). A project baseline represents the greenhouse gas emissions that would have occurred i n the absence o f the proposed project, and is used to calculate the emission reductions attributed to the project activity. Monitoring is intended to provide the relevant data required for measuring greenhouse gas emissions by source that may be reasonably attributed to the project, as well as tracking the activity's environmental impacts. The methodologies presented in the P D D must be used for the duration o f the project to calculate emission reductions unless modifications are approved by the C D M Executive Board ( C D M Executive Board 2004b; U N F C C C 2002).  Proponents are encouraged to use baseline and monitoring methodologies that have previously been approved by the C D M Executive Board. However, i f the approved methodologies are not applicable to the project activity, the proponent may propose a new monitoring or baseline methodology to the C D M Executive Board for review and approval ( C D M Executive Board 2004b). Due to this system, the development o f the C D M modalities and procedures is considered to be a "bottom-up" process. The range o f approved project types and procedures continues to expand as the C D M Executive Board approves additional project types, baselines and monitoring methodologies proposed by project proponents.  D. Estimation of Greenhouse Gas (GHG) Emissions The project's estimated greenhouse gas emissions ( G H G ) by source must be detailed in the Project Design Document, along with a calculation o f the anticipated emission reductions resulting from the project activity ( C D M Executive Board 2004d). Estimated G H G emissions must account for emissions within the project boundary, which includes all emissions under the control o f the project participants that are "significant and reasonably attributable to the C D M project activity" ( C D M Executive Board 2004b). In addition, the estimation must account for anticipated leakage. Leakage includes emissions or emission reductions that occur outside o f the project boundary, but which are measurable and attributable to the project activity ( U N F C C C Secretariat 2003b). The anticipated emission reductions are roughly equal to the difference between the project's estimated emissions and the estimated emissions o f the baseline scenario. The C D M Executive Board provides specific formulas to calculate the estimated emission reductions for each project type and baseline scenario ( C D M Executive Board 2004b).  150  E. Environmental Impacts Project proponents must provide an analysis o f the project's environmental impacts, including transboundary impacts. A full environmental impact assessment is not required unless either the host Party or the project participants consider the potential impacts to be significant. In such cases, the project proponent must undertake an environmental impact assessment ( E I A ) i n accordance with the host Parties' requirements ( C D M Executive Board 2004b; U N F C C C 2002). Project proponents must, however, show due diligence that the project's environmental impacts have been considered i n order to illustrate a full E I A is not required.  A proposed project aimed at reducing fugitive G H G emissions i n Gujarat, India, was under review as o f February 2005 due to the inadequacy o f its initial environmental impact analysis. The Executive Board member who submitted the review stated that "significant environmental impacts appeared to have been overlooked by the project participants..." ( U N F C C C 2005c Request 2). Evidently, the failure to adequately assess a project's environmental impacts may lead to the rejection o f a project by the Designated Operational Authority, D N A or C D M Executive Board. However, neither the P D D nor its supporting documentation provides clear guidance on the base standards for an adequate environmental impact analysis, which limits the effectiveness o f the environmental impact assessment requirement.  F. Stakeholder Comments A s part o f the project design process, project proponents are expected to provide an opportunity for local stakeholders to provide input and comments on the proposed activities. There are, however, few specifications regarding the design o f the public consultation. The C D M Executive Board's key directive is that project proponents are expected to conduct the process in an "open and transparent manner, in a way that facilities comments to be received from local stakeholders and allows for a reasonable time for comments to be submitted" ( C D M Executive Board 2004b). T o help facilitate local stakeholders' understanding o f the project, the proponent is also required to present the project in a "manner which allows the local stakeholders to understand the project activity" ( C D M Executive Board 2004b). Project proponents are not required to provide proprietary or confidential information to local stakeholders. The U N F C C C does, however, place limitations on what information can be considered confidential and does not permit proponents to withhold information pertaining to a project's additionality, the applied baseline scenario, or any information that could support an environmental impact assessment ( U N F C C C 2002). In the Project Design Document, the proponent must describe the public consultation process, any comments received,  151  and how the project has addressed or accounted for local stakeholders' input ( C D M Executive Board 2004b).  