If there is to be any hope of limiting greenhouse gas emissions, efficient mechanisms for financing the introduction of new low-carbon technologies must be in place. One such financing element has now been tested over the past decade – the so-called flexible mechanisms under the Kyoto Protocol; Clean Development Mechanism (CDM) and Joint Implementation (JI).
Like most practical solutions, these schemes are not without their shortcomings and problems, but they have proven to be implementable in practice – and not least, that they are practical instruments on the road to improved low carbon financing schemes in the future.
Experience shows that through the so-called flexible mechanisms of the Kyoto Protocol, private industry and public authorities can effectively collaborate to reduce GHG emissions. Private industries in industrialised countries and developing countries can collaborate on projects that contribute to sustainable developments in the developing country and also help to reduce the climate gas emissions of the country where the project is carried out. In turn, the investor country can use the emission reductions it achieves through such projects to satisfy some of its emission obligations at home.
So why do I think that a mechanism like CDM is a good financing vehicle for helping low emission technologies to be financed and become more economical viable in competition with business-as-usual type technologies? Why not just introduce a CO2 tax? My answer is quite simple:
- The projects being financed through, for example, CDM must prove that they meet recognised environmental criteria and lead to emission reduction
- The financial contribution from selling certified emission credits produced from the project activity is dependent on how well the operator performs when the project has been implemented
- Also, I know that the investments are used for emission reduction, and not for any other cause.
Further, in Norway I already pay a CO2 tax when I drive my car (almost 50€ per ton CO2 emitted) or when I use my propane barbecue. These taxes do not make me drive less or make me use my barbecue less frequently. And most importantly, I cannot see that I contribute towards the transition to a low carbon economy in paying these dues.
We currently have an international mechanism that can bring in private capital to cooperate with public authorities in combating increased greenhouse gas emissions. It is clear that the mechanism can be improved and made more transparent and efficient. However, it will take 5-10 years before any new schemes are efficient and functional, and no one knows what weaknesses such new mechanisms will have until they have been tested in the way that the flexible Kyoto mechanisms have now been tested during the past decade.
In our eagerness to find other financing solutions and not look at the positive results that the green mechanisms, like CDM, have led to, we are in danger of undermining one of the few measures that have been allowed to function over time and that developing countries have proven willing to start using to build new low-emission facilities.
What we now need is bold decisions from governments around in the world to support the work to remove uncertainties about the future of these mechanisms. We cannot let this opportunity to continue the investment in viable emission reductions fail due to uncertainties about financing – there is no time to waste.