G. Public Funding Under the K y o t o Protocol, funding for C D M projects must not come from official development assistance ( O D A ) , or result i n the diversion o f O D A . Moreover, any contributions by a Party towards the development o f a C D M project cannot be considered part o f the Party's required financial  contribution under the K y o t o Protocol ( U N F C C C 2002). Proponents must therefore  disclose all sources o f public funding from Annex I Parties i n the P D D , and provide sufficient details to confirm the project w i l l not draw on O D A ( C D M Executive Board 2004b).  II. Project Validation & Registration The project proponent submits the completed Project Design Document to a Designated Operational Entity ( D O E ) for validation and registration with the C D M Executive Board. A t this stage it is the D O E ' s responsibility to open the P D D for public comment and obtain approval from the appropriate Designated National Authorities ( D N A s ) for the activity. In cases where the proponent has proposed a new baseline or monitoring methodology, the D O E must also submit the methodology to the C D M Executive Board for review and approval. W i t h this input, the D O E considers whether the proposed project complies with all o f the relevant requirements set by the U N F C C C and the host country for the activity before presenting the project to the C D M Executive Board for registration. ( U N F C C C 2002).  A. Designated National Authorities' Approval The process o f obtaining the Designated National Authorities' ( D N A s ) approval for the proposed project enables the D O E to confirm the Parties and project proponents are eligible to participate in C D M activities, and that the project is approved by the host country and meets its sustainable development requirements. T o this end, the D O E must receive written confirmation from the host and investing country D N A s that their Parties have ratified the Protocol, and that the entities are legally and voluntarily participating in the proposed C D M activity. The host D N A must also issue  152  a statement to the D O E confirming the proposed activity w i l l support its Party's sustainable development objectives  76  ( U N F C C C 2002).  B. Public Consultation To ensure the public has an opportunity to provide feedback on the proposed project, the C D M Executive Board requires the D O E to publicly post the Project D e s i g n Document for thirty days. The D O E is responsible for receiving comments from stakeholders, Parties, and U N F C C C accredited non-governmental organizations, making these comments publicly accessible, and providing the project proponent with the results of the public consultation ( U N F C C C 2002).  C. Registration I f the D O E judges that the proposed project does not meet the validation requirements, it must provide the proponent a written explanation detailing the reasons for non-acceptance.  The  proponent is permitted to submit a revised version o f the Project Design Document to address the issues raised, which may include public concerns regarding the project. Assuming the project meets the requirements established by the C D M Executive Board and fulfills the host country's sustainable development criteria, the Designated Operational Entity ( D O E ) registers the project with the C D M Executive Board. U p o n registration, the project proponent is permitted to begin implementing the project ( C D M Executive Board 2004b).  D. Monitoring The proponent is responsible for monitoring the project throughout the crediting period using the methodology approved in the Project Design Document. The data collection must account for emissions within the project boundary, as well as any leakage resulting from the project activity. This includes any greenhouse gas emissions under the control o f the project participants, as well as any net change in emissions that are attributable to the project but occur outside o f the designated project boundary ( C D M Executive Board 2004b; U N F C C C 2002). The monitoring process should also track information on the project's environmental impacts, with particular attention given to issues raised in Project Design Document ( C D M Executive Board 2004b; U N F C C C 2002). Monitoring or reporting on the project's intended sustainable development contributions is not required.  If a multilateral fund such as the Prototype Carbon F u n d is acting as the proponent, only the host country D N A must provide its written approval to the D O E as the multilateral fund does not directly represent an A n n e x I Party.  153  III. Project Verification & Certification Periodically throughout the crediting period and at its end, a Designated Operational Entity (DOE) must review the monitoring process in terms of the quality of the procedures and the accuracy of the data to verify the reported emission reductions. The project's emission reductions are calculated by comparing the actual greenhouse gas emissions by source and any leakages to the emissions from the established baseline scenario. At the end of the crediting period, the D O E provides the C D M Executive Board with a report certifying the legitimacy of the project's emission reductions and requesting the Board to issue the proponent the due CERs (UNFCCC 2002). Again, there is no verification requirement regarding the project's results related to its intended sustainable development outcomes or impacts.  IV. Issuance of CERs Once the C D M Executive Board has received the DOE's certification report, members of the Board and the project proponent are allowed fifteen days in which to request a review of the project. Assuming no disputes or concerns are raised, the C D M Executive Board issues the requested CERs on behalf of the project. Prior to distributing the CERs, however, a share of the proceeds is deducted to cover the Executive Board's administrative expenses related to the project. Each project is also subject to a 2% levy, based on the value of the CERs at the time of issuance, which is paid into an adaptation fund. C D M projects in least developed countries (LDC), however, are exempt from this levy. The adaptation fund is administered by the Global Environmental Facility, and is used to assist vulnerable countries - such as least developed countries and small-island states - in meeting the costs of adapting to adverse climate change impacts (UNFCCC Secretariat 2002a). Once the CERs required to cover administrative expenses and adaptation fund are deducted, the remaining credits are distributed as requested by the project proponent (UNFCCC 2002).  154  A p p e n d i xC : COP-11 D e c i s i o n s o n t h e  C D M  I. Key decisions on the CDM reached at the 11th Conference of the Parties (COP-11) held in Montreal, QC, December 2005 The following is a summary of the Parties' key decisions on the CDM reached during COP-11: Eligibility of new HFC-23 Destruction Facilities as CDM Projects •  The decision on whether to permit the further development of HFC-23 destruction projects as CDM activities has been deferred for one year to allow for further deliberations by the UNFCCC's Subsidiary Body for Scientific and Technological Advice (SBSTA), which has been tasked with providing the Parties with a recommendation by COP-12 (Wittneben et al. 2006).  Funding of the CDM Executive Board •  The Parties agreed to levy a 'share of proceeds' fee on all CDM projects to assist in financing the activities of the CDM Executive Board. The levy will be for US$0.10 for the first 15 000 CERs of all projects (equivalent to the cut off for small-scale projects) and US$0.20 for CERs above this amount (Wittneben et al. 2006)  "Programs as Projects" •  The Parties agreed to allow programs as CDM projects. This is similar to the Sectoral approach to allowing policies as programs, but at a more restricted level. Programs must include appropriate methodologies to ensure that emission reductions are real, measurable, verifiable and additional. The Sectoral approach which includes policies as projects was rejected by the Parties due to Annex-I countries' concerns that it would result in non-additional projects qualifying as CDM activities (Wittneben et al. 2006).  Retroactive Crediting of Emission Reductions •  The Parties agreed to extend the registration deadline of December 31, 2005 for projects seeking retroactive crediting of emission reductions by one year (December 31, 2006) due to the backlog of unregistered projects resulting from delays at the level of the CDM Executive Board (Carbon Finance 2005f).  155  II. Other Relevant Changes Increased Staffing at the CDM Executive Board •  O n December 29, 2005, the U N F C C C Secretariat posted vacancy announcements for seven positions i n its Clean Development Mechanism ( C D M ) Section, including four Program Officers in the Methodologies Unit and three Program Officers i n the Registration & Issuance Unit, w h i c h w i l l double the staff available to the C D M Executive Board ( U N F C C C Secretariat 2006b).  III. Update of CDM Projects in the Pipeline The total number o f projects registered with the C D M Executive Board as o f A p r i l 1, 2006 is 152, while more than 670 projects are seeking validation, registration or at other stages o f development ( C D M Executive Board 2006). Figure Appendix B . l provides an overview o f the distribution o f registered projects by host country.  Figure Appendix B.l: Registered Project Activities by Host Party (% of Total)  Republic of Moldova, 1.97% Panama, 1.97%— Republic of Korea. 1.97%  Brazil, 25.00%  Others, 15.79%-  Chile, 6.58%  Mexico, 9.87%  China, 4.61%  Ecuador, 1.97%  Honduras, 5.92%  Guatemala, 1.97%  (Source: CDM Executive Board 2006)  156  Appendix  D:  ABrief History  of Climate  Research  I. Early Research on Climate Change The World Meteorological Organization (WMO) has been conducting monitoring and research on the impact ofrisingconcentrations of carbon dioxide (C0 ) in the earth's atmosphere since 1950 2  (WMO 2004b). It was not until the early 1970s, however, that serious concerns began to arise among members of the scientific community regarding the apparent correlation between increasing concentrations of C0 and warming of the Earth's lower atmosphere (UNFCCC Secretariat 2003a). 2  The focus of these concerns began to shift towards the possibility of human interference in the climate system in 1979, when scientists at the first World Climate Conference in Geneva suggested human activities as a possible cause for the observed changes (UNEP 2002). By the 1980s, amidst an atmosphere of increasing public awareness and concern for environmental issues, the issue of human induced climate change began to appear on national and international policy agendas (Eyzaguirre and Kalas 2002; UNEP 2002; UNFCCC Secretariat 2003a). A. 1980s: Building Awareness of Climate Change A series of events in the late 1980s helped to heighten awareness of the possible impacts of climate change and push the issue firmly onto the international policy agenda. The inclusion of climate change as one of the key environmental issues identified in the 1987 Brundtland Report helped to 77  raise the profile of the issue among policy makers (UNEP 2002). In 1988, a string of severe weather conditions including cyclones in New Zealand, heavy and unexpected flooding in India, China, Brazil, Bangladesh and parts of Africa, extended droughts in the United States and hurricanes in the Caribbean captured the attention of policy makers across the globe (Eyzaguirre and Kalas 2002). Amidst this environment of growing concern regarding the adverse impacts of climate change, the UN General Assembly (1988) passed Resolution 43/53, Protection of global climate for present andfuture generations of mankind. Urging governments, NGOs and industry to  treat climate change as a priority, the resolution appealed for collaborative and coordinated actions to "delay, limit or mitigate the impact of adverse climate change" (UN 1988). The resolution also called for an assessment of the state of knowledge on climate change to help inform policy responses (UN 1988). To this end, the United Nations Environmental Program (UNEP) and the World Meteorological Organization (WMO) established the Intergovernmental Panel on Climate  See Our Common Future ( W C E D 1987)  157  Change (IPCC) in 1988 to undertake the task o f assessing existing knowledge and research on climate change ( I P C C 2004b).  II. A New Phase: The IPCC Assessments of Climate Change Research In keeping with its mandate, the Intergovernmental Panel on Climate Change ( I P C C ) aims to provide a comprehensive, objective and transparent assessment o f scientific, technical and socioeconomic information regarding climate change. The I P C C does not conduct new research, but rather coordinates an extensive peer review o f existing studies i n order to assess the risk and potential impacts of climate change, as w e l l as options for mitigation and adaptation ( I P C C 2004b). Since its inception, the I P C C has issued a series o f reports that provide a critical review o f existing climate research, identify research gaps, and summarize key fmdings78. The I P C C claims these reports provide "policy-relevant, but not policy-prescriptive" information ( I P C C 200Id). However, its reports have arguably played a key role i n setting the international policy agenda on climate change due to the authority granted to the I P C C ' s assessments by leading scientists, researchers and policy-makers.  A. IPCC Reports & the Climate Change Policy Agenda The I P C C released its First Assessment Report i n 1990, in which it concluded the balance o f evidence indicates human-induced climate change is occurring. Specifically, the First Assessment Report presents the conclusions that human activities are substantially increasing atmospheric concentrations o f greenhouse gases and contributing to additional warming through the enhanced greenhouse effect (Houghton, Jenkins, and Ephraums 1990). The findings o f the I P C C ' s First Assessment Report served as the basis for negotiating the United Nations Framework Convention on Climate Change ( U N F C C C ) , which the international community ultimately adoption i n 1992 at the so-called "Earth Summit" i n R i o de Janeiro ( I P C C 2004a). The I P C C has subsequently issued the Second (1995) and Third (2001d) Assessment Reports. Assessing evidence from new research, the reports confirm with increasing certainty that human activities are having a discernable influence on the global climate, and that the extent and severity of climate change w i l l likely be greater than previously determined unless significant actions are undertaken to reduce emissions and stabilize atmospheric concentrations o f greenhouse gases ( I P C C 1995, 200 Id). The evidence o f the increasing severity o f climate change presented by the I P C C and its conclusions regarding the  For a full listing of IPCC publications, see: http://www.ipcc.ch/pub/pub.htm 158  importance of addressing human induced climate change was one of the major factors leading negotiators to adopt legally-binding emission reduction targets under the Kyoto Protocol.  159  

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
http://iiif.library.ubc.ca/presentation/dsp.831.1-0092537/manifest

Comment

Related Items